Health Economics Exam

Question 1

Overview of health economics

Answer 1

Way to make decisions about resource allocation under scarcity

Question 2

Resources

Answer 2

1. Physical capital (buildings equipment)
2. natural resources
3. human capital (labour, intellectual contribution)
   time and space
   and those that have limited availability

Question 3

Goods vs services

Answer 3

goods = tangible and desired by others
services = intangible, acts that are desired (i.e., work done by chef or teacher)

Question 4

Efficiency and type

Answer 4

efficiency = get as much as possible from scarce resources
Technical efficiency = produce max output from input used for chosen production method (don’t waste resources)
Allocative efficiency = when goods and services produced in society in a way that its aligns with the values of individuals (“allocating resources to produce and distribute goods/services in a way that they align with the value people place on those goods/services)

judging allocative efficiency based on the following criteria:
- the extent to which there is an equitable distribution of resources
- the prices of goods or services in the marketplace reflect the true societal cost of the good or service
(an absence of externalities)

Extra:
Cost-effectiveness efficiency - produce each good using the lowest cost mix of resources (Producing a good using the least-cost method of production)

Question 5

equity

Answer 5

fair distribution of goods and services

Question 6

distributional vs horizontal, vs vertical equity

Answer 6

distributional = distribution of good or burden is fair
horizontal = those who are equal with respect to a characteristic (i.e., income) are treated equally (i.e., pay same amount of a good); those with similar need for good/service also receive same amount of that good or service)
vertical = those who are unequal with respect to trait treated unequally appropriately; those with greater need for service receive more than those with smaller need

Question 7

marginal analysis

Answer 7

looks at effects of doing just a little more/less than the baseline (i.e., thinking of buying one more car, open additional plant, increase vaccination rates beyond current level)

Question 8

expenditure formula

Answer 8

p x q

Question 9

increasing prices means _____ resources commanded by budget;
to have same amount of resources after price increase need to ____ budget

Answer 9

fewer
increase

Question 10

discrepancy between spending comparisons and actual service utilization

Answer 10

due to differences in prices (of inputs)
e.g. physician fees and the prices of drugs and medical equipment are all higher in the U.S., leading Americans to spend more while committing fewer resources and receiving fewer real services

Question 11

opportunity cost

Answer 11

The cost of using a resource for one purpose is the benefits forgone from the highest-valued alternative use.
Results when resources limited.

Question 12

production

Answer 12

process whereby individual or organization transforms inputs to outputs

Question 13

production function

Answer 13

the relationship that describes the maximum amount of output that can be produced from a given set of outputs using currently available technologies.

Question 14

a. Technical efficiency meaning
b. how to determine

Answer 14

a.
1) process maximizes output for the given inputs, conditional on the chosen production technology. (Since many ways to produce a good without wasting resources, criterion for technical efficiency does not identify a single efficient production method
2) whatever method is chosen; the producer should not waste any resources during production. All the inputs must be used to their maximum potential productivity

b. Determine if technically efficient:
Is it possible to get more output with the same inputs? Or, its converse:
Is it possible to get the same output with fewer inputs?
If the answer to either is yes, then production is not technically efficient.

Question 15

Production possibilities frontier

Answer 15

graph that represents the maximum combinations of two goods that society can produce given its available resources and production technologies.

Question 16

Understanding PPF curve (refer to class 1 word doc)

Answer 16

All points on the production possibilities frontier (e.g., A, B, C, D, E) curve represent technically efficient production

Points inside the curve (e.g., point F) represent technically inefficient production  resources idle or misallocation of resources so they are not being put to their most productive use (carpenters have too many screwdrivers and not enough hammers while electricians have opposite situation)
Points outside the production possibili- ties frontier, such as point G, are not feasible given current technology.
Can also see opportunity cost on the PPF curve  start at point A, to increase doctor visits by 1000 (move to right) this costs 50 houses (move down vertically);
But if you start at D, opportunity cost for 1000 more visits is 150 visits (Opportunity cost increases)

Why does the opportunity cost increase? At point A, society produces mostly houses, and some of those involved in home construction are not very good at it; however, they would make quite good doctors. To produce additional physician visits, such individuals would be the first shifted from house construction to health care. Because these workers are poor construction workers but good doctors, the opportunity cost of the health care is low. At point D, the opposite is true. Now to produce additional physician visits society must shift workers who are good at house construction and poor at producing health care. So the opportunity costs of additional health care rises as society moves down the frontier from left to right, j

Question 17

Utility

Answer 17

what people care about, subjective satisfaction an individual derives from consuming a good, measure of the benefit derived from a particular resource allocation
Ex: The utility, or welfare, of people who prefer chocolate ice cream is higher under an allocation in which they get a lot of chocolate ice cream and a little vanilla

Question 18

Determine whether distribution is allocatively efficient

Answer 18

Pareto Criterion ((declares an allocation to be allocatively efficient if it is impossible to reallocate resources in a way that makes at least one person better off without making someone else worse off. view that we should reallocate resources if it is possible to improve one person’s well-being without lowering anyone else’s)

hard to achieve in reality becuase atleast one party gets hurt

Question 19

Grand utility curve is _____
All points on grand utility possibility frontier are _____

Answer 19

This grand utility possibilities frontier tells us all the combinations of utility that the two individuals can attain given all feasible combinations of goods that can be produced and all the feasible ways to divide those goods between the two individuals

allocatively efficient
PC criterion does not identify a single allocation as best

Question 20

potential Pareto Criterion

Answer 20

if the gains to the winners under a reallocation are sufficiently large that the winners could compensate the losers and still be better off, then even if no compensation is actually paid, the policy is deemed allocatively efficient.

Question 21

Procedural equity

Answer 21

process by which a good is allocated. It asks if the process is fair (organ transplant example)

Question 22

equity and efficiency

Answer 22

look at end of class 1 word doc
(efficient distribution doesn’t necessarily equate to equitable distribution)

becuase efficient allocation is one that maximizes some of utilities, but sometimes this is not necessarily equal

other times, ex: people that will benefit the most of health care are also the ones who need it the most

Question 23

diminishing
marginal utility

Answer 23

utility individuals derive from a good or service diminishes with increasing consumption.

More detail:
People want as much utility as they can get. However, the more they have, the less difference an additional unit of utility will make

Question 24

markets allocate resources according to…..

Answer 24

willingness to pay and willingness of firms to produce goods/services

Question 25

price of good/service in a market depends on

Answer 25

interaction between supply and demand

Question 26

market demand

Answer 26

total quantity demanded in the market = the sum of individual demand.

Question 27

factors influencing market demand

Answer 27

personal preferences, their desire to maximize their own utility, the price, their resource constraints (income, time, etc.) and the marginal utility of acquiring more of something. Additional factors that influence demand are the availability and price of complementary goods, the availability and price of substitution goods and seasonal, temporal or geographic variation.

Question 28

market supply

Answer 28

sum of firm supply

Question 29

market supply determined by

Answer 29

number of firms willing to produce a good or service at a particular price and the total quantity produced determines market supply. Extra detail: Firms decide this based on ability to produce efficiently, the price and availability of inputs, available technology, the price consumers are willing to pay, the desire to maximize profits and the marginal cost of production

Question 30

A key feature of supply is the phenomena of diminishing marginal returns.

Answer 30

The additional profit from producing one additional unit of a good or service decreases. Beyond a certain point, the increase in output from one additional unit of input falls. For example, in a factory, an employee working longer hours in order to produce more output may be less productive during the last two hours than during the first eight.

Question 31

Equilibrium price

Answer 31

-no tendency to change -influenced by supply and demand -if pricer higher than EP, then market will have surplus, but if lower, than market will have shortage and price will go up

Question 32

Invisible hand of the market

Answer 32

-guides actions of individuals and firms for the common good -do things for own benefit - we as consumers buy goods that bring utility to us, firms have incentive to be technically efficient and not waste resources

Question 33

Market failure

Answer 33

Markets should have allocatively efficient distribution of resources but if unregulated, can have inefficient resource allocation

Question 34

Conditions for a well-functioning market

Answer 34

an absence of market power on both the demand and supply sides adequate information for both purchasers and producers to make good decisions an absence of externalities

Question 35

Market power

Answer 35

ability to influence market price on the supply side = firm has a monopoly (only producer/seller of good) opposite is oligopoly (only few firms producing - can be similar to monopolisitic firm) impacts:eliminates competition, allowing the monopolist to set higher prices and restrict output. This results in allocative inefficiency (resources are not used where they are most valued) and productive inefficiency (the monopolist has less incentive to minimize costs). Consumers face higher prices, fewer choices, and reduced overall welfare, on demand side = monopsony (single purchaser) can pay whatever they want

Question 36

Asymmetry of information

Answer 36

one side of a market have more information relevant to a transaction than the other side Important: Consumers need to be able to assess utility of a good or service. Theory of markets is based on well-informed consumers making purchasing decisions that align with their preferences.

Question 37

Externalities

Answer 37

cost or benefit of consuming good born by those other than consumer cost not reflected fully in prices

Question 38

One approach to correcting market failure is _________.

Answer 38

regulation

Question 39

Types of market regulation (2)

Answer 39

1) Taxation (employed by governments) - firms that make a good or service with negative externalities will be taxed so cost of production goes up affects consumer by increasing cost of consumption so market demand will be reduced (can also directly tax consumers) 2) Subsidization “Money paid, usually by government to keep prices below what they would be in a free market, or to keep alive businesses that would otherwise go bust, or to make activities happen that otherwise would not take place.” -can subsidize production of good/serve with positive externalities = decrease cost of production = decrease cost of consumption or increase quantity product can also directly subsidize costs for consumer

Question 40

free market

Answer 40

no regulation

Question 41

Subsidies shift demand curve to the...

Answer 41

right

Question 42

T/F: Free markets can result in an inequitable distribution of goods and services

Answer 42

T

Question 43

T/F: Achieving an efficient allocation simultaneously ensures that society attains an equitable allocation of resources.

Answer 43

F

Question 44

T/F: Demand and supply are assumed to be determined independently in well-functioning free market.

Answer 44

T

Question 45

T/F: Scarcity of resources results from inefficiency.

Answer 45

F

Question 46

T/F: There is no opportunity cost for applications of resources that are technologically efficient, cost-effective, and allocatively efficient.

Answer 46

F

Question 47

Equilibrium price arises from one party (T/F)

Answer 47

F --> determined by interaction between supply and demand

Question 48

ICER is comparable to

Answer 48

willingness to pay (WTP)

Question 49

key metric for cost minimization analysis

Answer 49

cost difference (health outcomes assumed to be equal)

Question 50

measurement of outcomes for CCA and CEA

Answer 50

natural health units

Question 51

measurement of outcomes for CUA

Answer 51

healthy year equivalents (QALY/DALY)

Question 52

key metric for CCA, CEA, CUA

Answer 52

CCA = Incremental costs and consequences CEA = ICER CUA = ICUR

Question 53

key metric and measurement of outcomes for CBA

Answer 53

net societal benefit and monetary units

Question 54

Cost-consequence analysis helps to overcome the challenges of using economic evaluations to inform decision-making in public health. How?

Answer 54

Providing a range of outcomes allows for incorporating aspects of public health that may be difficult to represent with just one comprehensive measure optimal when decision makers are unable to come to a consensus on a single important outcome

Question 55

ICUR (incremental cost utility ratio) is used for which analysis?

Answer 55

Cost utility analysis

Question 56

utility of 0 is ____ and 1 is ___-.

Answer 56

death, perfect health

Question 57

utility is used as a weight to calculate ________.

Answer 57

QALYs

Question 58

how to calculate QALY's

Answer 58

utility for a health state x number of years spent in that health state

Question 59

which two types of economic evaluations involve a ratio?

Answer 59

CEA and CUA

Question 60

In a cost benefit analysis health outcomes are valued as....

Answer 60

monetary units (costs)

Question 61

Cartesian plane: y axis = x axis = origin = slope =

Answer 61

incremental cost incremental effectivness status quo or current program WTP

Question 62

Two approaches to economic evaluation

Answer 62

model based person-level data

Question 63

Model based

Answer 63

information from multiple sources is incorporated into a mathematical model (rare to find a single dataset that contains all of the information required)

Question 64

Person-level data

Answer 64

single dataset can be used to provide the information on cost and outcomes. This data can be collected alongside a RCT (information must be collected for each option (two or more) that are being compared)

Question 65

Cartesian plane: For point in first quadrant (more costly, more effective) if point above slope (WTP) what does it mean? what if below)

Answer 65

Above: though more effective, incremental cost per year life is more than what we are willing to pay for an additional life year Below: more effective and incremental cost per life year less than what we are WTP per additional life year (would invest) note that the line from the origin to the specified point represents incremental cost per life year ratio for that point (smaller slope means smaller ratio which means more cost effective)

Question 66

Cartesian plane: 3rd quadrant (less costly, less effective) What if point above vs below WTP line?

Answer 66

F - is less costly and less effective, but we may be willing to give up the effectiveness in light of the cost savings. The costs saved might be put to another use for improving health. G - is less costly and less effective, but we would not be willing to give up the effectiveness because the cost savings are inadequate in light of our willingness to pay threshold.

Question 67

traits of a model

Answer 67

a Is a representation of a decision b. Based on a phenomenon (e.g. disease process, diagnostic pathway) c. That reflects the essential features of the phenomenon (but not all the features) d. Is mathematical and thus involves equations e. Reflects our understanding of the phenomenon based on currently available data (e.g. probabilities, costs and health values) f. Is useful to assist in forecasting, planning and thus aids in decision making

Question 68

model represent phenomenon exactly. T/F

Answer 68

F; simplification

Question 69

ex ante

Answer 69

decide what we need to do now

Question 70

decision analysis

Answer 70

quantifies the expected benefits of each course of action (i.e. each option) based on probability of events and how we value those events.

Question 71

probability

Answer 71

likelihood of an event

Question 72

When making probability statements about a group of people, we express the probability as a

Answer 72

proportion

Question 73

sensitivity analysis

Answer 73

tests the responsiveness of model results to possible variations in parameter values helps to appraise the relative risk among alternative courses of action. change one ore more parameters and re-evaluate model

Question 74

Benefits of using a CUA (QALYs/DALYS)

Answer 74

With CCA and CEA, hard to compare programs with different natural health units also quality of life not captured, may extend life years but quality? CUA allows for brand comparisons

Question 75

utility is the preference for a ____________.

Answer 75

health state

Question 76

QALY combines the effects of health interventions on _________ and ________ into a single index. Two dimensions to life:

Answer 76

mortality and morbidity quality and quantity

Question 77

Estimation of health utilities requires two main components:

Answer 77

1. Health state description 2. Valuation of the health state (or health state valuation)

Question 78

Health valuation methods that are direct (involved in determining utility)

Answer 78

– Visual Analog Scale (also called Rating Scale) – Time Trade-Off – Standard Gamble

Question 79

Indirect methods for health valuation

Answer 79

Multi-Attribute Utility Instrument * Generic * Disease-Specific

Question 80

1-pdeath = utility (which health valuation method is this?)

Answer 80

standard gamble (direct)

Question 81

equivalent years of healthy life/life expectancy in health state = utility (Which health valuation method is this?)

Answer 81

time to trade off (TTO) - direct

Question 82

Respondent is asked to risk death (hypothetically), to be cured of the disease/condition

Answer 82

Standard gamble

Question 83

Of all the direction health valuation methods, which is considered gold standard?

Answer 83

Standard gamble (Incorporates uncertainty, therefore better reflects real treatment decisions)

Question 84

What are some drawbacks with standard gamble method?

Answer 84

-measurement complex -may be insufficiently sensitive for valuation of minor health states (people may not be willing to accept any chance of death for minor health states; therefore may fail to detect subtle differences in how people value slightly different minor conditions)

Question 85

Rank utility values for direct health valuation methods in order from lowest to greatest

Answer 85

VAS, TTO, SG

Question 86

Calculation of DALYs involves summing two components:

Answer 86

YLD (years lived with disability) YLL (years of life lost)

Question 87

In what ways are DALYs similar to utilities used in QALYs? How are disability weights different from utilities?

Answer 87

Similar: -disability weight is focused on the health status -health state descriptions reflect symptoms and functioning (exclude other aspects such as social env, income, etc) Difference between weights: disability weights estimated by one organization, DALYs are negatively framed and focused on health loss

Question 88

QALYs and DALYs similar in that

Answer 88

need health state description and valuation of health state

Question 89

Two methods used to determine DALY disability weights:

Answer 89

Person trade-off Paired rankings

Question 90

Uses of DALY (two main):

Answer 90

1) economic evaluation - longitudinal 2) population evaluation - cross sectional (disease burden in pop, cross sectional, monitor changes over time)

Question 91

DALY for population evaluation/disease burden determination

Answer 91

-Population measure of disease burden -Based on cause of death and prevalence of disease -YLL (cause of death; years lost allocated to disease, impact if death prevented) -YLD (prevalence; [assigned] DALY weight, allocated to disease/condition)

Question 92

Differences between DALYs and QALYs

Answer 92

DALYs are used in global settings whereas QALYs are used in high income settings DALYs have a single source of disability weights whereas QALY utilities have many DALYs goal is to minimize, QALYs is to maximize meaning of 0 and 1 are opposite

Question 93

DALYs in an economic evaluation (longitudinal) Forecast impact of intervention on DALY; what is impact?

Answer 93

Reduction of DALYs if: YLL lowered by increasing life expectancy YLD lowered by lowering disease severity or number of people with disability

Question 94

Define healthcare

Answer 94

goods and services delivered through individual-level exchanges by health care professionals with the primary purpose of improving health

Question 95

What does healthcare-related goods and services exclude?

Answer 95

delivered at the population level, such as health promotion media campaigns, safety guardrails on the highway and water fluoridation services. Hurley’s definition of health care is also admittedly focused on goods and services delivered in a clinical setting by physicians and nurses (e.g. physician visits, surgical interventions, pharmaceuticals). The definition does however apply to some goods and services delivered by public health organizations. Public health professionals also deliver health care to individuals, such as one-to-one health education sessions, vaccinations and other preventive health interventions, amongst other goods and

Question 96

Characteristics of health care

Answer 96

Derived demand Externalities Information asymmetry Uncertainty Vulnerability

Question 97

why individuals in society are motivated to correct market failure?

Answer 97

Many individuals value distributional equity. (willing to support interventions that address market failure -motivated by concern about the welfare of others through their willingness to bear the cost of a good or service so that others who cannot afford it will benefit. -can also be motivated by selfishness (i.e. willing to bear the cost of good or service consumed by others to protect themselves liking funding of public health programs that prevent the spread of communicable diseases)

Question 98

Why is there information asymmetry in healthcare?

Answer 98

Suppliers of health care services (e.g. physicians, nurses, midwives, allied health professionals, public health professionals) are much more informed about the need for and the benefits of those services than patients and clients.

Question 99

What can information asymmetry in healthcare lead to?

Answer 99

supplier-induced demand supplier can take advantage of the consumer’s ignorance and induce demand for unnecessary goods or services. For example, a clinician can order unnecessary tests, or recommend and perform an unnecessary surgery. A dietitian can promote an unnecessary dietary supplement. This is known as supplier-induced demand.

Question 100

Supplier induced demand Most supplier induced demand is...

Answer 100

individual’s demand for care that arises at least in part from the influence of the individual’s care provider efficient and desirable: the provider, acting as agent, recommends needed care that a poorly informed patient would not otherwise have demanded.”

Question 101

policies that protect consumers from abuse of information asymmetry by providers

Answer 101

licensure provider agency

Question 102

licensure

Answer 102

ensures health professionals have the requisite knowledge and prevents counterfeit practitioners from practicing

Question 103

provider agency

Answer 103

principle that health professionals adhere to different values than providers of other goods and services not expected to be self-interested profit-maximizers, but they are expected to maximize the safety and well-being of patients (therefore should only recommends goods/services that pt would want if they were well informed)

Question 104

uncertainty in healthcare

Answer 104

need for healthcare good/services unpredictable (hard to predict illness or injury)

Question 105

two factors determining degree of risk

Answer 105

-probability risk will occur -size of associated loss or gain

Question 106

risk pooling

Answer 106

do it becuase of the uncertain nature of health and need for healthcare services “When each member of a large group contributes a small amount to the “pool” in return for the promise that, if a specified risky event happens to one of the members, money from the pool will be used to compensate the individual for the loss experienced.

Question 107

insurance can lead to

Answer 107

moral hazard

Question 108

moral hazard

Answer 108

A tendency for the expected loss associated with an adverse event to change in the presence of insurance. -insurance changes the probability that the event will occur (i.e., person takes more care to avoid loss, or person) or because, conditional on the event happening, the loss is larger ((those affected seek more expensive care than if the loss was not insured).” Moral hazard may lead individuals to be less careful about their health when insured, knowing that they won’t have to pay for health care at the point of access (or won’t have to pay as much). Moral hazard can also lead people to consume more health care than if the loss was not insured

Question 109

vulnerability in healthcare

Answer 109

The vulnerability of the person is also at the heart of the uniqueness of health care goods and services. To quote Jeremiah Hurley, “Health care... is unusual in its concentrated focus on our very being.” (p. 196, Health Economics) Good health allows individuals to function physically, emotionally and socially.

Question 110

Define a health system according to WHO

Answer 110

organizations, institutions, resources and people whose primary purpose is to improve health efforts to influence determinants of health as well as more direct health-improvement activities.

Question 111

T/F: Health systems are limited to the healthcare system

Answer 111

F; Health systems are comprised of sectors not considered part of the health care system, such as education, agriculture, environment and transportation (The Public Health Agency of Canada lists a total of 12 determinants of health, of which health services is only one) Thus, the health system is very broad and correspondingly any discussion of organization and financing of the health system pertains to a range of policy decisions,

Question 112

Health care system

Answer 112

more narrow set of goods, services, and activities intended to improve or maintain health includes preventive, curative and palliative services delivered by licensed practitioners within health care organizations. Licensed practitioners and health care organizations, deliver health care goods, defined in the “Health Economics” textbook by Jeremiah Hurley as, “that subset of all goods and services delivered through individual-level exchanges by health care professionals with the primary purpose of improving health”

Question 113

Health care system criteria: governance (3 stakeholders)

Answer 113

the State (government organizations and agencies at central and sub-national level) * the health service providers (different public and private for and not for profit clinical, para-medical and non-clinical health services providers; unions and other professional associations; networks of care or of services) * the citizen who become service users when they interact with health service providers.

Question 114

Financing (public)

Answer 114

Public - governments raise revenue directly through taxation (i.e. personal income tax, corporate taxes, sales taxes) and health premiums. Governments pay for health care services either in their entirety, or pay a portion of the cost, raising additional revenue through cost-sharing mechanisms

Question 115

Private financing (private insurance)

Answer 115

Privately owned insurance companies raise revenues through insurance premiums and pay the entire cost of health care services or a portion of the cost. Insurance companies raise additional revenue through cost-sharing mechanisms Privately owned insurance companies may be for-profit or not-for profit. Employer roles are notable as large corporations often subsidize employee premiums and use bulk buying power to negotiate lower premiums with private companies.

Question 116

Private financing (Social health insurance)

Answer 116

Private, non-profit organizations raise revenue through mandatory deductions. Contributions and benefits are heavily regulated by the government.

Question 117

Out of pocket payments

Answer 117

Individuals pay directly for health care services out of pocket. Individuals may incur the entire cost of an uninsured health service. Individuals may incur a partial cost for insured health services through a cost- sharing mechanism

Question 118

cost-sharing

Answer 118

an insurance provision that requires an individual to pay part of the cost of an insured health care service

Question 119

types of cost-sharing mechanisms

Answer 119

co-insurance - individual pay a specified proportion (e.g., 20 percent) of the cost of care” co-payment - pay a fixed dollar amount per unit of the service received (e.g., $5.00 per prescription) Deductible - pay the full cost of any services received until the individual’s spending has reached a specified limit (the deductible) Maximum expenditure limit - a specified dollar limit such that once an individual’s out- of-pocket expenditures reach this limit, services become fully insured with no cost- sharing required.

Question 120

How are maximum expenditure limits different from deductibles?

Answer 120

Maximum expenditure limits differ from deductibles in that they are not linked to a specific health care service, but are often defined for a period. For example, once an individual or family reaches maximum expenditures for a year, then insurance coverage kicks in.