Health economics - all Flashcards
What is health stock?
Is genetic and has to be maintained by the lifestyle and can be restored by access to health services.
What is health economics?
Is a key to interpret it and the various phenomena related with the maintanance
Health economics relies on three concepts, which one?
Resources
Uncertainty
Role of Governments
Resources
They are limited. We need to understand how many resources are required to maintain individual and collective health, and how to allocate them.
What are the drivers of healthcare expenditures?
Demand side: changes in the concept of health, from being related to the absence of a disease to involving the whole individual well-being.
Supply-side: Supplier induced demand, asymmetric information between patients and providers
Uncertainty
Unable to predict the shocks that might happen to one health in the future.
The unpredictability is the reason why people are risk adverse and want to be covered by a good health insurance.
Government intervention
is required to have the Pareto equilibrium. There is a strong externality and the existence of Moral Hazard and Adverse Selection phenomena
Role of Governments
is different in each state because there are different ways to fund and regulate the health care system
Health is a merit good.
A merit good improves the wellbeing and productivity of the community and it should be safeguarded and supported by the Government even in countries where the healthcare system is private by prevention, regulation and public services for the most vulnerables.
Role of Governments in merit goods
The Government replaces the individuals’ decision making process because there isn’t the assumption of rational consumer and no consumer sovereignty
How we can buy/sell health?
It is impossible to do it directly but we pass through an agent, the physician.
Relationship of imperfect agency
Is a cause of asymmetric information as the physician knows more and an induce the demand for treatment. (Supplier Induced Demand)
Efficiency v. Equity
The healthcare sector is full of market failures and can’t reach the Pareto equilibrium alone.
In all industrialised countries health protection is regulated by the state.
If the State prioritises efficiency, liberal style, or equity, egalitarian.
There is a trade-off between efficiency and equity.
Which type of public regulation is required for “health” as a merit good?
- Regulating access to healthcare services, for example, using copayment;
-Supervising the functioning of the insurance market
-Integrating private insurance with other public interventions for the most vulnerable, ex. Obamacare
-Direct production of healthcare services by the public sector, ex. National Healthcare Services
Since health depends on individuals’ conditions rather than on the efficiency of the sector what impact on it?
Work, consumption, lifestyle choices. In fact the government intervenes regulating these conditions by safeguarding work places, promoting a healthy lifestyle or by controlling food contamination or air pollution
The health status depends on which factors?
Environmental and Behavioural that are influenced by socioeconomic status, the richer have a better diet, live in adequate houses and go on holidays more often, meanwhile the more educated know that some factors impact health.
Another factor is the Healthcare services provided by the State.
What would be the demand for healthcare?
If everyone obeys their doctors the demand should be inelastic (horizontal line), which is generally for lifesaving treatments, otherwise, it is downward sloping.
Unlike most types of goods, deriving
a demand curve for health care is quite
simple
FALSE
Just as with any good, deriving a demand curve for health care is difficult because it requires information about how the same population would react to different prices.
This requires either parallel universes or, more realistically, a randomised experiment.
The RAND study was useful for measuring process elasticity because it randomly assigned insurance plans to participants as opposed to letting them choose
TRUE
Randomization ensured that the groups facing different prices were statistically equivalent. That meant that any difference in demand between groups was attributable to price, not some other characteristic.
The Oregon Medicaid Experiment is not
truly “randomised” because the lottery
winners did not all end up with insurance,
and some lottery losers did end up with
insurance.
FALSE
Although is a controlled experiment OREGON used randomisation to assign participants to different groups and the lottery winners were more likely to have a health insurance
The RAND HIE found that people assigned to the free health plan had the same rate of hospitalisation as people assigned to the cost-sharing plans.
FALSE
The people assigned to the free plan visited the hospital more frequently and were more likely to visit the ER.
In the RAND HIE, the arc elasticity of
demand for inpatient care was larger
(in absolute value) then the arc elasticity
of demand for outpatient care
FALSE
That result would imply that people are more price sensitive when it comes to more urgent health care. Instead, the arc elasticity of demand for impatient care was smaller in absolute value.
Unlike the usual measure of elasticity, an arc elasticity can be calculated from just one price-quantity data point
FALSE
Any measure of elasticity requires data from at least two price levels in order to measure responsiveness to price.
Both the RAND and Oregon studies find
that demand for health care is approximately unit elastic, that is e ≈ −1.
FALSE
The RAND HIE finds that demand for health care is very
inelastic, with arc elasticities around 0.2.
In the RAND HIE, being assigned more
generous insurance did not generally
improve participants’ health outcomes,
except among certain subgroups.
TRUE
The RAND HIE finds that generous insurance only provides small health improvements to healthy people. High-risk participants (like those who were smokers or had high blood pressure) did receive substantial health benefits from more generous insurance
To date, no major health insurance
experiment has studied the impact of
uninsurance, just different levels of
insurance
FALSE
The Oregon Medicaid Experiment studied the impact of
uninsurance
Results from the Oregon Medicaid
Experiment suggest that having health
insurance has a positive impact on health
status.
TRUE
Lottery winners in the Oregon Medicaid Experiment were not
more likely to survive than lottery losers, but they had better
self-reported physical health and mental health
What is the RAND HIE experiment?
The first randomised experiment study on a large scale.
It randomly assigned 2000 families from 6 US cities to different insurance coverage plans with varying groups of copayment tracking the quantity of healthcare demanded at each price.
Healthcare changed since 1980 and the results might not be actual.
Oregon Medicaid Experiment
Compared to two groups of low-income adults. Medicaid lottery winners with a chance to apply for public health insurance through Medicaid and have lower Out of pocket access prices, vs lottery losers that might have bought private insurance.
The issue of the experiment is the selection bias because were studied only poor people and winners have to apply to get coverage.
How are the results of the studies?
price changes affect the demand for healthcare, which is downward sloping, the elasticity decreases when the conditions are more severe and we require hospital visits.
Three types of results:
Outpatient care, medical care that doesn’t involve an overnight hospital stay, inpatient care: requires an overnight stay and ER care
RAND HIE:
- Outpatient: as the copayment increases the number of episodes decreases for both acute and chronic conditions
- Inpatient: the demand decreases as the price increases but less than for outpatient care.
- ER: who has the highest copayment plan is less likely to buy ER care, however, there are some people that use it for conditions that don’t require imminent access because they don’t have a GP, ex: immigrants.
OREGON:
-Outpatient people with at least 1 visit and the absolute number of visits within 6 months are higher for lottery winners
For both inpatient and er there isn’t a significant difference.
Elasticity
- Punctual elasticity: the ratio between the % change in quantity demanded and the % change in price depending on the direction of calculation of the initial point.
To be more precise we use arc elasticity:
ϵ = Δ𝑄/(𝑄1+𝑄2)/Δ𝑃/(𝑃1+𝑃2)
Healthcare has an inelastic demand when compared to other goods but it is still decreasing.
If the access is linked to personal income the demand for rich people is more inelastic.
Does it mean that high prices cause damage for health?
We have to observe the mortality rate:
-RAND HIE there is no difference between different groups but the high-risk participants have higher mortality rate.
-OREGON there is no evidence because it studied only low income people.
Health utility function
Two elements:
-consumption effects, the health increases direct utility, you feel better when you are healthier
-investment effects, the health increases the number of days available to participate in market and non-market activities.
Grossman assumption
Individuals maximise utility function depending on health (H) and a composite good (X) that provides direct satisfaction but doesn’t affect health: U=U(X,H)
Investment function
Assumption: each individual has a stock of health that evolves according to
Δ𝐻 = 𝐻 rate at which health 𝑡+1 − 𝐻𝑡 = 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑖𝑛 ℎ𝑒𝑎𝑙𝑡ℎ − δ𝐻.
δ(0,1), the natural rate of health deterioration over time, it is an increasing function of age because ageing influences the accumulation of the individual health stock.
Individuals invest their health in period t increasing the probability of good health in the next period (t+1) and the number of healthy days, the time available for market and non-market activities.
The investment in health is based on the production function: Investment=f(medical and healthcare inputs, time spent on improving health, individual behaviours, education, income)=f(M, TH, Λ,E,I)
Time
T=365=Time improving health+ Time-consuming other goods+Time lost on illness (negative utility) + Time working, it provides indirect utility giving the income for enjoying leisure time and other goods= TH+TB+TL+TW
TL and TH are exogenous.
The trade-off between TB and TW, going from S to 0 we add days of work.
Constraint is the possible allocation and the slope is given by the wage rate.
The indifference curve is the individual preference for allocating time between work and leisure.
Individual behaviours
it can be healthy increasing the investment function and the stock of health capital or unhealthy which decreases it.
Education
is exogenous. Schooling helps choose healthier lifestyles and increases information about healthcare
Optimal choice of investment
To obtain the optimal level of health, the marginal cost of investing H= to marginal benefits.
Health will be demanded till the rate of return on health investment= marginal cost of health capital.
MC of health capital= opportunity cost+ rate of which health depreciates= rate of interest on other investments + rate of depreciation of health= r+δ
MB/ MEI= rate of return on health investment= wage raterate of return of healthy days= WG
Diminishing the MR between health investment and health because the level of health capital increases and is difficult to generate health from inputs.
Optimal choice of investment
- Ageing, the depreciation increases with age, MC rise and D of Health Capital falls, the optimal level of health stock decreases with age.
- Wage doesn’t affect the cost of capital, depreciation doesn’t change. more income will increase the returns obtained from health days, shifting the MEI curve up because benefits of health are greater for higher income, optimal health stock increases with level of wages.
- Education same effect of wages. Higher education means for the same investment needed less inputs, MEI curve shifts up. Optimal health stock increases with education.
Application of the Grossman model
Absolute income has a positive effect on 3 variables of health. Involves greater access to health g/s and greater access to material goods.
What is the relative position
the way an individual sees himself relative to others. It has a high and statical significant impact.
What undermines can undermine mental and physical health?
Anxiety, insecurity, low self-esteem, social isolation and lack of control over work
What is health?
Is a matter of position in the social hierarchy, it becomes a concept of relative rather than absolute deprivation.
Deprivation at an early age impacts negatively health in 2/3 cases.
On what policies should focus?
Reducing social inequalities through income equalisation, can improve health indices and reduce health inequalities.
Income inequality causes chronic anxiety, insecurity, low self-esteem and social isolation provoking a lack of control over work with negative effects on mental health.
Blunt differences between social classes to reduce insecurities from whom might feel excluded from social life.
What could be the policy implications?
Fewer wages differentials
Better social housing conditions
Less unemployment
More incentives for education to low-income students.
In real live investments in health can creat long-lasting benefits but it isn’t shown in the Grossman Model
FALSE
One of the central features of the model is that health is partially an investment good. If someone invest in his health today it will be higher today and in the future.
In the Grossman model the marginal efficiency of investment (MEI) in healthcare declines as health gets better
TRUE
If someone is very unhealthy has major dividends from a small improvement in health, but if he is in health has little benefit.
Aging shifts the MEI in the health curve inward
FALSE
As ageing occurs the depreciation rate of health increases. The result is moving along the marginal efficiency of the investment curve upward: worse optimal health.
One hour of exercise always produces a return on health stock which is more than one hour
FALSE
This could be true when health deteriorates after a negative shock, when health reaches a certain level an hour spent exercising generates less than an hour of additional productive time, due to decreasing marginal returns of input.
People who drop out of high school can produce more health than college grads because they have more free time to invest in health production.
FALSE
More education shifts out the marginal efficiency of the investment curve. Better-educated people have more information on the correct behaviours to keep the stock of health and produce a higher stock of health.
