Heal
Economics
, NOTEBOOK DASHBOARD
1 2
Introduction to welfare state, market Health capital and socioeconom
imperfections in health care, and health disparities in health over the lif
economics cycle
3 4
Public health care and health financing Health financing, health insura
(incl. DALYS, BIA)
5 6
Infectious diseases/epidemics and preventive HIV/AIDS and economic epidemio
behavior
7 8
Causality Unhealthy behavior: alcohol, obes
9 10
Aging and non-communicable Mental health
diseases
11 12
, 1
Chapters 1, 2, 7, 8
Introduction to welfare state, market
imperfections in health care, and health
economics
,Chapter 1 - Why is heal economics inter
-
· the health care economy is massive and expensive
· health is a major source of uncertainty and risk
. governments around the world are deeply involved in financing health
healthcare
expenditures in th
2 interesting economic properties of health economics:
1) uncertainty
2) contagiousness
• an unforeseen broken leg or a heart attack can suddenly create dem
expensive healthcare services
→ this in turn creates problems that arise in insurance markets: a
selection and moral hazard
• the fact that other people's health decisions affect you creates extern
(e.g., vaccinations)
, • normative issues: different ideas of how the world should be
Does everyone deserve access to health care, even if they
can't pay?
Should people be compelled to purchase insurance?
When is it ethical to deny care to a dying patient?
opini
• positive issues: different ideas of how the world actually is
How much would it cost to provide free checkups and
drugs for everyone in a population?
Would a tax on saturated make a nation healthier?
Do strict patent protections for new drugs spur
innovation?
• economic reasoning cannot answer normative questions, but it can a
positive questions, and that can help us form opinions about normative
questions
, Demand for healce
• standard economic curves are downward sloping:
→ as price (P) decreases, quantity (Q) demanded increases
P= $3, Q = 4 lollipops
P= $1, Q = 8 lollipops
P= $0.5, Q = 9 lollipops
• elasticity measures the degree of downward-sloping (as the price incr
quantity decreases):
• elastic demand D(E) (price-sensitive): changes in price
greatly affect the quantity demanded
• inelastic demand D(I) (price-insensitive): changes in price
do not significantly change the quantity demanded
,2 randomized experiments:
1) RAND Health Insurance Experiment (HIE)
• randomly assigned 2000 families from 6 US cities to different
insurance coverage plans
• copayment groups: free, 25%, 50%, and 95%
• tracked utilization of health (Q) care in each copayment
plan (Q)
• copayment acts as the marginal cost that each faces w
family buying care
2) Oregon Medicaid Experiment
• compared 2 groups of low-income adults (Medicaid lottery winn
lottery losers)
• lottery winners got to apply for public health insurance
Medicaid → they faced lower out-of-pocket prices for care
• lottery losers could not get Medicaid (but might have pur
outside insurance)
RESULTS
• healthcare demand
curves are downward-
sloping (economic theory
prevails)
,How can we determine which type of demand is more price-sensitive?
→ need a measure to compare the relative price sensitivity of differe
→ the measure needs to be unitless (how else would we compare
visits to sticks of gum?)
Arc Elasticity:
→ healthcare has inelastic demand
,Conclusion:
• demand curves for healthcare are downward- sloping
→ quantity of care demanded is sensitive to price (though not as
as other demands, e.g., for movies)
• generally, price of healthcare does not seem to affect one's health (
most vulnerable groups)
, Demand for insurance
• the demand for insurance is driven by the fear of the unknown
→ hedge against risk - the possibility of bad outcomes
• purchasing insurance means forfeiting the good times to get money
→ the risk aversion drives the demand for insurance
• risk aversion can be modeled through utility from income U(I):
→ utility increases with income: U’(I) > 0
→ marginal utility for income is declining: U’’(I) < 0
Adding uncertainty to the model
→ an individual doesn't know whether she will become sick, but she kno
the probability of sickness is p between 0 and 1
→ probability of sickness is p → Is = income if she does
→ probability of staying healthy is 1-p → Ih > Is = income if she
healthy
• the expected value of a random variable X, E[X], is the sum of all the
outcomes of X weighted by each outcome's probability
Economics
, NOTEBOOK DASHBOARD
1 2
Introduction to welfare state, market Health capital and socioeconom
imperfections in health care, and health disparities in health over the lif
economics cycle
3 4
Public health care and health financing Health financing, health insura
(incl. DALYS, BIA)
5 6
Infectious diseases/epidemics and preventive HIV/AIDS and economic epidemio
behavior
7 8
Causality Unhealthy behavior: alcohol, obes
9 10
Aging and non-communicable Mental health
diseases
11 12
, 1
Chapters 1, 2, 7, 8
Introduction to welfare state, market
imperfections in health care, and health
economics
,Chapter 1 - Why is heal economics inter
-
· the health care economy is massive and expensive
· health is a major source of uncertainty and risk
. governments around the world are deeply involved in financing health
healthcare
expenditures in th
2 interesting economic properties of health economics:
1) uncertainty
2) contagiousness
• an unforeseen broken leg or a heart attack can suddenly create dem
expensive healthcare services
→ this in turn creates problems that arise in insurance markets: a
selection and moral hazard
• the fact that other people's health decisions affect you creates extern
(e.g., vaccinations)
, • normative issues: different ideas of how the world should be
Does everyone deserve access to health care, even if they
can't pay?
Should people be compelled to purchase insurance?
When is it ethical to deny care to a dying patient?
opini
• positive issues: different ideas of how the world actually is
How much would it cost to provide free checkups and
drugs for everyone in a population?
Would a tax on saturated make a nation healthier?
Do strict patent protections for new drugs spur
innovation?
• economic reasoning cannot answer normative questions, but it can a
positive questions, and that can help us form opinions about normative
questions
, Demand for healce
• standard economic curves are downward sloping:
→ as price (P) decreases, quantity (Q) demanded increases
P= $3, Q = 4 lollipops
P= $1, Q = 8 lollipops
P= $0.5, Q = 9 lollipops
• elasticity measures the degree of downward-sloping (as the price incr
quantity decreases):
• elastic demand D(E) (price-sensitive): changes in price
greatly affect the quantity demanded
• inelastic demand D(I) (price-insensitive): changes in price
do not significantly change the quantity demanded
,2 randomized experiments:
1) RAND Health Insurance Experiment (HIE)
• randomly assigned 2000 families from 6 US cities to different
insurance coverage plans
• copayment groups: free, 25%, 50%, and 95%
• tracked utilization of health (Q) care in each copayment
plan (Q)
• copayment acts as the marginal cost that each faces w
family buying care
2) Oregon Medicaid Experiment
• compared 2 groups of low-income adults (Medicaid lottery winn
lottery losers)
• lottery winners got to apply for public health insurance
Medicaid → they faced lower out-of-pocket prices for care
• lottery losers could not get Medicaid (but might have pur
outside insurance)
RESULTS
• healthcare demand
curves are downward-
sloping (economic theory
prevails)
,How can we determine which type of demand is more price-sensitive?
→ need a measure to compare the relative price sensitivity of differe
→ the measure needs to be unitless (how else would we compare
visits to sticks of gum?)
Arc Elasticity:
→ healthcare has inelastic demand
,Conclusion:
• demand curves for healthcare are downward- sloping
→ quantity of care demanded is sensitive to price (though not as
as other demands, e.g., for movies)
• generally, price of healthcare does not seem to affect one's health (
most vulnerable groups)
, Demand for insurance
• the demand for insurance is driven by the fear of the unknown
→ hedge against risk - the possibility of bad outcomes
• purchasing insurance means forfeiting the good times to get money
→ the risk aversion drives the demand for insurance
• risk aversion can be modeled through utility from income U(I):
→ utility increases with income: U’(I) > 0
→ marginal utility for income is declining: U’’(I) < 0
Adding uncertainty to the model
→ an individual doesn't know whether she will become sick, but she kno
the probability of sickness is p between 0 and 1
→ probability of sickness is p → Is = income if she does
→ probability of staying healthy is 1-p → Ih > Is = income if she
healthy
• the expected value of a random variable X, E[X], is the sum of all the
outcomes of X weighted by each outcome's probability
