Advanced Health Economics

8/8/2019 Advanced Health Economics

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Advanced Health EconomicsEcon555/HPA543

Week 1:Introduction and Overview


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Why Health Economics?

size and scope of the health careeconomy


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National Health Expenditures, 1960-2003

$0.00

$200.00

$400.00

$600.00

$800.00

$1,000.00

$1,200.00

$1,400.00

$1,600.00

$1,800.00

200320001997199419911988198519821979197619731970196719641961

Y e a r

BillionsofDollars

Total Private Federal State & Local


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Per Capita Health Expenditures, 1960-2003

$0.00

$1,000.00

$2,000.00

$3,000.00

$4,000.00

$5,000.00

$6,000.00

20032002200120001999199819971996199519941993199219911990198919881987198619851984198319821981198019791978197719761975197419731972197119701969196819671966196519641963196219611960

Y ear

Dolla

rs

Total Private Federal State & Local


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Personal Consumption Expenditures, 1960-2003

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

1960 1966 1972 1978 1984 1990 1996 2002

MillionsofDollars

Food Housing Medical Care Transportation Hshld.Op.

Recreation Clothing Pers.Bus. Other


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Personal Consumption Expenditures, 1960-2003

0%

20%

40%

60%

80%

100%

1960 1966 1972 1978 1984 1990 1996 2002

Medical Care Food Housing Transportation Hshld.Op. Recreation Clothing Pers.Bus. Other


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Annual Percentage Change in US Health Care Expenditures, 1961-2003

0

2

4

6

8

10

12

14

16

18

20031999199519911987198319791975197119671963

Y e a r


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US Health Care Expenditures as Percent of GDP, 1960-2003

0

2

4

6

8

10

12

14

16

18

20031999199519911987198319791975197119671963


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Medical Care Prices, 1960-2004

0

50

100

150

200

250

300

350

400

450

1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004

CPI

All Medical Care P resc. Drugs Phys. Svcs. Hosp. Svcs.


10/55Source: Heffler, et al. (2003), Health Affairs


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Source: Huber and Orosz, Health Care Financing Review, 2003


12/55Source: Huber and Orosz, Health Care Financing Review, 2003


13/55Source: Huber and Orosz, Health Care Financing Review, 2003


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US Health Care Spending, 2003 Major Categories

Source: DHHS, http://www.cms.hhs.gov/statistics/nhe/historical/chart.asp


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Health Care Expenditures by Type, 1960-2002

0

100,000

200,000

300,000

400,000

500,000

1965 1969 1973 1977 1981 1985 1989 1993 1997 2001

Hospital Physician Other Prof. Presc.Drug Nursing HomOth.Pers. Admin Pub.Hlth/Res. Const.


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Health Care Expenditures by Type, 1960-2002

0%

20 %

40 %

60 %

80 %

100%

1965 1969 1973 1977 1981 1985 1989 1993 1997 2001

Hospital Physician Other Prof. Presc.Drug Nursing Home


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size and scope of the health care economy Role of government in health care markets

share of overall spending


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Percent of Total Health Care Expenditures by Source, 1960-2003

0%

20%

40%

60%

80%

100%

20031999199519911987198319791975197119671963

Y e a r

Private Federal State & Local


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Federal Health Care Expenditures, by Program, 1960-2003

0

100,000

200,000

300,000

400,000

500,000

600,000

20031999199519911987198319791975197119671963

Total M edicare Medicaid/SCHIP Defens e/VA Public Health/Resear ch O th er


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Federal Health Care Expenditures, by Program, 1960-2003

0%

20 %

40 %

60 %

80 %

100%

20031999199519911987198319791975197119671963

Medicare Medicaid/SCHIP Defense/VA Publ ic Heal th /Research Other


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State and Local Health Expenditures, by Program, 1960-2003

0

50,000

100,000

150,000

200,000

250,000

20031999199519911987198319791975197119671963

Total Medicaid/SCHIP Public Health Workers' Comp Hospitals/Schools Other


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State and Local Health Expenditures, by Program, 1960-2003

0%

20 %

40 %

60 %

80 %

100%

20031999199519911987198319791975197119671963

Medicaid/SCHIP Public Health Workers ' Comp Hospi ta ls/Schools Other


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Source: Huber and Orosz, Health Care Financing Review, 2003


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regulation, legislation and programs


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Government Intervention in Health-

Related Markets

Demand Side

Provision of insurance

Efforts to affect health behavior

Supply Side

Price controls

Restrictions on entry/exit

Subsidization of research

Promotion of competition Tax policy

And much more..


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Role of Uncertainty


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Uncertainty and Health

Often the result of asymmetric information Demand Side

Uncertainty about probability of illness

Uncertainty about treatments

Uncertainty about quality and aims of supplier

Supply Side

Uncertainty about treatment options

Uncertainty about risk for insurers

Key factor behind demand for insurance


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US Health Care Spending, 2003 Source of Funds

Source: DHHS, http://www.cms.hhs.gov/statistics/nhe/historical/chart.asp


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Private Health Care Expenditures, by Source,

1960-2003

0

100,000

200,000

300,000

400,000

500,000

600,000

20031999199519911987198319791975197119671963

Year

MillionsofD

ollars

Out-of-Pocket Private Insurance Other Private


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Private Health Care Expenditures, by Source, 1960-2003

0%

20%

40%

60%

80%

100%

20031999199519911987198319791975197119671963

Yea r

Out-of-Pocket Private Insurance Other Private


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Source: Heffler, et al. (2003), Health Affairs


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Information and Types of Medical Care

Pauly (1978, 1988) describes three types of

medical care services which are purchased relatively frequentlyby most households

services a typical producer produces relativelyfrequently but which a typical consumer can

consume relatively infrequently, perhaps once in alifetime

services which a typical produce produces and atypical consumer consumes relatively infrequently

Concludes that increased commercialism has mademedical care less different from other goods&services over time


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Role of Uncertainty

Externalities


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Externalities

Communicable diseases Significant reductions in spread of communicable

disease account for much of improvement in healthin developed countries

Still a significant problem in less developedcountries

Individual behaviors

Direct impact on health

Impact on publicly provided health costs


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Source: UC Atlas of Global Inequality, http://ucatlas.ucsc.edu/health

Causes of Death, Developed vs.Developing Countries

Leading Causes of Death in 2001


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Source: UC Atlas of Global Inequality, http://ucatlas.ucsc.edu/health/cause.php

499 00010.Self-inflicted674 00010.Measles

571 0009. Tuberculosis748 0009. Chronic obstructivepulmonary disease

635 0008. Hypertensive heart disease1 021 0008. Tuberculosis

657 0007. Stomach cancer1 103 0007. Malaria

669 0006. Road traffic accidents1 217 0006. Childhood diseases

938 0005. Trachea/bronchus/lung cancers1 381 0005. Cerebrovascular disease

1 180 0004. Lower respiratory infections1 793 0004. Diarrhoeal diseases

1 829 0003. Chronic obstructive pulmonary disease2 484 0003. Ischaemic heart disease

3 346 0002. Cerebrovascular disease2 643 0002. Lower respiratory infections

3 512 0001. Ischaemic heart disease2 678 0001.HIV/AIDS

Number of DeathsDeveloped CountriesNumber of DeathsDeveloping Countries


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Actual Causes of Death in US, 2000

Source: Mokdad et al, 2004

Lif E t t Bi th 1990 1998


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Life Expectancy at Birth, 1990-1998

Source: World Bank, http://www.worldbank.org/depweb/english/modules/social/life/map1.html


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Life Expectancy at Birth, United States

0.0

20.040.0

60.0

80.0100.0

1900 1950 1960 1970 1980 1990 2000

Year

Y

ears

Male Female


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Role of Uncertainty

Externalities

Importance of Non-Profits


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Role of Uncertainty

Externalities

Importance of Non-Profits

Issues of Equity and Need

H C i l M d l f h


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Human Capital Model of the

Demand for Health

Based on Grossman (1972a,b)

Explains demand for health and demand for healthcare

Key features: Consumers want health

Demand for medical care is derived from demand forhealth

Consumers produce health in various ways Health should be thought of as a stock that depreciates

over time and that can be added to

Health is both an consumption good and an investmentgood


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Health

Consumption

Indifference curves reflecttradeoffs between health

and other consumption


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Income

Leisure Time

Time(days)=365 = TH + TI + TW + TL

TLo

Yo

Improved Health increases time

Available for work and leisure

TL1

Y1

Labor Leisure Tradeoff


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Consumption

Good

Medical Care

Budget constraint

Y = PMM + PCC

Mo

Co

M1

C1


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Health

Medical Care

Health Production Function- similar for other inputs into health

production (e.g. time on health)- depends on medical care, time spent

in health production, knowledge,

and endowment

H0

Ht+1 = (1-d )Ht + It

H1


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Health

Consumption

Production Possibilities Frontierreflects tradeoffs between what can be

produced given resources, technologies, etc.

H0

H1

4 Quadrant Model


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4 Quadrant ModelHealth

Consumption

Consumption

Medical Care

Rise in Medical Care Prices Health


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Rise in Medical Care Prices

Consumption

Consumption

Medical Care


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Factors affecting demand for health

Prices of medical care and other goods

Wages

Education

Age Health Endowment

Preferences

Environmental Factors

Advanced Health Economics

Documents

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