Health economics Flashcards
why is health econ different from normal
Different good characteristics
Characteristics of the demand
Characteristics of the supply
Quality, quantities
Public vs private provision
what are the special qualities of health although it’s an econ good?
- is less tangible than other goods
- cannot be transferred to others
- not tradeable
- improvements cannot be purchased directly
what is the difference between postiive and normative statement
positive statement
is an assertion about how the world is.
A normative statement
is an assertion about how the world ought to be.
explain the difference between the two types of efficiency
Technical: maximize output and minimize cost
Allocative: choice of how much to produce of which good to maximise welfare for given resources
Does health needs to be exchanged to create utility?
No, Health itself gives intrinsic value
Health is a demand for healthcare .
Explain the cost effectiveness plane
Left bottom: cost savings have to be large enough (more than 30000) to justify reduced effectiveness.
give me formulas for MNB and HNB
Monetary net benefits → MNB = (Rc * @E) - @C (i.e you monetise the net benefit)
Health net benefits → HNB = @E - (@C / Rc) (i.e you convert costs into the same units as effects e.g life years gained)
The treatment is cost-effective if the MNB or HNB > 0
@ = change in
In different economic analysis, what are the different outcomes?
Monetary benefit → e.g money saved from reduced number of doctors needed / productivity gains
Effectiveness measures → e.g early diagnosis, life years gained etc.
Various utility measures → such as QALYs and DALYs
what are the 3 main methods to calulate QOL (not SF-36, etc)
**Standard gamble (SG) **→ the standard gamble is similar to time trade-off but with probabilities - where you set up a scenario where participants make a comparison between living with no treatment or going for an option where there is a “p” chance of living in full health but a “1 - p” chance of death:
**Time trade off (TTO) **→ stated preferences to death and alternatives, it would make subjects find the indifference point as a ratio of the LOL healthy vs the LOL in suboptimal health (the trade off) for example in the case of a broken leg you would as how many years of life make you indifferent between living with a broken leg and living healthily e.g
Visual analogue scale (rate scaling) → you ask people to rate on a visual analogue scale that if they had a particular health condition where they would rate their quality of life (or you can also derive it from people who have experienced the disease / condition) rating from 0 (no QOL) to 1 (full health)
Professional judgement
Explain DALYs
Life LOST
Rated by professionals
DALYS (disability adjusted life years) are a measure from the WHO and World Bank data as a measure of population ill-health
It represents the time people live with a disability including the time they lose due to premature mortality
**It is rates on 0 (perfect health) to 1 (maximum disability)
**
They will ask experts on the condition to answer the quality of life which would occur from a certain disability (IN THE local population)
Apart from the NHS what other perspective can an economic analyses be taken from?
The public sector
The health care system
A given institution (such as a hospital)
The patient and family
Give me niche concept about indiffernce curves and how to calculate marginal rate of subsitution
Curves never cross
if MRS is 2 then it means decreasing x axis by 1 would need there to be an increase of y axis of 2 to give the same utility
Explain the utility maximizing rule for the indifference curves
MUx/Px == MUy/Py (i.e where budget line meets curve)
if MUx/Px is larger then you need to get more x until MUx decreases!
what is the difference between demand schedule and demand curve
Demand Schedule:
Relationship between price and quantity demanded (table)
Demand Curve:
Relationship between the price of a good and the quantity demanded (graph)
what are the functions for the demand of healthcare
- Price of health care
- Prices of substitutes and complements
- Lifestyle (smoking, exercise, diet)
- Income
- Type of insurance
- Level of education
- Age
- Sex
- Health status
- Quality of care
what other factors causes the shift of the whole demand curve
Income: normal v inferior goods
Prices of related goods
Number of buyers increase will shift to the right
Expectations
Explain how environmental factors affect health demand
Environmental factors also affect demand, e.g how much you demand will depend on the type of insurance:
Co-insurance → for example those fully insured purchase roughly 40% more healthcare than those not fully insured
Deductibles
Explain Production frontier
You have a SET AMOUNT OF INPUT and you’re varying the amount of outputS (combination) you can get.
You should be on the line, belwo is ineffcient. Above= no budget ot increase input
However curve can move up due to tech that maximises outputS with same input
Optimal point is just when is bends
Explain RPT
Gradient at a point on
the PPF is the rate of PPF
product transformation.
The quantity of one product that must be forgone in (OPPORTUNITY COST) order to obtain more of the other without varying the input level
what factors affect the supply curve (not price)
Input prices (cost) will shift it leftwards
Technology increase will reduce marginal cost and shift it outwards
Expectations:
Number of sellers increases shifts the curve to the right
Define market wuilibrium, adjustment and efficiency
Market equilibrium → is where the competitive market will find a price equating to the quantity supplied vs the quantity demanded without external guidance (naturally)
Market efficiency → implies self-interested buyers and sellers in a competitive market for a private good find the efficient (surplus maximising) allocation of a particular good
Market adjustment → is where a shift in the supply / demand such that the competitive market must find a new price equating to the supply and demand
Outline diseconomies of scale
Diseconomies of scale =
larger levels of output lead to a point where MC (cost per additional unit) will increase and total costs will rapidly rise
Explain minimum efficient scale
HOWEVER beyond the point where MC=AC (MES) there are diseconomies of scale
Outline consumer and producer surplus
Consumer = WTP- p
Producer = P - cost
what are the three main insights concerning market outcomes
Free markets allocate the supply of goods to the buyers
who value them most highly, as measured by their
willingness to pay.
- Free markets allocate the demand for goods to the sellers
who can produce them at least cost. - Free markets produce the quantity of goods that
maximizes the sum of consumer and producer surplus (allocative efficiency)
Equation for elasticity of demand
PERCENTAGE CHANGE (PRICE IS BOTTOM)
Explain the outcomes for cross-price elasticities
This is** negative with complements **→ i.e subjects who cannot afford drugs may not bother even going to the doctor OR people who cannot afford DVD players will not buy DVDs
This is **positive with substitutes **→ i.e people who cannot afford one alternative will subsequently have higher demand for the other alternative (e.g outpatient vs inpatient services)
unrelated = zero
Demand
outline types of goods in relation to elasticity and income
Outline the different market structures
Outline the perfect market conditions and how does healthcare remove that
what are the types of monopoly
Natural monopoly (increasing returns to scale)
* e.g. (parts of) utilities companies?
They can adjust output- which changes the price
Artificial monopoly
* a patent (e.g. market for a new drug)
* sole ownership of a resource (e.g. a toll bridge)
* formation of a cartel (e.g. OPEC)
Since monopolies fail to allocate resources efficently, what may be done?
what else may cause market failure?
Make monopolized industries more competitive
* Regulating the behavior of the monopolies
* Turning some private monopolies into public
enterprises
* Do nothing at all?
Give real life examples of externalities
Explain potential solutions to adverse selection
Experience rating – setting a different insurance premium for different risk groups
Compulsory – low risks can’t drop out
* * Consequences depend on burden of finance
* * May be inequitable to low risk individuals
Genetic testing and price discrimination
Government provision
what is the end result of adverse selection in health insurance if not solved
Customers knows risk more than inusrers,
Lower risk pts don’t buy it cus they don’t need to
Hihger risk pts buy it… profits fall which then causes prices to rise
Explain the two types of Moral Hazard
There’s consumer and producer MH
Ex Ante MH: refers to the situation prior to the
advent of illness, the individual increases the
probably of illness and/or its consequences by his
actions
Ex Post MH : comes to play once the health loss has
already occurred
Consumer
what are solutions to consumer moral hazard
Patient payments
* e.g. deductibles / co-insurance
The higher the co-payment the greater the reduction in
the welfare loss
* Loss=0 for no insurance
* But might lead to too little insurance levels
* Trade off
**No claims bonuses **are used in most insurance markets
when does provider moral hazard occur
when insurer finances provision rather than pts. Can lead to :
SID underpinned by Principal Agent problem
what are the solutions to producer moral hazard
Change reimbursement regime
- from retrospective (e.g. fee for service) to prospective (e.g. global budgets) reimbursement
- Closer links between third party payer and provider
- Increased regulation by government and/or peer groups
Effectiveness depends on doctors objective
what behaviour can emerge out of the principal agent problem
Too little or much care depended on one that will **maximise profit **
Target income
Supplier induced demand
How can you definitely tell theres SID
SID is only CONFIRMED if there is increased supply causing INCREASE in quantity supplied (Q) AND INCREASE in price (P)
what incentives can exercebate SID?
Financial Incentives
* Fee-for-service: over provision of service
* Third-party payment: no concern of consumer loss
* Activity based payments
EXPLAIN Merit Good
Goods in which people do not realsies the full benefit of it at time of consumption , leads to loss of information and hence underconsumption can market failure
treated like positive consumer externality
what are the two types of equity
Vertical equity = the unequal treatment of unequal things
* K(KAWAKANI index)
Horizontal equity = the equal treatment of equal things
N.B. may try to use utility frontier but it’s subjective
what are the 4 types of horizontal equity
Utalitarianism (sum ranking) → where you maximise the outcome but there is unequal distribution of resources
Maxmin → where you compensate the most vulnerable BUT again it leads to unequal distribution and lower welfare
Egalitarianism → equality in the outcomes BUT non-equal distribution in the resources
Fair innings → where everybody is entitled to a normal span of life at a reasonable level of quality but after that there is no entitlement
what are the different nuances of equality?
what are public goods?
Public goods are neither rival in consumption nor excludable. Examples of public goods include:
- national defense.
- eradication of a disease
- creation of fundamental knowledge.
Because people are not charged for their use of the public good, they have an incentive to free ride when the good is provided privately. Therefore, governments provide public goods, making their decision about the quantity of each good based on cost-benefit analysis
