Economics and financing of health care systems
Block 1
Inhoudsopgave
Week 1 ....................................................................................................................................................................................... 2
Plenary meeting 1. Kick-off and Is health care really different? ..................................................................................................... 2
Plenary meeting 2. Demand for health & health care .................................................................................................................... 7
Plenary meeting 3. Asymmetric information, agency & supplier induced demand ...................................................................... 20
Plenary meeting 4. Provider payment incentives ......................................................................................................................... 29
Week 2 ..................................................................................................................................................................................... 38
Plenary meeting 5. Value-based payment reform ........................................................................................................................ 38
Plenary meeting 6. Guest lecture: increasing value in health by changing the financial incentives: a health insurer’s perspective
...................................................................................................................................................................................................... 45
Plenary meeting 7. Cost-sharing & the demand for health care .................................................................................................. 45
Week 3 ..................................................................................................................................................................................... 53
Plenary meeting 8. Production of health & health care ............................................................................................................... 53
Plenary meeting 9. Non-profit firms in health care ...................................................................................................................... 62
Online Q&A session: meetings 1-9 + example exam question (via zoom) .................................................................................... 68
Midterm examination: Friday, September 17th ........................................................................................................................... 68
Week 4 ..................................................................................................................................................................................... 68
Plenary meeting 10. Private health insurance & socials health insurance ................................................................................... 68
Plenary meeting 11. Comparative health care systems & health system reform ......................................................................... 69
Plenary meeting 12. Theory & practice of regulated competition ................................................................................................ 70
Plenary meeting 13. Competitive social health insurance markets .............................................................................................. 72
Online plenary review midterm exam (via zoom) ......................................................................................................................... 73
Group assignment 2: preconditions for regulated competition .................................................................................................... 74
Week 5 ..................................................................................................................................................................................... 74
Plenary meeting 14. Hospital competition & patient choice ........................................................................................................ 74
Plenary meeting 15. Organization & financing of long-term care ................................................................................................ 74
Online Q&A session: meetings 10-15 + example exam question (via zoom) ............................................................................... 75
Week 6 final examination: Monday October 4th ...................................................................................................................... 75
1
,Week 1
Plenary meeting 1. Kick-off and Is health care really different?
31 augustus
Required readings
• Folland S., Goodman A.C., Stano, M., 2017, Chapter 1 Introduction in The economics of health and health
care, page 1-17) (Links to an external site.)
Papanicolas, I., Woskie, L.R., Ashish K. Jha A.K., 2018, Health Care Spending in the United States and Other High-
Income Countries. JAMA. 2018;319(10):1024-1039. (Links to an external site.)
Key Points
Question: Why is health care spending in the United States so much greater than in other high-income countries?
Findings: In 2016, the United States spent nearly twice as much as 10 high-income countries on medical care and
performed less well on many population health outcomes. Contrary to some explanations for high spending, social
spending and health care utilization in the United States did not differ substantially from other high-income nations.
Prices of labor and goods, including pharmaceuticals and devices, and administrative costs appeared to be the main
drivers of the differences in spending.
Meaning: Efforts targeting utilization alone are unlikely to reduce the growth in health care spending in the United
States; a more concerted effort to reduce prices and administrative costs is likely needed.
• Folland et al. (2017), chapter 19 on Government Intervention in Health Care Markets, excluding the
sections ‘Government involvement in health care markets’ and ‘The theory of yardstick competition and
DRGs’. (12 pages)
Learning targets
Afterwards the student is able to:
• Explain the relevance of health economics
• Analyze the causes and consequences of the expansion of the healthcare sector
• Explain what makes health care different and infer the implications thereof
Voorbereidende video’s:
Part a: health economics and axpansion of healthcare sector
Health economics
Folland, Goodman & Stano, 2017:
2
,“Health economics studies the allocation of resources to and within the health sector. Because this sector has become
the largest sector of many countries’ economies and its share of
GDP is expected to continue to grow, we should not be surprised
that health economics has emerged as a distinct specialty within
economics.”
• Health economics provides concepts and tools to
understand difficult trade-offs involved in organizing the
allocation of healthcare resources, which may help to
improve health policy and health system design
Does economics apply to health care?
Relevance of health economics
• The economic organization of healthcare systems
has a significant impact on the efficiency and equity
of healthcare allocation
• Health care is a large and expanding sector of national economies
• Health care is not a regular (economic) commodity; it is widely considered a right, not a privilege
• Specific features of health care can easily result in market failure as well as in government failure
Still, the expansion is likely to continue… For the following reasons…
• Ageing of populations
• Advancing medical science & technology
Labor-intensive services, like health
• Shift towards chronic diseases
care, are becoming more expensive
• Increasing welfare
compared to products of other
• Expanding health insurance coverage industries
• Flawed (financial) incentives
• Baumol’s “cost disease” Reason: productivity of workers in
service provision cannot increase at
the same pace as compared to that
of workers in other industries
Baumol’s “cost disease”
Thus, increase in wages cannot be
earned back by increases in
productivity, making healthcare
increasingly expensive
Moreover, demand for healthcare is
unlikely to decline, despite the
increasing cost price
Policy-makers are increasingly involved
with difficult choices, which is like
navigating between Scylla and
Charybdis
Is health spending growth sustainable?
3
, • Increasing health spending may significantly harm the economy
▪ Taxes and/or premiums labor costs competitiveness
• Increasing public health spending may crowd out other public services
Similar to Cuckoo’s young: “Cuckoos always lay their eggs in the nests of other birds and leave the foster
parents to incubate and rear them. As soon as the young Cuckoo hatches, it shuffles around in the nest and
pushes out any object which comes into contact with the middle of its back and this causes it to eject any
of its foster parent's eggs or young.” (birdguides.com)
o Financial sustainability: how to ‘pay’ for spending growth?
▪ E.g. higher cross-subsidies to guarantee universal access
• Economic sustainability: ensuring value for money
▪ Important task for health economists!
Part b: health care: right or privilege?
Universal health coverage (WHO definition):
Ensuring that all people can use the promotive, preventive, curative, rehabilitative and palliative services they need, of
sufficient quality to be effective, while ensuring that the use of these services does not expose the user to financial
hardship.
• Universal coverage is firmly based on the WHO constitution of 1948 declaring health a fundamental human
right and the right to health care is embodied in many countries’ constitutions
Universal coverage: three dimensions
Still not universally accepted…
US Senator Tom Harkin (D-IA), 19 Dec 2009:
“What this bill does is we finally take that step. As our leader said, we take that step from health care as a
privilege to health care as an inalienable right of every single American citizen.”
Glenn Beck, conservative talk-radio host, 4 Jan 2010:
4
Block 1
Inhoudsopgave
Week 1 ....................................................................................................................................................................................... 2
Plenary meeting 1. Kick-off and Is health care really different? ..................................................................................................... 2
Plenary meeting 2. Demand for health & health care .................................................................................................................... 7
Plenary meeting 3. Asymmetric information, agency & supplier induced demand ...................................................................... 20
Plenary meeting 4. Provider payment incentives ......................................................................................................................... 29
Week 2 ..................................................................................................................................................................................... 38
Plenary meeting 5. Value-based payment reform ........................................................................................................................ 38
Plenary meeting 6. Guest lecture: increasing value in health by changing the financial incentives: a health insurer’s perspective
...................................................................................................................................................................................................... 45
Plenary meeting 7. Cost-sharing & the demand for health care .................................................................................................. 45
Week 3 ..................................................................................................................................................................................... 53
Plenary meeting 8. Production of health & health care ............................................................................................................... 53
Plenary meeting 9. Non-profit firms in health care ...................................................................................................................... 62
Online Q&A session: meetings 1-9 + example exam question (via zoom) .................................................................................... 68
Midterm examination: Friday, September 17th ........................................................................................................................... 68
Week 4 ..................................................................................................................................................................................... 68
Plenary meeting 10. Private health insurance & socials health insurance ................................................................................... 68
Plenary meeting 11. Comparative health care systems & health system reform ......................................................................... 69
Plenary meeting 12. Theory & practice of regulated competition ................................................................................................ 70
Plenary meeting 13. Competitive social health insurance markets .............................................................................................. 72
Online plenary review midterm exam (via zoom) ......................................................................................................................... 73
Group assignment 2: preconditions for regulated competition .................................................................................................... 74
Week 5 ..................................................................................................................................................................................... 74
Plenary meeting 14. Hospital competition & patient choice ........................................................................................................ 74
Plenary meeting 15. Organization & financing of long-term care ................................................................................................ 74
Online Q&A session: meetings 10-15 + example exam question (via zoom) ............................................................................... 75
Week 6 final examination: Monday October 4th ...................................................................................................................... 75
1
,Week 1
Plenary meeting 1. Kick-off and Is health care really different?
31 augustus
Required readings
• Folland S., Goodman A.C., Stano, M., 2017, Chapter 1 Introduction in The economics of health and health
care, page 1-17) (Links to an external site.)
Papanicolas, I., Woskie, L.R., Ashish K. Jha A.K., 2018, Health Care Spending in the United States and Other High-
Income Countries. JAMA. 2018;319(10):1024-1039. (Links to an external site.)
Key Points
Question: Why is health care spending in the United States so much greater than in other high-income countries?
Findings: In 2016, the United States spent nearly twice as much as 10 high-income countries on medical care and
performed less well on many population health outcomes. Contrary to some explanations for high spending, social
spending and health care utilization in the United States did not differ substantially from other high-income nations.
Prices of labor and goods, including pharmaceuticals and devices, and administrative costs appeared to be the main
drivers of the differences in spending.
Meaning: Efforts targeting utilization alone are unlikely to reduce the growth in health care spending in the United
States; a more concerted effort to reduce prices and administrative costs is likely needed.
• Folland et al. (2017), chapter 19 on Government Intervention in Health Care Markets, excluding the
sections ‘Government involvement in health care markets’ and ‘The theory of yardstick competition and
DRGs’. (12 pages)
Learning targets
Afterwards the student is able to:
• Explain the relevance of health economics
• Analyze the causes and consequences of the expansion of the healthcare sector
• Explain what makes health care different and infer the implications thereof
Voorbereidende video’s:
Part a: health economics and axpansion of healthcare sector
Health economics
Folland, Goodman & Stano, 2017:
2
,“Health economics studies the allocation of resources to and within the health sector. Because this sector has become
the largest sector of many countries’ economies and its share of
GDP is expected to continue to grow, we should not be surprised
that health economics has emerged as a distinct specialty within
economics.”
• Health economics provides concepts and tools to
understand difficult trade-offs involved in organizing the
allocation of healthcare resources, which may help to
improve health policy and health system design
Does economics apply to health care?
Relevance of health economics
• The economic organization of healthcare systems
has a significant impact on the efficiency and equity
of healthcare allocation
• Health care is a large and expanding sector of national economies
• Health care is not a regular (economic) commodity; it is widely considered a right, not a privilege
• Specific features of health care can easily result in market failure as well as in government failure
Still, the expansion is likely to continue… For the following reasons…
• Ageing of populations
• Advancing medical science & technology
Labor-intensive services, like health
• Shift towards chronic diseases
care, are becoming more expensive
• Increasing welfare
compared to products of other
• Expanding health insurance coverage industries
• Flawed (financial) incentives
• Baumol’s “cost disease” Reason: productivity of workers in
service provision cannot increase at
the same pace as compared to that
of workers in other industries
Baumol’s “cost disease”
Thus, increase in wages cannot be
earned back by increases in
productivity, making healthcare
increasingly expensive
Moreover, demand for healthcare is
unlikely to decline, despite the
increasing cost price
Policy-makers are increasingly involved
with difficult choices, which is like
navigating between Scylla and
Charybdis
Is health spending growth sustainable?
3
, • Increasing health spending may significantly harm the economy
▪ Taxes and/or premiums labor costs competitiveness
• Increasing public health spending may crowd out other public services
Similar to Cuckoo’s young: “Cuckoos always lay their eggs in the nests of other birds and leave the foster
parents to incubate and rear them. As soon as the young Cuckoo hatches, it shuffles around in the nest and
pushes out any object which comes into contact with the middle of its back and this causes it to eject any
of its foster parent's eggs or young.” (birdguides.com)
o Financial sustainability: how to ‘pay’ for spending growth?
▪ E.g. higher cross-subsidies to guarantee universal access
• Economic sustainability: ensuring value for money
▪ Important task for health economists!
Part b: health care: right or privilege?
Universal health coverage (WHO definition):
Ensuring that all people can use the promotive, preventive, curative, rehabilitative and palliative services they need, of
sufficient quality to be effective, while ensuring that the use of these services does not expose the user to financial
hardship.
• Universal coverage is firmly based on the WHO constitution of 1948 declaring health a fundamental human
right and the right to health care is embodied in many countries’ constitutions
Universal coverage: three dimensions
Still not universally accepted…
US Senator Tom Harkin (D-IA), 19 Dec 2009:
“What this bill does is we finally take that step. As our leader said, we take that step from health care as a
privilege to health care as an inalienable right of every single American citizen.”
Glenn Beck, conservative talk-radio host, 4 Jan 2010:
4
