SEVENTH EDITION
Health
Economics
AND Policy
James W. Henderson
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
SE — Henderson — Health Economics and Policy, 7e ISBN-13: 978-1-337-10675-7 ©2018 Designer: Lumina 7/27/17 4:58 PM
Text & Cover printer: XXX Binding: Case Trim: 8 x 10 CMYK
, Health 7 TH EDITION
Economics
and Policy
James W. Henderson
Australia • Brazil • Mexico • Singapore • United Kingdom • United States
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
06757_fm_ptg01_i-xviii.indd 1 04/08/17 5:31 PM
, Health Economics and Policy, © 2018, © 2015 Cengage Learning Inc
Seventh Edition
Unless otherwise noted, all content is © Cengage
James W. Henderson
ALL RIGHTS RESERVED. No part of this work covered by the copyright
Senior Vice President: Erin Joyner herein may be reproduced or distributed in any form or by any means,
Product Director: Jason Fremder except as permitted by U.S. copyright law, without the prior written
permission of the copyright owner.
Product Manager: Christopher Rader
Senior Project Manager: Julie Dierig
For product information and technology assistance, contact us at
Content Developer: Kayci Wyatt, MPS Cengage Learning Customer & Sales Support, 1-800-354-9706
Executive Assistant: Denisse For permission to use material from this text or product,
Zavala-Rosales submit all requests online at www.cengage.com/permissions
Associate Marketing Manager: Further permissions questions can be emailed to
John Carey
Manufacturing Planner: Kevin Kluck
Library of Congress Control Number: 2017947973
Production Management and
Composition: Lumina Datamatics, Inc. ISBN-13: 978-1-337-10675-7
Sr. Art Director: Michelle Kunkler
Cover Image: lenetstan/Shutterstock.com Cengage Learning
20 Channel Center Street
Intellectual Property
Boston, MA 02210
Analyst: Jennifer Bowes
USA
Project Manager: Reba Frederics
Cengage Learning is a leading provider of customized
learning solutions with employees residing in nearly
40 different countries and sales in more than 125 countries around
the world. Find your local representative at
www.cengage.com.
Cengage Learning products are represented in Canada by
Nelson Education, Ltd.
To learn more about Cengage Learning Solutions, visit
www.cengage.com
Purchase any of our products at your local college store or at our
preferred online store www.cengagebrain.com
Printed in the United States of America
Print Number: 01 Print Year: 2017
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
06757_fm_ptg01_i-xviii.indd 2 04/08/17 5:31 PM
, Brief Contents
Preface xv
PART 1 The Relevance of Economics in Health and Medical Care
CHAPTER 1 U.S. Medical Care: An Uncertain Future 1
CHAPTER 2 Using Economics to Study Health Issues 25
CHAPTER 3 Analyzing Medical Care Markets 65
CHAPTER 4 Economic Evaluation in Health Care 115
PART 2 Demand-Side Consideration
CHAPTER 5 Demand for Health and Medical Care 151
CHAPTER 6 Population Health 180
PART 3 Supply-Side Consideration
CHAPTER 7 The Market for Health Insurance 208
CHAPTER 8 Managed Care 245
CHAPTER 9 The Physicians’ Services Market 265
CHAPTER 10 The Hospital Services Market 305
CHAPTER 11 The Market for Pharmaceuticals 340
PART 4 Public Policy in Medical Care Delivery
CHAPTER 12 Medicare 366
CHAPTER 13 Medicaid 390
CHAPTER 14 Medical Care Systems Worldwide 409
CHAPTER 15 Medical Care Reform in the United States 453
CHAPTER 16 Lessons for Public Policy 474
Glossary 480
Index 488
iii
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
06757_fm_ptg01_i-xviii.indd 3 04/08/17 5:31 PM
, Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
06757_fm_ptg01_i-xviii.indd 4 04/08/17 5:31 PM
, Contents
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv
PART 1 The Relevance of Economics in Health and Medical Care
CHAPTER 1
U.S. Medical Care: An Uncertain Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Historical Developments in the Delivery of Medical Care 2
Postwar Experience 2
Concern over High and Rising Spending 4
Changes in Medical Care Delivery 7
Health Economics Defined 12
Ten Key Economic Concepts 14
Summary and Conclusion 15
Questions and Problems 17
References 18
Appendix 1A The Medical Care Price Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Measuring Price Changes with Index Numbers 20
Medical Care Price Index 20
Problems with Using a Fixed-Weight Index as a Measure of Inflation 21
Measuring Inputs Instead of Outcomes 22
Measuring Quality Changes 22
Accounting for New Products 22
Other Problems 23
Alternative Methods to Measure Medical Care Inflation 23
Summary and Conclusions 24
References 24
CHAPTER 2
Using Economics to Study Health Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Relevance of Economics in Health Care 26
Critical Assumptions in Economics 27
The Scientific Method 28
Model Building 28
Problem Solving 30
Economic Optimization 30
Supply and Demand 33
The Law of Demand 33
Price Elasticity of Demand 35
The Law of Supply 38
v
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
06757_fm_ptg01_i-xviii.indd 5 04/08/17 5:31 PM
, vi Contents
Equilibrium 41
The Competitive Model 42
The Theory of Firm Behavior 42
The Economics of Price Controls 43
The Impact of an Excise Tax 45
Welfare Implications 48
Imperfect Competition 49
Summary and Conclusion 51
Questions and Problems 52
References 53
Appendix 2A Graphing Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Some Basics of Graphing 54
Functional Relationships 55
Time-Series Graphs 56
Cross-Section Graphs 57
Appendix 2B Statistical Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Descriptive Statistics 59
Measures of Central Tendency 59
Measures of Dispersion 60
Correlation 61
Regression 61
Least Squares Methodology 62
Measures of Significance 64
Summary and Conclusions 64
CHAPTER 3
Analyzing Medical Care Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Should Medical Care Markets Exist? 67
The Medical Care Marketplace 69
Health Care Spending 69
Access to Care 73
Medical Outcomes 73
Underlying Factors that Drive Spending 74
The Competitive Market Model 74
Market Failure 80
Market Power 81
Externalities 83
Public Goods 84
Market Failure in Medical Markets 86
Traditional Sources of Market Failure 88
Imperfections in Medical Markets 90
Imperfect Information 90
Government Intervention in Medical Markets 93
Regulation 94
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
06757_fm_ptg01_i-xviii.indd 6 04/08/17 5:31 PM
, Contents vii
Tax Policy 95
Government Failure 97
Summary and Conclusions 98
Questions and Problems 100
References 100
Appendix 3A The Economics of Consumer Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
Consumer Preferences: Indifference Curves 102
Consumer Constraints: The Budget Line 103
Consumer Choice: The Concept of Equilibrium 104
Implications of the Model 105
Conclusion 105
Appendix 3B Production and Cost in the For-Profit Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106
Production with Two Variable Inputs 106
Production Isoquants 106
Production in the Short Run 108
Optimal Input Use 109
Extensions of the Model 111
Estimating Production Functions 111
Production to Cost 112
Long-Run Costs 113
Conclusion 114
CHAPTER 4
Economic Evaluation in Health Care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115
Importance of Economic Evaluation 118
Meaning of Economic Efficiency 118
Types of Economic Evaluation 119
Cost-of-Illness Studies 119
Cost-Benefit Analysis 119
Cost-Effectiveness Analysis 124
Steps in Performing a Cost-Effectiveness Analysis 130
Approaches to Modeling in Economic Evaluation 132
Decision Trees 132
Markov Models 134
Markov Decision Models 135
Sensitivity Analysis 136
Economic Evaluation in Practice 138
Case Studies 140
Lung Cancer Screening 140
Cervical Cancer Screening 140
HPV Vaccination for Preadolescent Girls 141
Drug Treatment for Alzheimer’s Disease 141
Mammography Screening 142
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
06757_fm_ptg01_i-xviii.indd 7 04/08/17 5:31 PM
, viii Contents
Summary and Conclusions 143
Questions and Problems 145
References 147
Appendix 4A Checklist for Assessing Economic Evaluations. . . . . . . . . . . . . . . . . . . . . . . . . . . 149
PART 2 Demand-Side Consideration
CHAPTER 5
Demand for Health and Medical Care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
The Demand for Health 152
The Production of Health 153
Measures of Health Status 155
Determinants of Health Status 159
The Role of Public Health and Nutrition 161
The Demand for Medical Care 163
Medical Care as an Investment 163
Factors Influencing Demand 164
Measuring Demand 171
Summary and Conclusions 175
Questions and Problems 176
References 177
CHAPTER 6
Population Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
Health Outcomes 182
The Relationship between Social Class and Health 184
International Comparisons 191
Health Outcomes 192
Other Factors 196
Tobacco Use 197
Alcohol Use 200
Obesity and Its Consequences 201
Summary and Conclusions 204
Questions and Problems 205
References 205
PART 3 Supply-Side Consideration
CHAPTER 7
The Market for Health Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208
The Market for Health Insurance 209
Historical Setting 209
Types of Insurance 210
Health Insurance Providers 211
Private Insurance Demand 212
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
06757_fm_ptg01_i-xviii.indd 8 04/08/17 5:31 PM
, Contents ix
The Theory of Risk and Insurance 212
Health Insurance and Market Failure 215
Information Problems 217
The Optimal Insurance Plan 223
State-Level Insurance Regulation 228
The Economics of Mandates 228
The Practice of Self-Insurance 231
Medical Care for the Uninsured 232
Counting the Uninsured 233
The Duration of Uninsurance 233
Demographics of the Uninsured 234
Small Group Factors 234
The Relationship between Insurance and Health 236
The Safety Net for the Uninsured 238
Summary and Conclusions 241
Questions and Problems 242
References 242
CHAPTER 8
Managed Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
History of Managed Care 246
Types of Managed Care Plans 247
Types of Managed Care Organizations 248
The Theory of Managed Care Savings 250
Selective Contracting 250
Risk-Sharing Arrangements 250
Utilization Review 252
Managed Care Strategies 253
Market Alternatives 253
Consumer-Directed Health Plans 254
Innovative Delivery Concepts 256
Evidence of Managed Care Savings 257
Evidence of Quality Differences between Managed Care and Fee-for-Service Care 259
Managed Care and Its Public Image 259
The Future of Managed Care 261
Summary and Conclusions 262
Questions and Problems 263
References 263
CHAPTER 9
The Physicians’ Services Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265
The Theory of Labor Markets 266
Input Pricing 266
Demand for Inputs 267
Human Capital Investment 268
The Market for Physicians’ Services 271
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
06757_fm_ptg01_i-xviii.indd 9 04/08/17 5:31 PM
Health
Economics
AND Policy
James W. Henderson
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
SE — Henderson — Health Economics and Policy, 7e ISBN-13: 978-1-337-10675-7 ©2018 Designer: Lumina 7/27/17 4:58 PM
Text & Cover printer: XXX Binding: Case Trim: 8 x 10 CMYK
, Health 7 TH EDITION
Economics
and Policy
James W. Henderson
Australia • Brazil • Mexico • Singapore • United Kingdom • United States
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
06757_fm_ptg01_i-xviii.indd 1 04/08/17 5:31 PM
, Health Economics and Policy, © 2018, © 2015 Cengage Learning Inc
Seventh Edition
Unless otherwise noted, all content is © Cengage
James W. Henderson
ALL RIGHTS RESERVED. No part of this work covered by the copyright
Senior Vice President: Erin Joyner herein may be reproduced or distributed in any form or by any means,
Product Director: Jason Fremder except as permitted by U.S. copyright law, without the prior written
permission of the copyright owner.
Product Manager: Christopher Rader
Senior Project Manager: Julie Dierig
For product information and technology assistance, contact us at
Content Developer: Kayci Wyatt, MPS Cengage Learning Customer & Sales Support, 1-800-354-9706
Executive Assistant: Denisse For permission to use material from this text or product,
Zavala-Rosales submit all requests online at www.cengage.com/permissions
Associate Marketing Manager: Further permissions questions can be emailed to
John Carey
Manufacturing Planner: Kevin Kluck
Library of Congress Control Number: 2017947973
Production Management and
Composition: Lumina Datamatics, Inc. ISBN-13: 978-1-337-10675-7
Sr. Art Director: Michelle Kunkler
Cover Image: lenetstan/Shutterstock.com Cengage Learning
20 Channel Center Street
Intellectual Property
Boston, MA 02210
Analyst: Jennifer Bowes
USA
Project Manager: Reba Frederics
Cengage Learning is a leading provider of customized
learning solutions with employees residing in nearly
40 different countries and sales in more than 125 countries around
the world. Find your local representative at
www.cengage.com.
Cengage Learning products are represented in Canada by
Nelson Education, Ltd.
To learn more about Cengage Learning Solutions, visit
www.cengage.com
Purchase any of our products at your local college store or at our
preferred online store www.cengagebrain.com
Printed in the United States of America
Print Number: 01 Print Year: 2017
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
06757_fm_ptg01_i-xviii.indd 2 04/08/17 5:31 PM
, Brief Contents
Preface xv
PART 1 The Relevance of Economics in Health and Medical Care
CHAPTER 1 U.S. Medical Care: An Uncertain Future 1
CHAPTER 2 Using Economics to Study Health Issues 25
CHAPTER 3 Analyzing Medical Care Markets 65
CHAPTER 4 Economic Evaluation in Health Care 115
PART 2 Demand-Side Consideration
CHAPTER 5 Demand for Health and Medical Care 151
CHAPTER 6 Population Health 180
PART 3 Supply-Side Consideration
CHAPTER 7 The Market for Health Insurance 208
CHAPTER 8 Managed Care 245
CHAPTER 9 The Physicians’ Services Market 265
CHAPTER 10 The Hospital Services Market 305
CHAPTER 11 The Market for Pharmaceuticals 340
PART 4 Public Policy in Medical Care Delivery
CHAPTER 12 Medicare 366
CHAPTER 13 Medicaid 390
CHAPTER 14 Medical Care Systems Worldwide 409
CHAPTER 15 Medical Care Reform in the United States 453
CHAPTER 16 Lessons for Public Policy 474
Glossary 480
Index 488
iii
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
06757_fm_ptg01_i-xviii.indd 3 04/08/17 5:31 PM
, Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
06757_fm_ptg01_i-xviii.indd 4 04/08/17 5:31 PM
, Contents
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv
PART 1 The Relevance of Economics in Health and Medical Care
CHAPTER 1
U.S. Medical Care: An Uncertain Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Historical Developments in the Delivery of Medical Care 2
Postwar Experience 2
Concern over High and Rising Spending 4
Changes in Medical Care Delivery 7
Health Economics Defined 12
Ten Key Economic Concepts 14
Summary and Conclusion 15
Questions and Problems 17
References 18
Appendix 1A The Medical Care Price Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Measuring Price Changes with Index Numbers 20
Medical Care Price Index 20
Problems with Using a Fixed-Weight Index as a Measure of Inflation 21
Measuring Inputs Instead of Outcomes 22
Measuring Quality Changes 22
Accounting for New Products 22
Other Problems 23
Alternative Methods to Measure Medical Care Inflation 23
Summary and Conclusions 24
References 24
CHAPTER 2
Using Economics to Study Health Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Relevance of Economics in Health Care 26
Critical Assumptions in Economics 27
The Scientific Method 28
Model Building 28
Problem Solving 30
Economic Optimization 30
Supply and Demand 33
The Law of Demand 33
Price Elasticity of Demand 35
The Law of Supply 38
v
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
06757_fm_ptg01_i-xviii.indd 5 04/08/17 5:31 PM
, vi Contents
Equilibrium 41
The Competitive Model 42
The Theory of Firm Behavior 42
The Economics of Price Controls 43
The Impact of an Excise Tax 45
Welfare Implications 48
Imperfect Competition 49
Summary and Conclusion 51
Questions and Problems 52
References 53
Appendix 2A Graphing Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Some Basics of Graphing 54
Functional Relationships 55
Time-Series Graphs 56
Cross-Section Graphs 57
Appendix 2B Statistical Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Descriptive Statistics 59
Measures of Central Tendency 59
Measures of Dispersion 60
Correlation 61
Regression 61
Least Squares Methodology 62
Measures of Significance 64
Summary and Conclusions 64
CHAPTER 3
Analyzing Medical Care Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Should Medical Care Markets Exist? 67
The Medical Care Marketplace 69
Health Care Spending 69
Access to Care 73
Medical Outcomes 73
Underlying Factors that Drive Spending 74
The Competitive Market Model 74
Market Failure 80
Market Power 81
Externalities 83
Public Goods 84
Market Failure in Medical Markets 86
Traditional Sources of Market Failure 88
Imperfections in Medical Markets 90
Imperfect Information 90
Government Intervention in Medical Markets 93
Regulation 94
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
06757_fm_ptg01_i-xviii.indd 6 04/08/17 5:31 PM
, Contents vii
Tax Policy 95
Government Failure 97
Summary and Conclusions 98
Questions and Problems 100
References 100
Appendix 3A The Economics of Consumer Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
Consumer Preferences: Indifference Curves 102
Consumer Constraints: The Budget Line 103
Consumer Choice: The Concept of Equilibrium 104
Implications of the Model 105
Conclusion 105
Appendix 3B Production and Cost in the For-Profit Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106
Production with Two Variable Inputs 106
Production Isoquants 106
Production in the Short Run 108
Optimal Input Use 109
Extensions of the Model 111
Estimating Production Functions 111
Production to Cost 112
Long-Run Costs 113
Conclusion 114
CHAPTER 4
Economic Evaluation in Health Care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115
Importance of Economic Evaluation 118
Meaning of Economic Efficiency 118
Types of Economic Evaluation 119
Cost-of-Illness Studies 119
Cost-Benefit Analysis 119
Cost-Effectiveness Analysis 124
Steps in Performing a Cost-Effectiveness Analysis 130
Approaches to Modeling in Economic Evaluation 132
Decision Trees 132
Markov Models 134
Markov Decision Models 135
Sensitivity Analysis 136
Economic Evaluation in Practice 138
Case Studies 140
Lung Cancer Screening 140
Cervical Cancer Screening 140
HPV Vaccination for Preadolescent Girls 141
Drug Treatment for Alzheimer’s Disease 141
Mammography Screening 142
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
06757_fm_ptg01_i-xviii.indd 7 04/08/17 5:31 PM
, viii Contents
Summary and Conclusions 143
Questions and Problems 145
References 147
Appendix 4A Checklist for Assessing Economic Evaluations. . . . . . . . . . . . . . . . . . . . . . . . . . . 149
PART 2 Demand-Side Consideration
CHAPTER 5
Demand for Health and Medical Care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
The Demand for Health 152
The Production of Health 153
Measures of Health Status 155
Determinants of Health Status 159
The Role of Public Health and Nutrition 161
The Demand for Medical Care 163
Medical Care as an Investment 163
Factors Influencing Demand 164
Measuring Demand 171
Summary and Conclusions 175
Questions and Problems 176
References 177
CHAPTER 6
Population Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
Health Outcomes 182
The Relationship between Social Class and Health 184
International Comparisons 191
Health Outcomes 192
Other Factors 196
Tobacco Use 197
Alcohol Use 200
Obesity and Its Consequences 201
Summary and Conclusions 204
Questions and Problems 205
References 205
PART 3 Supply-Side Consideration
CHAPTER 7
The Market for Health Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208
The Market for Health Insurance 209
Historical Setting 209
Types of Insurance 210
Health Insurance Providers 211
Private Insurance Demand 212
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
06757_fm_ptg01_i-xviii.indd 8 04/08/17 5:31 PM
, Contents ix
The Theory of Risk and Insurance 212
Health Insurance and Market Failure 215
Information Problems 217
The Optimal Insurance Plan 223
State-Level Insurance Regulation 228
The Economics of Mandates 228
The Practice of Self-Insurance 231
Medical Care for the Uninsured 232
Counting the Uninsured 233
The Duration of Uninsurance 233
Demographics of the Uninsured 234
Small Group Factors 234
The Relationship between Insurance and Health 236
The Safety Net for the Uninsured 238
Summary and Conclusions 241
Questions and Problems 242
References 242
CHAPTER 8
Managed Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
History of Managed Care 246
Types of Managed Care Plans 247
Types of Managed Care Organizations 248
The Theory of Managed Care Savings 250
Selective Contracting 250
Risk-Sharing Arrangements 250
Utilization Review 252
Managed Care Strategies 253
Market Alternatives 253
Consumer-Directed Health Plans 254
Innovative Delivery Concepts 256
Evidence of Managed Care Savings 257
Evidence of Quality Differences between Managed Care and Fee-for-Service Care 259
Managed Care and Its Public Image 259
The Future of Managed Care 261
Summary and Conclusions 262
Questions and Problems 263
References 263
CHAPTER 9
The Physicians’ Services Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265
The Theory of Labor Markets 266
Input Pricing 266
Demand for Inputs 267
Human Capital Investment 268
The Market for Physicians’ Services 271
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
06757_fm_ptg01_i-xviii.indd 9 04/08/17 5:31 PM
