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Health Economics > Test 2 > Flashcards

Test 2 Flashcards

1
Q

1a. Perfect Agent

A

When a physician behaves as a patient would if the patient was as informed as the physician (puts self into patient shoes)

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2
Q

Fuchs (1978) Increase in supply of physicians

A

Causes an increase in price of physician services to make up lost money

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3
Q

Rice (1983) lowered fees for physician services

A

causes an increase in quantity of physician services, since physicians were not getting reimbursed as much

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4
Q

1b. Target Income Theory

A 
T = p*q
an inverse relationship exists to maintain target income
q- service to a patient
p- price of service
ie. q dec. with more competition
     p inc. to maintain target income
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5
Q

1b. Difficulties with target income

A
  1. T is unknown

2. many unknowns with a variety of provided services

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6
Q

1c. Supplier Induced Demand

A

Physicians engage in some persuasive activity to shift the patients demand in or out according to the physician’s best interests (imperfect agent)

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7
Q

1c. SID can cause

A

welfare loss, provide care beyond true MC *

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8
Q

There is an impact of __ on Q services

A

price

ie. Medicare fee reductions led to an inc volume of care

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9
Q

1c. If a patient is not convinced then

A

There is only a shift occurring on their demand curve

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10
Q

Why is a concentration in pharmaceuticals less evident

A

There is less concentrated share of industry because there are less substitutes and companies specialize

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11
Q

Drug usage over time

A

1992 was 7.2% per capita
2008 13.8% per capita
elderly, inc in insurance covrage

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12
Q

formulary

A

list of drugs covered by insurance

tiered- cost sharing can vary based on brand

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13
Q

2a. Barrier to entry

A

patent- allow for a monopoly over x time period encourages R&D

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14
Q

Initial regulations for R&D

A
  • pre-market testing and approval process

- inhibited generic entry

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15
Q

1962 amendments

A
  • pre-market testing and approval process

- inhibited generic entry

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16
Q

2c. 1984 Hatch Waxman Act

A
  • generics just need to porve bioequivalence to gain FDA approval
  • no delay between patent expiration and generic entry
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17
Q

2b. FDA Approval Process

A
  1. Pre-clinical animal testing
  2. 3 phases of human trials
    • small # healthy
    • small # diseased
    • large # diseased
  3. FDA filing and approval

Length (10-15 years)
Consumes patent time of 14years max

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18
Q

1 in _ drugs are profitable

A

3

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19
Q

2d. What happens as a result of generic entry

A
  1. grabs market share of brand name
  2. price of branded can inc or dec
    • inc. if inelastic demand for
      brand
    • dec. because competition
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20
Q

orphan drugs

A

drugs that benefit a small portion of set population, usually get tax breaks or financial incentive
< 200 people

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21
Q

2e. Investment decision Net Present Value (NPV)

A

NPV = period of large losses (investment) + period of high potential gains (patent life) + period of lower gains (after patent life)

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22
Q

2e. Pricing justifications

A

R&D is a fixed cost because VC are low (per pill)
MR = MC
Real reason for high prices: because Demand is high

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23
Q

2e. Why are drug prices higher in the US?

A
  1. The US doesn’t have price control regulations

2. higher preference for new innovative drugs

24
Q

3a. Expost moral hazard (Pauly, 1968)

A

if insured choose to consume more care because out of pocket price is lower

25
Q

3a. Exante moral hazard (Ehrlich and Becker, 1972)

A

If insured less incentive to maintain health (risky behaviors)

26
Q

3b. Effect of coinsurance on demand

A

typically increases the demand because of a decrease in price

27
Q

3b. Effect of copay on demand*

A

Inelastic and then decreases after lower than

28
Q

3c. Dead Weight Loss occurs when

A

Supply is greater than demand (excess cost)

29
Q

3c. DWL More inelastic (less price sensitive) results in

A

less DWL

30
Q

3c. how to find DWL

A

compare Q equilibrium w/ new Quantity

31
Q

4a. copay

A

flat fee

32
Q

4a. deductible

A

amount you pay before insurance kicks in

33
Q

4a. coinsurance

A

rate you pay, percent of the bill

34
Q

4a. Pure/ Actuarially Fair Premium (blue line)

A

Expected health care costs = probability of illness * cost if sick

35
Q

4a. Load Fee

A

administration or profit mark-up for profit

36
Q

4a. Premium

A

Pure premium + load fee
Where pure premium:
prob. sick * cost of sick + prob. healthy * cost of healthy

37
Q

4a. Medical loss ratio

A

spending on medical expenses/ total premiums collected (for insurance companies)
- higher for group plans

38
Q

4b. Risk aversion

A

consumer paying more than expected healthcare costs for an insurance plan

39
Q

4c. Adverse selection

A

occurs when asymmetric info exists in health insurance markets (asymmetric information)
leading to financial risk by insurance company

40
Q

4c. Adverse selection in healthcare

A

Buyers have more info about their health insurance company

Insurance companies want to protect self from lemons, lose money

41
Q

4ci. Lemon’s Principle

A

sick people (lemons) dive healthy people out of the market because of asymmetrical info causing companies to guess distribution so that all expenses are coverd

42
Q

ACA made __ illegal

A

exclusion based on pre-existing conditions

43
Q

Employer-provided insurance is less expensive because

A

pay with pre-tax dollars
reduced adverse selection
negotiate reimbursement to products
economies of scale (assoc admin expenditures)
*stable pool because a variety of health risks

44
Q

4ciii. Adverse Selection Death Spiral

A
  1. increase plan premium
  2. healthy people leave decreasing enrollment
  3. PPO plan loses money
45
Q

4d. Experience rating

A

people pay different premiums based on separate risk of individual

46
Q

4d. Community rating

A

everyone is paying the same premium (healthy people likely to leave)

47
Q

Traditional/ Conventional/ FFS Plans

A
  • covered most types of care
  • relatively low cost sharing
  • freedom to see any provider
  • physicians were paid fee for service (FFS)
    features- lack of control on expenditures, expenditures skyrocketing
48
Q

From 1980s to 2010’s conventional to managed care ratio went to

A

95: 5
1: 99

49
Q

5a. Managed Care Characteristics

A
  • utilization review
  • limited provider networks
  • formularies, list of covered drugs
  • physician gatekeeper: primary care, physicians must provide approval before seeing specialist
50
Q

Financial reimbursement to providers

A
  1. capitation- fixed payment per patient

2. discounted negotiated fees

51
Q

5b. Health Maintenance Organization

A
  • restrictive plan, lowest premium
  • restricted provider network
  • stringent utilization review
  • provider paid by capitation
  • physician gatekeepers
52
Q

5b. Point of Service

A
  • like HMO
  • some coverage for care sought from an out of network provider
  • higher cost-sharing for out of network
53
Q

5b. Preferred Provider Organization

A
  • least restrictive with a higher premium
  • paid via discounted negotiated fees
  • no gatekeeper
  • less stringent utilization review
  • coverage for care sought out of network providers, however pay cost-sharing
54
Q

5c Managed Care Backlash

A

widespread media coverage

  • larger networks
  • less stringent utilization reviews
  • established minimum length of stay
55
Q

HMO favorability

A 
Favored
- shortened LOS
- utilizing fewer expensive resources
- prevention
- satisfaction 
Neutral
- not strong impact on quality of care
Unfavorable
- satisfaction

Health Economics (2 decks)

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