HSPM Exam 4 Questions with Correct Answers| Latest Update Guaranteed Success
What is Inflation? -Inflation is the rate of increase in prices for goods and services
-There are a number of different measures of inflation in use. The most frequently quoted is the
Consumer Price Index (CPI)
-The inflation rates are expressed as percentages.
-If CPI is 3%, this means that on average, the price of products and services we buy is 3% higher
than a year earlier.
-Or, in other words, we would need to spend 3% more to buy the same things we bought 12
months ago.
What are Health Care Costs? When we talk about "health care costs," we really mean total
health expenditures
E=PXQ
The price of medical care may be increasing due to Increased resource costs
Less competitive Markets
Expensive New Technology
The quantity demanded of medical care may be increasing due to An aging population
A richer population
More insurance coverage
Increasing quality of medical care
WHAT MIGHT EXPLAIN RISING TOTAL HEALTH EXPENDITURES? 1. Prices have increased
2. Quantity demanded has increased
3. Technological innovation& technological overuse
Technological Innovation Laparoscopic surgery
,Beta Blockers
Statins
Laser Eye Surgery
MRI
CT
Rising Health Care Costs If the increase in health care expenditures is driven primarily by
increases in price
-Health is getting more expensive to produce [increased resource costs, increased market
power, etc.]
-Consumers will either have to cut back on health care or spend more money to stay healthy
Rising Healthcare Costs If the increase in health care expenditures is driven primarily by
increases in quantity demanded
-Maybe people simply consuming more medical care [as incomes rise, population ages]
-Extra spending on health care worth it to consumers [technological improvements → higher
marginal health benefit]
-Spending on unnecessary care due to moral hazard
Health Care Costs Rising If the increase in health care expenditures is driven primarily by
increases in quantity demanded, then this trend does not necessarily imply that people are
worse off as a result
Measuring MEDICAL INFLATION with a PRICE INDEX Medical inflation refers to the price
change of medical goods and services over time
-A medical care consumer price index (CPI) tracks the changing prices of medical goods &
services
-The medical care CPI is an estimate of medical inflation
-Captures only prices changes (and not quantity changes)
, Measuring MEDICAL INFLATION with a PRICE INDEX -A price index is a measure of welfare
-All else equal, rising prices reduce consumer welfare, because consumers cannot achieve as
much utility with the same income as they could before
-An ideal price index would answer the question: "How much more does it cost this year to
achieve the same utility I achieved last year?"
Measuring MEDICAL INFLATION with a PRICE INDEX A price index is a measure of welfare
-All else equal, rising prices reduce consumer welfare, because consumers cannot achieve as
much utility with the same income as they could before
-A Laspeyres price index [like the CPI] answers the question: "How much more does it cost this
year to buy the same things I bought last year?"
Calculating the Medical Care CPI Create a bundle of goods and services
-The bundle should approximate consumers' typical consumption of goods and services
demanded
COMPARE the total of cost of the bundle this year to the total cost of the bundle last year
Interpreting Medical Care CPI The ICPI is not a perfect measure of how price changes affect
utility, but it is easy to calculate and often gives a good approximation of the welfare effects of
price changes
Interpreting Med. Care CPI Potential Problems with the ICPI
-Becomes a poor approximation of welfare if the goods included in the bundle change subtly
over time
-New medical technologies → original bundle no longer reflects actual purchases
-In the case of medical care, the mix of goods and services purchased by consumers is
dramatically different from what it was even ten or twenty years ago
Technology Overuse -Another hypothesis for explaining rising health care costs is
technology overuse
What is Inflation? -Inflation is the rate of increase in prices for goods and services
-There are a number of different measures of inflation in use. The most frequently quoted is the
Consumer Price Index (CPI)
-The inflation rates are expressed as percentages.
-If CPI is 3%, this means that on average, the price of products and services we buy is 3% higher
than a year earlier.
-Or, in other words, we would need to spend 3% more to buy the same things we bought 12
months ago.
What are Health Care Costs? When we talk about "health care costs," we really mean total
health expenditures
E=PXQ
The price of medical care may be increasing due to Increased resource costs
Less competitive Markets
Expensive New Technology
The quantity demanded of medical care may be increasing due to An aging population
A richer population
More insurance coverage
Increasing quality of medical care
WHAT MIGHT EXPLAIN RISING TOTAL HEALTH EXPENDITURES? 1. Prices have increased
2. Quantity demanded has increased
3. Technological innovation& technological overuse
Technological Innovation Laparoscopic surgery
,Beta Blockers
Statins
Laser Eye Surgery
MRI
CT
Rising Health Care Costs If the increase in health care expenditures is driven primarily by
increases in price
-Health is getting more expensive to produce [increased resource costs, increased market
power, etc.]
-Consumers will either have to cut back on health care or spend more money to stay healthy
Rising Healthcare Costs If the increase in health care expenditures is driven primarily by
increases in quantity demanded
-Maybe people simply consuming more medical care [as incomes rise, population ages]
-Extra spending on health care worth it to consumers [technological improvements → higher
marginal health benefit]
-Spending on unnecessary care due to moral hazard
Health Care Costs Rising If the increase in health care expenditures is driven primarily by
increases in quantity demanded, then this trend does not necessarily imply that people are
worse off as a result
Measuring MEDICAL INFLATION with a PRICE INDEX Medical inflation refers to the price
change of medical goods and services over time
-A medical care consumer price index (CPI) tracks the changing prices of medical goods &
services
-The medical care CPI is an estimate of medical inflation
-Captures only prices changes (and not quantity changes)
, Measuring MEDICAL INFLATION with a PRICE INDEX -A price index is a measure of welfare
-All else equal, rising prices reduce consumer welfare, because consumers cannot achieve as
much utility with the same income as they could before
-An ideal price index would answer the question: "How much more does it cost this year to
achieve the same utility I achieved last year?"
Measuring MEDICAL INFLATION with a PRICE INDEX A price index is a measure of welfare
-All else equal, rising prices reduce consumer welfare, because consumers cannot achieve as
much utility with the same income as they could before
-A Laspeyres price index [like the CPI] answers the question: "How much more does it cost this
year to buy the same things I bought last year?"
Calculating the Medical Care CPI Create a bundle of goods and services
-The bundle should approximate consumers' typical consumption of goods and services
demanded
COMPARE the total of cost of the bundle this year to the total cost of the bundle last year
Interpreting Medical Care CPI The ICPI is not a perfect measure of how price changes affect
utility, but it is easy to calculate and often gives a good approximation of the welfare effects of
price changes
Interpreting Med. Care CPI Potential Problems with the ICPI
-Becomes a poor approximation of welfare if the goods included in the bundle change subtly
over time
-New medical technologies → original bundle no longer reflects actual purchases
-In the case of medical care, the mix of goods and services purchased by consumers is
dramatically different from what it was even ten or twenty years ago
Technology Overuse -Another hypothesis for explaining rising health care costs is
technology overuse
