Economics of Healthcare Flashcards
(11 cards)
Randomized field experiments (or Randomized control trial)
Randomized Field Experiments is a research methodology that randomly assigns test subjects into control and test groups to measure the impact of interventions / treatments in a natural setting; the random allocation removes confounding variables that may influence individual choice or behavior. For example, the Oregon Health Insurance Lottery, as explained by Finkelstein et al in 2012, randomly chose applicants to be provided healthcare and measured the difference in outcomes between those who recieved and did not receive it, averaging health risks and creating results including decreased health expenditure, improved health and mental health, which can conclude correlation based on the random assignment of variables.
Moral hazard
A form of market failure and inefficiency
Ex ante moral hazard; after purchasing insurance, customers take more risks.
Ex post moral hazard; after purchasing insurance, customers use health insurance they wouldnt use otherwise. For example, people purchase goods or services until MB = MC; if the marginal cost is 0, people consume large amounts of healthcare they would not otherwise need leading to overuse.
Mitigated via cost sharing (deductibles / excess), copayments
Externalities
Healthcare has positive externalities, also known as spillover, for healthcare. Private benefit is > social benefit, as better health leads to higher productivity and marginal growth, leading to underinvestment in health. Additionally, vaccination has positive externalities, known as heard immunity, not considered in costs.
Public good
Healthcare services can function as public goods, non-rival and non-excludable, when others are benefited by healthcare and that benefit is nonexcludable. This leads to incentives for free riding, a market failure where people, benefiting from a service without contributing to it’s provision, such as in the case of vaccination and heard immunity; when a large proportion of a population are vaccinated, non-vaccinated people benefit from the heard immunity which slows the spread of infectious disease.
Asymmetric information
Also known as private information, it is a source of market failure when 1 party has information the other does not; this incentivizes physicians to over-treat, adverse selection where high -risk customers do not disclose medical issues and self select into insurance, ex ante and ex poste moral hazard, leading to inefficient outcomes. To combat this, individuals may get second opinions, insurance companies may introduce optional extra services such as cardio-cover that people self select into, and may institute cost-sharing methods.
Uncertainty
Health-shocks are uncommon, health insurance is therefore important. Public or Private.
Market failures (healthcare)
In healthcare, people want access to high quality, timely, and affordable treatment. In traditional markets, the price would reflect the marginal benefit of services and there would be an efficient supply of healthcare. The healthcare market is however vulnerable to market failure, especially in the tension between equity and efficiency.
This occurs due to positive externalities and underinvestment in health, public good features, asymmetric information, and behavioral biases (where people depart from rational utility maximization, including regret aversion, status quo bias, default bias (such as for organ donation) and present bias. Additionally, the comparison between regulation and accreditation, where regulation protects consumers but decreases quantity and increases price.
Healthcare Context
Background;
Australian Healthcare Market
Universal Health Insurance; medicare covers hospitalisations and Primary Care (GPs, specialists) → scheduled fees determine governments willingness to contribute
Pharmaceutical benefits scheme; subsidises prescription medication with a capped co-contribution
Funding; medicare levy (2% tax above 20k) and governmental government revenue
Private Health Insurance
Covers fees in private hospitals and ancillary services (dental, physio)
Cover duplicate to medicare, reduces waiting times and increases choice
Markets supported by premium rebates, penalty for those who don’t insure before 31 (lifetime health cover loading) and tax penalty for high income earners without cover medicare levy surcharge
Australia in the world
Similar to most OECD countries excluding US
Performs well on indicators
Similar expenditure to other countries, significantly less than some countries with equal outcomes
Johnson. (2001). Economic Issues in Health Policy. The Australian Economic Review, 34(3): 295-311.
Charecteristics of health services; derived, charecteristics of investment goods, public good aspects, consumer soverignty is depreicated, measure of output is difficult.
Cost per quality adjusted life year (QALY)
Can be used to reference most concepts
Finkelstein, Taubman, Wright, Bernstein, Gruber, Newhouse, Allen, and Baicker. (2012). The Oregon Health Insurance Experiment: Evidence from the First Year. Quarterly Journal of Economics, 127(3): 1057-1106.
A randomized controlled study that examined the effects of Medicaid coverage on health outcomes for low-income, uninsured adults in Oregon. Found increased health care utilization, reduced financial strain, improved self reported health outcomes.
Policy Issues + Solutions healthcare
- Underutilization occurs due to positive externalities, public good features that incentivize free riding, inflated prices due to quality regulation, and behavioral biases that distort physician and patient decision making.
This can be solved though
> Subsidies; paid to patient or provider, shifts demand up or supply curve down to increase quantity without changing public price.
*hard to get incentives right, as health is a derived good
*targeted benefits create economic disincentive
*hard to finance
> Price controls; not favored - impose a price ceiling on treatment to reduce costs, but there is no incentive for providers to provide at these low costs.
> Penalties; changes the marginal value of health services by imposing costs on those who don’t receive care, less expensive but more controversial, often regressive (not income based).
> Deregulation; regulation insures well trained, safe, and effective care, but reduces supply and increases costs with compliance costs and higher fees. Deregulation decreases costs, increases quantity, but decreases quality.
- Health insurance and market failure; health shocks with massive expenses, suffers from asymmetrical information and adverse selection.
> support private markets though regulation and incentives, universal health insurance. Inequitable outcomes as seen in US.
- Universal health insurance
All residents have publicly provided cover, such as Medicare and Pharmaceutical Benefits Scheme in Aus. Solves adverse selection (combined risk pool), still has moral hazard and expensive to finance.
> Private firms may be more efficient. - Does it really increase useage? Inelastic demand.
