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ECO 343: Week 1 Notes

by: Alexa Sweeney

ECO 343: Week 1 Notes ECO 343

Alexa Sweeney
GPA 3.73
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About this Document

This document covers the first week of notes including classes on: Monday 8/27, Wednesday 8/31, and Friday 9/2.
Health economics
Muller, Leslie
Class Notes
health, Economics, Econ, Econ343, Grossman, Healthcare, Insurance, Rand, grand, valley, state, GVSU




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This 4 page Class Notes was uploaded by Alexa Sweeney on Wednesday August 31, 2016. The Class Notes belongs to ECO 343 at Grand Valley State University taught by Muller, Leslie in Fall 2016. Since its upload, it has received 57 views. For similar materials see Health economics in Economic Sciences at Grand Valley State University.

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Date Created: 08/31/16
Health Economics Notes – Week 1 8/29 Health care costs in the US are more expensive and rising faster than in other areas of the world. Some reasons this is happening:  Both of the following are paid via tax dollars: o Medicare – 65 years + o Medicare – low income U.S. per capita healthcare spending is more than 2 times that of other developed, comparable countries (think Canada). Why?  In our country, we will pay (and so will insurance) to extend our lives, even if our medical problems won’t be cured. o Ex. If a 50 year old gets cancer, they will treat it instead of just accepting it.  Patents  Profit involved U.S. has mostly private insurance (70%) than public insurance (30%). We are not healthier than other countries, even though we spend way more. Of those countries similar to us, we have:  The lowest life expectancy rate  The highest birth mortality rate  The highest obesity rate  The highest percent of adults with 2 or more chronic conditions  Lower smoking rates Growth of Healthcare Costs: Healthcare costs have increased over time starting in the 1960s… this can be attributed to the creation of Medicaid and Medicare in 1965. Healthcare demand increased at this time. This may not be the only reason why given that it has continued to increase since. 8/31 Demand for Medical Care (Derived) A curve for the demand for coffee looks the same as the demand for doctor visits, but getting this graph as an end result is different for two reasons: 1. We don’t get utility from doctor visits 2. We rarely pay the full price of medical care (health insurance) Rand Experiment: what you need to know What is it?  People were assigned different insurance plans with different copays with hopes of finding a correlation between plans and number of doctor visits/medicine taken. Main Question?  Is the demand for medical care declining? The assumption was that medical care was so vital that the demand would be inelastic (not changing).  Is the demand for medical care responsive to price? The assumption would be that inpatient visits are less elastic than outpatient visits because they are more life threatening. Findings?  As expected, inpatient visits are decreasing less intensely than outpatient visits as copay rates increase Elasticity = % change in Quantity / % change in Price 0<1  inelastic 1  perfectly elastic 1<  elastic  The result found over and over was -0.2. With this elasticity, we know it is relatively inelastic (look at the absolute value of the number).  When people had a 0-25% copay, they didn’t go to many preventative visits.  When people had a 25-95% copay, they had more preventative visits Y = b + mx Y =  + 25 25 +50 50+  95 95  = intercept 25= slope of the line representing the 25% copay 50= slope of the line representing the 50% copay 95= slope of the line representing the 95% copay Since 0% copay is omitted, we compare our number to those people. From the article: 25%: -0.079 This means that a person with the copay rate of 25% is 8% less likely to go to the doctor than a person with 0 copay. 95%: -0.170 This means that a person with the copay rate of 95% is 17% less likely to go to the doctor than a person with 0 copay. There wasn’t much change in inpatient data (25% copay = 2.2% less likely and 95% copay = 2.4% less likely) because those tent to be more serious issues in a person’s health. There was a lot of change in outpatient data (25% copay = 7.8% less likely and 95% copay = 17.1% less likely) because these are less serious health issues. In the end of the 5-year study, overall health didn’t change in any of the groups. After 3 decades, studies show:  Goldman study o Doubling of co-insurance  diabetic reduce use of insulin by 23% o Hypertension increased by 10% (happens when insulin isn’t taken)  HSU et al: o More co-insurance can lead to worse compliance and more inpatient visits Take away message: High deductibles take away moral hazard, but may affect our health. Moral hazard – the chance that a person will respond differently depending on how much they are required to pay 9/2 Grossman Model st Grossman was the 1 person to recognize health as capital stock. Utility = f(z) This means that a person gets utility from consuming good “z”. Grossman wrote the equation: Utility = f(z,h) This separates health from the equation. Summary: diminishing returns are present. Going from having cancer to healthy is going to be a much larger increase in utility than going from a stuffy nose to healthy. 3 Characteristics of Health: 1. Consumption of goods 2. Capital good (investment in health) 3. Health is an input into a household production function


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