ECP4530 ECP5536 Sherron Test 1 Study Guide and Practice Problems Introduction to Health Economics Chapter 1 Define the terms health care and health insurance and explain the difference o Health care refers to the goods and services that maintain improve or restore an individual s physical social or mental well being Health care improves ones health status Health insurance refers to protection against financial loss from illness or bodily injury Health care is the health services provided by doctors and medical professionals Health insurance is compensation for potential medically related future losses in exchange for reimbursement Distinguish between positive and normative concepts o Positive concepts are factual and state what is Normative concepts are opinion statements such as policy recommendations They state what should be Analyze and discuss responses to incentives in health care and health insurance contexts o Prices are key incentives disincentives o Financial and non financial Explain patterns and sources of gains in life expectancy within and across countries o Increased productivity of personal health services o Increased longevity and improved health o Increased size of health sectors worldwide o Female life expectancy at birth in developed countries increased o Most countries experienced gains in life expectancy at birth 7 9 years between 1960 and 2005 in the U S 35 5 years between 1960 and 2005 in China o 1920 s o Per Capital GDP Increased public health sanitation Increased nutrition Positive correlation between income and life expectancy Share of GDP allocated to health care is positively associated with income the wealthier a country the more they allocate to health care the more they spend on health care Discuss features of the health care market that distinguish it from other markets o Market failures unlike any other market Health insurance 1 Distorts decisions moral hazard 2 Zero out of pocket costs can lead to overconsumption 3 Adverse selection when you know more about your health status than the insurance company risk averse individuals benefit from insurance Externalities 1 Can be positive vaccines or negative epidemic 2 When behavior of one person directly impacts the health of another person reckless driving second hand smoke 3 Financial externalities as a result of risk pooling hospitals raise prices to 4 Pure health externality merit wants people gain utility from seeing other compensate for ER care people have access to health care Asymmetric information Supplier induced demand 1 When the supplier knows more than the buyer 2 Causes an incentive to overprescribe over suggest Resources 1 Resources are scarce but wants are unlimited therefore trade offs are inevitable 2 Healthcare is a finite commodity Government Intervention o Redistribute resources In kind transfers government voucher to purchase a specific good or service i e food stamps leads to distortion in consumption Income transfers temporary assistance for needy families redistributing income Could be used for bad merits alcohol More efficient than in kind transfers because people know their personal utility better themselves o Government provision of health services Public clinics and hospitals o Government provision of health insurance Single payer one entity provides health insurance Universal coverage Equity vs efficiency o Technical efficiency unit of output produces with the minimum required amount of input positive issue o Allocative efficiency scarce resources are allocated in a way that maximizes social well being utility normative issue subjective o Optimal amount of equity is a normative concept o Issue equal distribution of resources Demand for Health Care Services Chapter 3 Health Care Services o Types not necessarily cost effective Preventative i e vaccine screening mammogram Diagnostic i e mammogram colonoscopy Therapeutic o Demand for health care services Derived demand you do not gain utility directly from health services health services improve your health status which in turn increases utility Impacted by insurance Compute and interpret elasticity of demand cross price elasticity and income elasticity o Positive normal good negative inferior good o Inelastic when price falls total expenditures also fall If price rises total expenditures o Elastic if price falls total expenditures rise If price rises total expenditures fall also rise positive correlation negative correlation o Elasticity 0 completely inelastic consumer will still buy no matter what absolute value of elasticity is greater than 1 o Elasticity less than 1 inelastic absolute value of elasticity is less than 1 i e cancer treatment ER care o Elasticity greater than 1 elastic i e dental vision o Cross price elasticity 2 different goods change in quantity demanded of good I divided by change in the price of good J Eij xi pj When given an equation Eij dxi pj dpj xi Elasticity may be positive or negative Substitutes positive correlation between price and quantity demanded a decrease increase in price of good J leads to a decrease increase in the quantity of demanded of good I Complements negative correlation between price and quantity demanded a decrease increase in the price of good J leads to an increase decrease in the quantity demanded of good I o Own price elasticity one single good change in quantity demanded of goof I divided by change in price of good I Ei xi pi o When given an equation Ei dxi pi dpi xi Elasticity must be negative Income elasticity y xd Calculate illustrate and explain how various types of insurance impact demand curves o Fixed dollar subsidy or indemnity insurance will pay a fixed dollar amount per service Not much protection form risk Not much demand distortion o Ad valorem subsidy copayments increases with the price of the service often a percentage of the fee o Coinsurance rate the fraction of the bill that the patient pays Will rotate the demand curve outward from the x intercept Demand curve becomes steeper less elastic A demand without insurance B demand with 50 coinsurance C demand with 0 coinsurance rate no cost for patient o Deductible minimum amount of expenditure that the insured person must bear before the insurer subsidizes care before insurance kicks in Over the range covered by the deductible insurance will not affect demand for care Once consumer reached deductible they behave as if the market price is zero Healthy person does not meet the deductible This person has