Module 2 Flashcards
How does HC demand generate utility?
HC demand only generates utility if it improves health or quality of life (demand for HC derives from demand for health)
What are the assumptions of the medico-technical model? And the critiques?
- HC providers act as perfect agents on behalf of patients
- Patients have uniform preferences & fully comply with decisions made by providers
- Providers know with certainty the results of their decisions
The critiques are all of the assumptions + the fact that patients are NOT insensitive to prices
What are the 3 models to determine HC demand?
- Medico-technical
- Neo-classical
- Imperfect agency
What is the only determinant of the medico-technical model?
Need: individual demand is price inelastic (patients are not sensitive to price)
How is demand determined in the medico-technical model?
Consumer demand is determined by medical experts based on objective needs
How is demand determined in the neo-classical model?
Consumer demand is determined by consumers: they maximize utility based on a budget constraint
What are the assumptions of the neo-classical model? And the critiques?
- Consumers are not sovereign: depend on doctors’ opinions & judgement
- Consumers have predetermined preferences
- Consumers know with certainty the results of their consumption decisions (Demand for HC=Demand for health)
The critiques are all the assumptions - regarding nº3, demand curve doesn’t necessarily reflect the maximum utility of health services
Describe the Imperfect agency model
- Information is part of the transaction
- Demand is partly consumer/partly doctor initiated
- Providers act as imperfect agents on behalf of patients - and may use information surplus to pursue their own interests (income, leisure, status,…) -> which can conflict with patients’ interests
As a result:
1. Patients’ demand curve may not reflect how they really value health services
2. Overprovision (supplier induced demand) or underprovision may occur
What is the optimal consumption bundle?
The optimal combination of healthcare and other goods given a certain budget (maximum utility) - the intercept of the budget constraint and the indifference curve.
What are the key determinants of HC demand?
- Needs (health status) - position of the indifference curve
- Wants (preferences) - slope of the IC (substitution rate)
- Budget (income) - position of BC
- Prices of HC and other goods - slope of BC
How does the slope of the IC change with different wants and needs?
Different needs - same slope, different position (e.g. someone who’s sick vs someone who’s healthy)
Different wants - different slope (the higher the slope is, the more the patient is willing to sacrifice healthcare for other goods)
What does price elasticity of demand measure?
How sensitive consumers are to healthcare prices.
(price elasticities are point estimates - depend on the slope + particular point on the demand curve)
What is the difference between an elastic vs inelastic demand curve?
Elastic curve - a difference in price has a high impact on quantity
Inelastic curve - a difference in price has a low impact on quantity
How can empirical studies be biased due to selection effects?
1 - In HC consumers often don’t pay the full market price, due to health insurance or government subsidies
2 - Empirical studies usually use out-of-pocket prices (e.g. copayments)
3 - Healthy people tend to choose higher copayments than less healthy people
What randomized experiments have been studied to deal with selection bias?
- RAND experiment
- 7k people were randomly assigned 4 cost sharing levels
- elasticity mean = -0.2 (when Phc increased by 1%, Qhc decreased by 0.2%)
- elasticity varied between health services
- There was a reduction of care due to less initiation - people went less to the doctor - Oregon experiment
- lottery for access of low-income people to get Medicare
- treatment group had more healthcare use
