1. Introduction, Decision-making in healthcare and Insurance markets

Question 1

scarcity

Answer 1

occurs when the resources available to us are less than the resources required for everything we would like to do.

Question 2

choices

Answer 2

must be made about how to use available resources

Question 3

opportunity cost

Answer 3

benefit that a person could have received but gave up in order to take another course of action.

Question 4

efficiency

Answer 4

maximize the health outcome (population average) given the available resources.

Question 5

equity

Answer 5

reduce social disparities in health and health care.

Question 6

target points in health economics

Answer 6

equity / efficiency

Question 7

assumptions demand-side in markets (consumers)

Answer 7

consumers act rationally.

consumers have perfect information about the quality of services and products

scarcity = consumers have to choose between various goods ( = budget restriction)

rationality / information symmetry / scarcity

Question 8

lower price –>

Answer 8

higher demand

Question 9

formula of the slope of the demand line

Answer 9

change in price/change in quantity demanded: ∆𝑞 / ∆𝑝 < 0.

so the delta in quantity divided by the delta in price change.

Question 10

decision criterion of demand

Answer 10

preference (relative valuation) for one good

Question 11

relative valuation

Answer 11

preference

Question 12

assumptions supply side of the markets (firms)

Answer 12

firms act rationally

firms have perfect information

firms maximize profit

Question 13

formula for profit

Answer 13

Formula for profit = 𝜋 = pq – wx

𝜋 = profit, q = quantity of output, p = price of output, x = quantity of input and w = price of input

Question 14

how do firms maximize the production function

Answer 14

function of input and output

Question 15

input

Answer 15

labour time, materials etc.

Question 16

output

Answer 16

products and services

Question 17

decreasing marginal productivity

Answer 17

increasing one variable, while keeping others constant, may initially increase output, but eventually adding more of that one input leads to a diminishing rate of return.

Question 18

higher price –>

Answer 18

higher supply, but lower demand

Question 19

production function is reflected in …

Answer 19

the supply

Question 20

market equilibrum

Answer 20

In markets with perfect competition, the supply equals demand. The price is determined by the equilibrium (intersect of demand and supply)

Question 21

market failures

Answer 21

externalities, uncertainties and information asymmetry

Question 22

healthcare markets

Answer 22

third parties have an interest in healthcare outcomes

pations don’t know what they need / cannot evaluate the treatment they are getting

healthcare providers not paid by patients, but by government / health insurance

rules established by insurers determine allocation of resources, not the market prices

invisible hand does not work, so allocation of resources can be very inefficient

Question 23

externalities

Answer 23

an economic actor engages in behaviour that affects the utility of another actor (bystander) who neither receives payment from that actor nor compensates him or her

Question 24

two sorts of externalities

Answer 24

positive externalities

negative externalities

Question 25

uncertainty

Answer 25

healthcare spending is unpredictable since people (most of them at least) do not know when and whether they get sick and what kind of treatment they might need (and what the cost of such treatment are). therefore, people like to take insurance (especially if they are risk averse and dislike uncertainty)

Question 26

insurance

Answer 26

insurance covers part ( or all the risk ) for a premium

Question 27

problems that may arise in healthcare markets with insurance:

Answer 27

adverse selection moral hazard

Question 28

adverse selection

Answer 28

before agreeing on some transaction, one of the two parties has some relevant information that is not known to the other party

Question 29

moral hazard

Answer 29

after agreeing on some transaction, one party can take an action to its own benefit that is not observed by the other party. ## Footnote risicoverhogend gedrag van partijen indien zij niet direct risico lopen voor hun daden

Question 30

physician agency

Answer 30

incentives created by different reimbursement arrangements with reference to cost containment, quality of care and supplier induced demand

Question 31

rothschild-stiglitz model

Answer 31

equilibrium in competitive markets: an essay on the economics of imperfect information. Analyse insurance markets under adverse selection = show that there may be a separating equilibrium as well as a pooling equilibrium. ## Footnote seperating equilibrium / pooling equilibrium

Question 32

equilibrum

Answer 32

= when optimal is reached

Question 33

seperated equilibrum

Answer 33

high health risk (more expensive) and low health risk (less expensive)

Question 34

Supply side (providers) cost sharing

Answer 34

providers have discretion over quantity, inputs that affect costs, quality and prices of health care.

Question 35

purely prospective payment

Answer 35

capitation / salary provider receives a fixed amount of money for providing services. Provider carries complete cost risk - high level of cost containment

Question 36

purely retrospective payment

Answer 36

fee for service provider is paid an additional amount for each service. Insurer carries complete cost risk. - incentive for too many services - low level of cost containment

Question 37

supplier induced demand

Answer 37

can be defined as the amount of demand that exists beyond what would have occurred in a market in which patients are fully informed. Result of information asymmetry. ## Footnote supplier can use superior information to encourage an individual to demand a greater quantity of the good

Question 38

prospect theory

Answer 38

negative effect of a loss is larger than the positive effect of a gain.

Question 39

biases in decision making

Answer 39

representativeness bias availability bias anchoring bias

Question 40

representative bias

Answer 40

the more object X is similar to class Y, the more likely we think X belongs to Y.

Question 41

availability bias

Answer 41

the easier it is to consider instances of class Y, the more frequent we think it is.

Question 42

anchoring bias

Answer 42

initial estimate values affect the final estimates, even after considerable adjustment. ## Footnote people's tendency to rely too heavily on the first piece of information they receive on a topic

Question 43

how do you overcome biases

Answer 43

nudging

Question 44

nudging

Answer 44

soft/gentle policy interventions nudges make use of human biases to steer behaviour in the desired direction or eradicate biases

Question 45

Randomized Control Trials (RCTs)

Answer 45

Randomly allocate “patients” into groups similar patients in each group so that any difference in outcomes can only be explained by the different treatments , not by underlying differences