Exam 1 Flashcards
Define Health Economics
Choices people make because of availability of resources to satisfy their unlimited wants
Study of how individuals, organizations, firms, governments and nations make choices regarding their health and healthcare in the allocation of scarce resources to satisfy their unlimited wants.
Health Economics
4 examples of unlimited wants
Overall survival, recurrence-free survival, continue work at best capability, quality of life.
Define unlimited wants
Goals, desires, needs
Time, money, health, opportunities are examples of what
Scarce resources
True or false: Scarce resources are all finite
True
Define choices
All possible allocations of actions and resources used to reach goals/satisfy wants
All the possible allocations of actions and resources used to reach goals and satisfy wants
Choices
Why are decisions difficult
There is usually no win-win
Define cost
Negative outcomes of a choice
Define benefit
Positive outcomes of a choice
True/false: Making a choice is a benefit of that choice
False, it is a cost
Define Tradeoff
All choices have positive and negative outcomes
One choice precludes other choices
Tradeoff
True/false: there are tradeoffs in BOTH the choice and in making the choice
True
What does economics want to do with choices?
Understand them, quantify the value of a choice, identify the optimal choice within a decision
Define opportunity cost
The NEXT best choice for any given choice
True/False: There can be two opportunity costs for a choice
False, always just one
True/False: Not picking the best choice means you are irrational
False, the best choice was not available
Costs can be categorized into two taxonomy
Tangible and intangible
Tangible costs can be put into two categories
Direct and indirect
Direct tangible costs are broken into two categories
Medical and non medical
Lost productivity is defined as what type of cost
Indirect tangible cost
Define Tangible
Costs which are typically measured in monetary units
Define Intangible Costs
Costs which can be given a monetary value but not usually measured this way
T/F: Fear of cancer recurrence is a tangible cost
False, Intangible
Define Direct Costs
Costs associated with medical treatment and recovery process
Define indirect costs
Costs that include lost potential productivity resulting from illness-related absences or impaired performance at the workplace
What is health economics primarily concerned about?
The study of decisions regarding health and healthcare, under the reality of constraints
Define domains
Aspects of a decision are characterized into these
What do domains include
Components
T/F: A decision includes at least 2 choices
True
All of the different components associated with a given choice
Consumption bundle
Consumption bundle
All of the components of one choice
Why would two people choose different consumption bundles?
They value the overall consumption bundles differently
Why would two people feel differently about the same consumption choice?
They value individual components differently
T/F: You cannot argue preferences
False, everyone has different preferences
Define Utility
Value placed on each consumption bundle/choice
What is the mathematical equation for a bundle
U(x1, x2, x3)
T/F: Utility bundles can be quantified
True
Once the utility of each consumption bundle is evaluated what can be identified?
The optimal choice within a decision
T/F: Optimal choices are those with the lowest utility
False: Highest Utility
Name the 2 assumptions of making choices
- Individuals are rational
2. Utility is a good thing
Define rational
Prefer more utility as opposed to less
T/F: The actual utility value matters in the decision
False, the relative value matters
Can you make a wrong choice?
Yes, if you misidentify or learn something new about a choice
T/F: The number of components in consumption bundles do not have to be the same
True
T/F: The components in all bundles must match
False, they do not have to be the same as the next bundle
T/F: Domains must be the same across choices
False, they do not have to be the same
Why are factor loadings useful?
They give relative importance to components within a choice and across choices
What represents the relative importance of components?
Factor loadings
Decrease of utility results in what?
A cost
How are costs shown in a mathematical model?
Negative factor loading
Who is Grossman?
Father of health economics
4 points of the Grossman model
- We value health
- Left alone, health deteriorates over time
- Cannot/do not buy health
- We buy or already have goods that are used to produce health
What are goods that we already have to produce health?
Age, gender, race
Define endowments
Things you cannot change
Define the variable Zt
Commodities at time t
T/F: Grossman’s model says individuals value health and commodities
True
Define commodities
Everything else you want in life
Define variable It
Amount of health invested during time t
How do we offset depreciation of health?
Investing/producing in health
Examples of health production inputs
Comorbidity, medication, food, exercise
What is the output of health production?
Health, years of life, number of healthy days
Health production function
Output=f(inputs; endowments)
Marginal product of health care
The change in number of healthy days, caused by a change in the amount of health care used, holding all other inputs constant
Equation for marginal product of health care function
MP=ChangeDh/ChangeHC
Marginal product of health
Measure of how many healthy days are produced with an input of health care
Larger number of marginal product health means
Individual is better at making healthy days than another, can produce more healthy days with the same input
Law of diminishing marginal returns
As you put more and more in, you get less and less out
Variable It
Amount of health produced during time t
Variable Mt
goods, medical care purchased during time t
Variable E
Endowment
Variable Xt
Goods purchased to produce commodities during time t
2 constraints of Grossman model
- Budget constraint
2. Time constraint
Describe the budget constraint of the Grossman model
Total money is equal to the amount spent on medical goods and all other goods
Budget constraint equation
W(TW)=PmM+PxX
Variable W
Wage
Describe the time constraint of the Grossman model
Total time=time spent at work, producing health, producing commodities, and in leisure
Time constraint equation
TT=TW+TH+TZ+TL
What are the choices in the Grossman model?
- How much to buy
2. How much time to spend
Would a more educated person be more likely to invest in their health than a less educated person?
Yes, produce more, more money
Would a wealthier person be more likely to invest in their health than a less wealthy person?
Yes, wealthier=healthier
T/F: In the budget constraint any amount of M chosen means more of X will be available
False, less of X is available
T/F: In the time constraint any amount of TH that is chosen is taken from TT
True
What kind of good is health care?
Normal good
What is the problem with health care?
Scarcity, budget, resource, time, diminishing marginal returns
Describe what diminishing marginal returns means
More resources produced leads to decreased output
How do we solve the healthcare problem?
Choices, which happen due to scarcity, evaluating opportunity cost which leads to trade offs
Describe healthcare before 1875
Not very effective, pure market system, charity hospitals
Define pure market system
If you wanted a service you paid right away in cash or bartering items
Why did uncertain health outcomes begin to rise in the early 1800’s?
- Disagreements about the best technology
- Substantial variation in provider ability
- Many competing practitioner types
T/F: The civil war created a set back in health care
False; it moved health care forward greatly
T/F: The majority of people who died during the civil war, died due to disease
True, 398,000 people
What helped to advance health care during the civil war?
Remedies that worked and did not work became clear, methods of all providers began to converge on effective therapies
When did licensing for medical professionals start to become a requirement?
1875-1900
When did the diploma mill begin and explain the significance
1875-1900, medical schools began appearing quickly, quality varied greatly
When was the Council on Medical Education created?
1904
Why was the CME created?
- Develop minimum standards for medical schools
2. Grade medical schools
Describe Bulletin #4
Created a grading system based on AMA standards and teaching resources
Who created Bulletin #4?
Abraham Flexner of the Carnegie Foundation for the Advancement of Teaching
T/F: Bulletin #4 was created in 1912
False; 1910
When did the number of medical schools begin to fall?
1912
When was the Federation of State Medical Boards formed?
1912
What happened between 1900-1915 with medical care?
- Access begins to fall, access to medical training also falls
- Began to exclude professions that were not allothpathic
- Quality of care improved
- Prices rose
What kinds of jobs offered disability and health benefits to workers between 1900 and 1915?
Dangerous occupations, unions, fraternal organizations
Name 3 reasons as to why insurance markets arose
- Severe illness is random and rare
- Future healthcare needs are uncertain
- Healthcare services are expensive
In what year did workman’s compensation insurance arise?
1914
What happened with insurance in the 1920s?
The labor movement called for universal health insurance
When was the Blue Cross formed and who did it serve?
1929, teachers
What did the Blue Cross give when first starting?
21 days of hospital care for teachers in Dallas
Why is health care tied to employment?
Offering health insurance to groups of workers is less risky, are not sick as much
When did insurance become a cheaper benefit from firms?
In 1950s due to tax changes
What percent of working adults has private health insurance?
56%
What percent of working adults had private health insurance around 1960?
67%
What did the Civil war lead to?
Medical advances
What did WWII cause in the health care field?
Employer sponsored health insurance
Name the four themes of hospital pharmacy
- Drug Product
- Patient Safety
- Rational Drug Therapy
- Optimal Outcomes
Name 3 phases of community pharmacy practices in order of when they began
- Compounding
- Distributing (Rose greatly around 1940)
- Patient Care
When was pharmacy declared as a clinical profession?
1985
When were pharmacists required to begin counseling patients and recording prescription records?
1990
When was Medicare part D created?
2003
Define Imperfect Information
Pricing of healthcare is not straight forward, sometimes available after the treatment, hard to define what you will owe
T/F: Healthcare is a big budget item
True
How many hospitals could provide a complete bundle price for a common surgical procedure?
9 top ranked (45%) and 10 non top ranked (10%)
How many prices could be obtained by contacting the hospital and physician separately?
3 top ranked (15%) and 54 non top ranked (53%)
How many hospitals could provide prices for an electrocardiogram?
3/20
How many hospitals could provide prices for parking?
19/20
Describe imperfect information regarding patients and providers
Patients do not know if they are getting good services, patients and providers are uncertain of outcomes, difficult to get expert advise due to no consumer reports
Why is it difficult to get expert medical advice?
No consumer reports
Define induced demand
Physician recommends care that the patient might not want or need if they had been fully informed
Why does induced demand happen less in commercial merchandising?
Competition and reviews prevent it
Describe the correlation between physicians and fees
More physicians = increased pricing
Why is there a direct correlation between physicians and pricing?
Not a competitive market
When physicians are paid per service provided…..
They provide more service
Why did McAllen have higher costs?
Ambiguity of diagnosis would result in extra tests
Describe self referral
Referral by doctors to facilities in which they have a financial interest
Where does practice area variation come from?
Assumed that variation is caused by inappropriate care, but treatments are not uniform and some areas have higher rates of obesity/poverty/retirement
If physicians are exploiting asymmetric information…
They are recommending different treatments for patients than they would choose for themselves
What types of people qualify for medicare?
Dialysis, disabled, over 65 years old
Why do people buy insurance?
Avoid loss under uncertainty, most are risk adverse and willing to pay to avoid future loss
Examples of insurance
Property loss (Car, rent, flood), health loss (Life, health, disability)
T/F: All risks can be covered by insurance
False, things you can control
What do people not insure themselves against?
Small negative effects, unlikely events
Does health insurance compensate for loss of health?
No, life and disability do
What kind of loss occurs most frequently?
Health loss
T/F: Health loss may create an ongoing need for medical care rather than a one time payment
True
Define pool risk
Create certainty out of uncertainty by bringing groups of people with different risks together, having mostly low cost enables you to provide care for higher cost
Define expected costs
Amount of loss * probability of loss = expected loss
What equation is used to determine charges for coverage?
Cost/# of people pooled
Define a loading fee
Administrative expenses plus profit
What does a premium equal?
Expected loss plus loading fee
What are typical administration costs today?
30%
Define premium
Amount of money that you and/or your employer pay each month for insurance coverage
What is the average total contribution for a premium?
$1462.08
What is the average employee contribution for a premium?
$416.25
Define Moral Hazard
Changes in the amount or probability of loss as a result of insurance coverage
Moral Hazard can also be called
Insurance induced demand
What happens when insurance prices decrease?
Utilization is increased
What happens when you remove risk?
People will not practice good risk management techniques
Does health insurance coverage change the amount or probability of loss?
Yes, probability of illness and amount of healthcare used in event of illness
T/F: Insurance increased incentive to price shop
False, Anything covered gives up the incentive to price shop
Describe moral hazard
Increase utilization to make full use of cost, but this ends up increasing cost
Define welfare loss
People are using goods and services that they value less than the market price of the good or service
T/F: High risk individuals are more likely to purchase insurance than low risk
True
How is insurance impacted by asymmetrical information?
Most patients do not tell insurance about risks/illnesses
T/F: If someone has a condition and does not have insurance, they will most likely not wait until they get insurance to get treatment
False, most wait until they get insurance
Negatives of adverse selection
- High prices cause more low risk people to not purchase insurance
- If more high-risk people buy insurance than low risk, expected losses will be higher and premiums increase
Define risk removal
Risk of unpredictable catastrophic medical care costs, so there is valid reason for purchasing insurance to avoid risk
Define prepayment
Most health insurance policies also cover many predictable and/or non-catastrophic medical expenses (routine)
Why would you pre pay?
- Insurance is often through employer so you don’t see real cost
- Tax subsidy for health insurance benefits through an employer
- Insurers may use bargaining power to lower prices charged by health care providers
Why is health insurance so expensive?
Moral hazard, adverse selection, pre payment
When was the first official apothecary created?
1752
When was the first pharmacopeia founded?
1820
When was the first official pharmacy school opened?
1821
When did APhA begin?
1852
What happened in pharmacy from 1890-1900s
Proliferation of proprietary, homeopathy used, alcohol and opium used as remedies
When APhA started, what professionals were included?
All pharmacists regardless of setting
When was the Flexner report created?
1910
Describe the Flexner report
Initiative by government to investigate the direction of medicine
When were MD’s made official?
1942
When was it required to get a B.S. in pharmacy?
1932
What happened in pharmacy from 1950-1960?
Increased distribution in community practice, decrease of compounding
When did Eugene White’s Counter Revolution happen?
1950-1960
What happened in 1985?
Hilton Head Conference, declared clinical pharmacy a thing
What happened in pharmacy in the 1920s?
Grew greatly, commercial stores could sell alcohol
When did counseling patients become law?
1990
Who required pharmacists to maintain patient medication records?
OBRA
When was Medicare Part D created?
2003
Which countries only have government insurance?
Britain and Taiwan
Which countries have government and private insurance?
Germany and Japan
Who has the lowest GDP in health care?
Taiwan
What country has no HC premium?
Britain
Describe Germany’s Co-pays
$15 every 3 months
What countries have insurance tied to employers?
Japan and Germany
