Technology and Price of Care (L11)

Question 1

health care costs

Answer 1

total health expenditures

Question 2

equation for medical expenditures

Answer 2

E=P*Q
E=expenditures on medical care
P=price of medical care
Q=quantity of medical care

Question 3

Hypotheses to explain rising expenditures

Answer 3

1. prices have increased
2. quantity demanded has increased
3. technology innovations and technological overuse

Question 4

Why could quantity demanded have increased?

Answer 4

1. an aging population - people demand more health care as they age
2. a richer population - rising income levels lead to more health care consumption
3. more insurance coverage - more insurance reduces OOP prices to patients
4. increasing quality of medical care - each dollar spent on health care generates a higher marginal health benefit, so demand for health care increases

Question 5

When are rising costs a good thing?

Answer 5

if rising costs are due to demand - people are not necessarily worse off

Question 6

When are rising costs a bad thing?

Answer 6

if rising costs are due to prices - this harms consumers. Health is getting more expensive to produce, so people will either have to cut back on health care or spend more money to stay health

Question 7

Why may prices be rising?

Answer 7

1. increased resource costs
2. less competitive markets - hospital mergers may have made the market more monopolistic
3. expensive new technology - if modern medical care routinely incorporates new expensive technologies, the price of treating ailments will rise

Question 8

medical inflation

Answer 8

a rise in the price level for medical goods and services

Question 9

medical care consumer price index (CPI)

Answer 9

measures changes in the price level for medical goods and services. can tell us how much more it costs this year to buy the same things we bought last year

Question 10

how to calculate medical care CPI

Answer 10

create a bundle of goods and services that approximates typical consumption of goods and services demanded. compare the total cost of this bundle this year to the total cost last year.

Question 11

the Dartmouth Atlas

Answer 11

tracks Medicare spending across the US. Finds that:

1. patients with same diagnosis can receive dramatically different care depending on where they live
2. no correlation between more expensive treatment and health outcomes, in general

Question 12

What might cause different HPFs between two cities?

Answer 12

1. different input costs (i.e. costs of living)
2. different hospital amenities
3. different medical malpractice environments
4. different severities of illness

Dartmouth Atlas argues that these are all insufficient to explain variation in medical expenditures

Question 13

What causes medical care spending at suboptimal points?

Answer 13

1. supply-sensitive care - health services whose use depends greatly on the supply or availability of that service
   hypothesis: doctors with greater access to resources will tend to overprescribe care
2. moral hazard

Question 14

Laspeyres price indices

Answer 14

A type of medical care CPI that answers the question: How much more does it cost this year to buy the same things I bought last year?
Becomes a bad approx. when the goods that are included in the bundle change from year to year