Note: associated articles and chapters are incorporated
into the lectures of the corresponding week
Health Economics
Minor Health Care Management – Vrije Universiteit Amsterdam 2021/2022
Inhoudsopgave
Week 1 ........................................................................................................................................................... 4
Introduction to the Welfare State and the Health Care Market ......................................................................... 4
Difference between causality and correlation ............................................................................................... 4
Various ways of estimating causal effects ..................................................................................................... 4
Lecture 1.1 .......................................................................................................................................................... 5
A primer in economics ................................................................................................................................... 5
Economics of the welfare state ..................................................................................................................... 6
Concluding remarks ....................................................................................................................................... 8
Lecture 1.2 .......................................................................................................................................................... 9
Chapter 1: why health economics?................................................................................................................ 9
Chapter 2: demand for health care................................................................................................................ 9
Chapter 7: why health economics?.............................................................................................................. 11
Chapter 8: adverse selection: Akerlof's market for lemons ......................................................................... 13
Recap lecture .................................................................................................................................................... 16
Exercises arc elasticy .................................................................................................................................... 17
Tutorial ............................................................................................................................................................. 17
Weekly assignment ........................................................................................................................................... 18
Week 2 ......................................................................................................................................................... 22
Lecture 2.1 ........................................................................................................................................................ 22
Global burden of disease ............................................................................................................................. 22
Public vs. private health spending ............................................................................................................... 23
Rationales for government intervention in health ...................................................................................... 24
Who benefits from (public) health spending? ............................................................................................. 25
The health policy trilemma .......................................................................................................................... 27
Lecture 2.2 ........................................................................................................................................................ 28
Coping with insured shocks ......................................................................................................................... 28
How should health insurance markets work? ............................................................................................. 30
Several options: ........................................................................................................................................... 30
Universal Health Coverage and the impact of health insurance ................................................................. 31
How should moral hazard be controlled? .................................................................................................... 32
How should health care provision be regulated? ........................................................................................ 34
Assessing national health policies................................................................................................................ 35
Recap lecture .................................................................................................................................................... 36
Tutorial ............................................................................................................................................................. 39
Recap papers ............................................................................................................................................... 39
Weekly assignment ........................................................................................................................................... 42
Week 3 ......................................................................................................................................................... 46
Lecture 3.1 ........................................................................................................................................................ 46
Chapter 11: moral hazard ............................................................................................................................ 46
Chapter 3: demand for health: Grossman model ........................................................................................ 51
Chapter 4: socioeconomic disparities in health ........................................................................................... 56
1
, Lecture 3.2 ........................................................................................................................................................ 60
Health disparities between countries .......................................................................................................... 60
Health disparities between socio-economic groups .................................................................................... 60
Health capital theory ................................................................................................................................... 61
Introduction: health disparities ................................................................................................................... 62
Economic theory of health disparities ......................................................................................................... 62
Concluding remarks ..................................................................................................................................... 65
Recap lecture .................................................................................................................................................... 65
Exercises moral hazard ................................................................................................................................ 67
Exercises Grossman Model .......................................................................................................................... 68
Tutorial ............................................................................................................................................................. 69
Weekly assignment ........................................................................................................................................... 70
Week 4 ......................................................................................................................................................... 73
Lecture 4.1 ........................................................................................................................................................ 73
Setting the stage: the disease burden due to preventable illness ............................................................... 73
Modeling health investments and behavior ................................................................................................ 74
Barriers to preventive health care and behavior ......................................................................................... 74
Chapter 20 Economics of Health Externalities ............................................................................................. 75
Chapter 24: Time inconsistency and health ................................................................................................. 78
Lecture 4.2 ........................................................................................................................................................ 81
Facts and figures .......................................................................................................................................... 81
HIV/AIDS and poverty .................................................................................................................................. 83
Treatment vs. prevention ............................................................................................................................ 84
Economic evaluation.................................................................................................................................... 86
Economic epidemiology ............................................................................................................................... 87
Chapter 21: Disease control & applications of economic epidemiology ..................................................... 90
Recap lecture .................................................................................................................................................... 91
Tutorial ............................................................................................................................................................. 94
Recap papers ............................................................................................................................................... 94
Weekly assignment ........................................................................................................................................... 97
Week 5 ....................................................................................................................................................... 100
Lecture 5.1 ...................................................................................................................................................... 100
Global drivers of non-communicable diseases (NCDs) .............................................................................. 100
Aging .......................................................................................................................................................... 101
Chapter 19: Population aging and the future of health policy .................................................................. 101
Socio-economic and behavioral risk factors .............................................................................................. 103
Assessing government interventions ......................................................................................................... 106
Lecture 5.2 ...................................................................................................................................................... 108
What are the main determinants of mental health? ................................................................................. 108
How are poverty and mental health related?............................................................................................ 109
Breaking the cycle between poverty and mental health ........................................................................... 110
Poverty and cognitive functioning ............................................................................................................. 112
Recap lecture .................................................................................................................................................. 113
Tutorial ........................................................................................................................................................... 113
Mock exam ..................................................................................................................................................... 113
Weekly assignment ......................................................................................................................................... 114
Week 6 ....................................................................................................................................................... 114
2
, Lecture 6.1 ...................................................................................................................................................... 114
Causality..................................................................................................................................................... 115
Evidence in relating to disparities .............................................................................................................. 115
Lecture 6.2 ...................................................................................................................................................... 119
Smoking, obesity, drinking ......................................................................................................................... 119
Obesity ....................................................................................................................................................... 120
Recap lecture .................................................................................................................................................. 123
Tutorial ........................................................................................................................................................... 124
Recap papers ............................................................................................................................................. 125
Weekly assignment ......................................................................................................................................... 125
Extra ........................................................................................................................................................... 128
Recap tutorial (week 7 tutorial) ...................................................................................................................... 128
3
, Week 1
Welfare state, Economics and Market Imperfections in Healthcare
Chapter 1, 2, 7, 8
Introduction to the Welfare State and the Health Care Market
Causality: i.e., relationship between health and SES, impact of policy changes on numerous outcome measures,
the impact of education on wages etc.
Difference between causality and correlation
• Correlation = do observations with higher X also have higher Y? > does not imply
causation!
• Reverse causality = Y could causality affect X;
• Confounding factors = other factors causally affecting both X and Y (= variable
bias);
• I.e., what is the causal effect of health on income?
o Reverse causality = income affects health;
o Confounding factors = education affects both health and income.
Various ways of estimating causal effects
• RCT: to ensure that any observed difference is due to treatment.
o Random assign different health levels to individuals:
§ Any confounders should have similar impact on treated and non-treated individuals;
§ Can check differences in observable characteristics;
§ Reverse causality also ruled out due to randomization;
§ But feasibility? In some cases, yes, in this example no!
• Difference-in-difference: use a control group as counterfactual;
o Assume a new type of medication comes available for a disease: improvement in health level
for patients;
o Medication only available for young individuals: use old individuals as control group:
§ Test using pre-trends;
§ Control for (constant) pre-treatment differences due to differences in for example the
level of health;
§ Control for time effects that affect both groups: Recessions etc.
• Regression discontinuity: use strict thresholds in which the variable of interst 'jumps' to estimate Local
Average Treatment Effect (LATE):
o Sharp: probability of treatment increases from 0 to 1;
o Fuzzy: probability of treatment increases;
o Effect of Covid-19 vaccination on income:
§ Vaccinated and non-vacciated people are different: confounding factors;
§ Income might determine whether you get vaccinated: reverse causality;
§ Assume age threshold for Covid-19 vaccin of 30 years old: individuals aged 29 years
and 364 days not (yet) vaccinated, individuals aged 30 years (possibly) vaccinated;
§ Young individuals will become vaccinated later, so cannot use difference-in-
difference;
§ But individuals below the threshold are very similar to individuals above the age
threshold, so we can compare around the threshold.
• Instrumental variables: use an instrument that shock your variables of
interest, without affecting the confounders or outcome variable directly.
o Estimate the effect of the instrument on the variable of interest;
o Estimate the effect of the change in variable of interest due to the
IV, on the outcome Y.
• Always test your confounders.
4
into the lectures of the corresponding week
Health Economics
Minor Health Care Management – Vrije Universiteit Amsterdam 2021/2022
Inhoudsopgave
Week 1 ........................................................................................................................................................... 4
Introduction to the Welfare State and the Health Care Market ......................................................................... 4
Difference between causality and correlation ............................................................................................... 4
Various ways of estimating causal effects ..................................................................................................... 4
Lecture 1.1 .......................................................................................................................................................... 5
A primer in economics ................................................................................................................................... 5
Economics of the welfare state ..................................................................................................................... 6
Concluding remarks ....................................................................................................................................... 8
Lecture 1.2 .......................................................................................................................................................... 9
Chapter 1: why health economics?................................................................................................................ 9
Chapter 2: demand for health care................................................................................................................ 9
Chapter 7: why health economics?.............................................................................................................. 11
Chapter 8: adverse selection: Akerlof's market for lemons ......................................................................... 13
Recap lecture .................................................................................................................................................... 16
Exercises arc elasticy .................................................................................................................................... 17
Tutorial ............................................................................................................................................................. 17
Weekly assignment ........................................................................................................................................... 18
Week 2 ......................................................................................................................................................... 22
Lecture 2.1 ........................................................................................................................................................ 22
Global burden of disease ............................................................................................................................. 22
Public vs. private health spending ............................................................................................................... 23
Rationales for government intervention in health ...................................................................................... 24
Who benefits from (public) health spending? ............................................................................................. 25
The health policy trilemma .......................................................................................................................... 27
Lecture 2.2 ........................................................................................................................................................ 28
Coping with insured shocks ......................................................................................................................... 28
How should health insurance markets work? ............................................................................................. 30
Several options: ........................................................................................................................................... 30
Universal Health Coverage and the impact of health insurance ................................................................. 31
How should moral hazard be controlled? .................................................................................................... 32
How should health care provision be regulated? ........................................................................................ 34
Assessing national health policies................................................................................................................ 35
Recap lecture .................................................................................................................................................... 36
Tutorial ............................................................................................................................................................. 39
Recap papers ............................................................................................................................................... 39
Weekly assignment ........................................................................................................................................... 42
Week 3 ......................................................................................................................................................... 46
Lecture 3.1 ........................................................................................................................................................ 46
Chapter 11: moral hazard ............................................................................................................................ 46
Chapter 3: demand for health: Grossman model ........................................................................................ 51
Chapter 4: socioeconomic disparities in health ........................................................................................... 56
1
, Lecture 3.2 ........................................................................................................................................................ 60
Health disparities between countries .......................................................................................................... 60
Health disparities between socio-economic groups .................................................................................... 60
Health capital theory ................................................................................................................................... 61
Introduction: health disparities ................................................................................................................... 62
Economic theory of health disparities ......................................................................................................... 62
Concluding remarks ..................................................................................................................................... 65
Recap lecture .................................................................................................................................................... 65
Exercises moral hazard ................................................................................................................................ 67
Exercises Grossman Model .......................................................................................................................... 68
Tutorial ............................................................................................................................................................. 69
Weekly assignment ........................................................................................................................................... 70
Week 4 ......................................................................................................................................................... 73
Lecture 4.1 ........................................................................................................................................................ 73
Setting the stage: the disease burden due to preventable illness ............................................................... 73
Modeling health investments and behavior ................................................................................................ 74
Barriers to preventive health care and behavior ......................................................................................... 74
Chapter 20 Economics of Health Externalities ............................................................................................. 75
Chapter 24: Time inconsistency and health ................................................................................................. 78
Lecture 4.2 ........................................................................................................................................................ 81
Facts and figures .......................................................................................................................................... 81
HIV/AIDS and poverty .................................................................................................................................. 83
Treatment vs. prevention ............................................................................................................................ 84
Economic evaluation.................................................................................................................................... 86
Economic epidemiology ............................................................................................................................... 87
Chapter 21: Disease control & applications of economic epidemiology ..................................................... 90
Recap lecture .................................................................................................................................................... 91
Tutorial ............................................................................................................................................................. 94
Recap papers ............................................................................................................................................... 94
Weekly assignment ........................................................................................................................................... 97
Week 5 ....................................................................................................................................................... 100
Lecture 5.1 ...................................................................................................................................................... 100
Global drivers of non-communicable diseases (NCDs) .............................................................................. 100
Aging .......................................................................................................................................................... 101
Chapter 19: Population aging and the future of health policy .................................................................. 101
Socio-economic and behavioral risk factors .............................................................................................. 103
Assessing government interventions ......................................................................................................... 106
Lecture 5.2 ...................................................................................................................................................... 108
What are the main determinants of mental health? ................................................................................. 108
How are poverty and mental health related?............................................................................................ 109
Breaking the cycle between poverty and mental health ........................................................................... 110
Poverty and cognitive functioning ............................................................................................................. 112
Recap lecture .................................................................................................................................................. 113
Tutorial ........................................................................................................................................................... 113
Mock exam ..................................................................................................................................................... 113
Weekly assignment ......................................................................................................................................... 114
Week 6 ....................................................................................................................................................... 114
2
, Lecture 6.1 ...................................................................................................................................................... 114
Causality..................................................................................................................................................... 115
Evidence in relating to disparities .............................................................................................................. 115
Lecture 6.2 ...................................................................................................................................................... 119
Smoking, obesity, drinking ......................................................................................................................... 119
Obesity ....................................................................................................................................................... 120
Recap lecture .................................................................................................................................................. 123
Tutorial ........................................................................................................................................................... 124
Recap papers ............................................................................................................................................. 125
Weekly assignment ......................................................................................................................................... 125
Extra ........................................................................................................................................................... 128
Recap tutorial (week 7 tutorial) ...................................................................................................................... 128
3
, Week 1
Welfare state, Economics and Market Imperfections in Healthcare
Chapter 1, 2, 7, 8
Introduction to the Welfare State and the Health Care Market
Causality: i.e., relationship between health and SES, impact of policy changes on numerous outcome measures,
the impact of education on wages etc.
Difference between causality and correlation
• Correlation = do observations with higher X also have higher Y? > does not imply
causation!
• Reverse causality = Y could causality affect X;
• Confounding factors = other factors causally affecting both X and Y (= variable
bias);
• I.e., what is the causal effect of health on income?
o Reverse causality = income affects health;
o Confounding factors = education affects both health and income.
Various ways of estimating causal effects
• RCT: to ensure that any observed difference is due to treatment.
o Random assign different health levels to individuals:
§ Any confounders should have similar impact on treated and non-treated individuals;
§ Can check differences in observable characteristics;
§ Reverse causality also ruled out due to randomization;
§ But feasibility? In some cases, yes, in this example no!
• Difference-in-difference: use a control group as counterfactual;
o Assume a new type of medication comes available for a disease: improvement in health level
for patients;
o Medication only available for young individuals: use old individuals as control group:
§ Test using pre-trends;
§ Control for (constant) pre-treatment differences due to differences in for example the
level of health;
§ Control for time effects that affect both groups: Recessions etc.
• Regression discontinuity: use strict thresholds in which the variable of interst 'jumps' to estimate Local
Average Treatment Effect (LATE):
o Sharp: probability of treatment increases from 0 to 1;
o Fuzzy: probability of treatment increases;
o Effect of Covid-19 vaccination on income:
§ Vaccinated and non-vacciated people are different: confounding factors;
§ Income might determine whether you get vaccinated: reverse causality;
§ Assume age threshold for Covid-19 vaccin of 30 years old: individuals aged 29 years
and 364 days not (yet) vaccinated, individuals aged 30 years (possibly) vaccinated;
§ Young individuals will become vaccinated later, so cannot use difference-in-
difference;
§ But individuals below the threshold are very similar to individuals above the age
threshold, so we can compare around the threshold.
• Instrumental variables: use an instrument that shock your variables of
interest, without affecting the confounders or outcome variable directly.
o Estimate the effect of the instrument on the variable of interest;
o Estimate the effect of the change in variable of interest due to the
IV, on the outcome Y.
• Always test your confounders.
4
