1. 755_L1.ppt Health Economics A. Goodman
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Economics 7550
Health Economics
A. Goodman
For class meeting Wednesday, August 31, 2017

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The course
Class Meets: MW 5:30 – 7:10 – The first class meets Wednesday August 30, It will be a full-length class.
Office Hours: MW 3:00 – 5:00, or by appointment .
Office location: 2145 FAB
Phone: ;
Department and Course Web site:

3. Class Meetings – in advance
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Class Meetings – in advance
We WILL meet on Monday, November 20.
This is Monday before Thanksgiving
Wednesday, November 22 is a University holiday – no class.
Final Exam -Wednesday, December 13, 2017 – 5:30 – 7:10

4. Text materials The text materials (highly recommended) will be:
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Text materials
The text materials (highly recommended) will be:
The Economics of Health and Health Care, 8th Ed., by Sherman Folland, Allen C. Goodman, and Miron Stano
The Elgar Companion to Health Economics, Edited by Andrew M. Jones, to be purchased at the appropriate outlet.
Selected readings at the library and/or on-line.
There are
2 editions.
Either will do.

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Learning Outcomes (1)
Students taking health economics will learn and apply the concepts and methods of economics in depth.
Students taking health economics will become familiar with the historical context of the discipline, the connections to other fields of study, and the role of ethical values in decisions and policymaking.
Students taking health economics will carry out independent research and communicate their findings to students, faculty, and others.
Students will be able to interpret critically and communicate quantitative and verbal information about health economics.

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Learning Outcomes (2)
Students will learn how health economics can be applied to issues of contemporary concern, including but not limited to the environment, globalization, diversity, and sustainability.
Students will acquire skills and interests which enable them to be lifelong learners and contributing members of their communities, including critical thinking, clear and thoughtful communication, and honest and open inquiry.

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Exams and Grading
Students will be responsible for the following assignments in (roughly) chronological order:
1st short in-class presentation %
Mid-term exam – Wednesday October %
1 paper ( pages) %
2nd  in-class presentation (on paper) %
Final Exam Wednesday, December 13, 5:30 pm – 7: %
Various Homework and other assignments  15.00%
December 13, 2017 – 5:30 – 7:10
NO ONE ELSE’S FINAL SHOULD CONFLICT WITH THIS.
IF SOMEONE RE-SCHEDULES, LET ME KNOW.

8. Papers and Presentations
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Papers and Presentations
In-class presentations of current events and good journal material.
An excellent database on health status and expenditures is available.
The term paper (and presentation) will be prepared as original work from the database, using appropriate data analysis and econometric techniques.
If you want to start thinking about this, contact me.

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The Curve
Any grade below B- in a graduate level course is considered to be
unsatisfactory, and any grade below C is considered to be a failing grade.
Grades of B- or worse push your GPA below 3.00.

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Resources
Department and Course Web site:
Learn to use Library Resources. Invaluable ones include:
Science Direct
OECD

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Journals and Web Sites
There are some terrific places to find information and data.
Information WSU Library (for Science Direct). Journals such as Journal of Health Economics.
Another excellent journal is Health Economics.
More topical stuff is at Health Affairs.

12. Web Sites Medicare and Medicaid – CMS Center for Disease Control – CDC
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Web Sites
Medicare and Medicaid – CMS
Center for Disease Control – CDC
OECD
Data for analysis – MEPS

13. Relevance of Health Economics
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Relevance of Health Economics
The health care sector is big, and is getting bigger. In 1950, less than 5% of GDP went to health care. By 1976, it was about 8%, and now ( ) it’s about 17.5%. This means that not only has health care grown absolutely, it has grown relative to everything else.
It’s trivial, but nonetheless useful to consider this algebraically for health share s.
s = pq/y
Percentage = 100s

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Health Share
s = pq/y.
ds = (q/y)dp + (p/y)dq – (pq/y2) dy. (Total Differential)
Dividing both sides by s, we get:
ds = (q/y)dp + (p/y)dq – (pq/y2) dy
s (pq/y)
ds/s = dp/p + dq/q - dy/y.
What does this mean?
This is standard tool
in micro work. You
should get to know it.

15. Here’s an example We have data for about 31 countries for 9 years.
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Here’s an example
We have data for about 31 countries for 9 years.
We have an elasticity of 1.36.
What happens to shares?
Look!

16. Some Numbers Nominal health expenditures per capita were:
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Some Numbers
Nominal health expenditures per capita were:
$147 in Rose to $9,990 in a factor of 68!
Real health expenditures per capita ($1960) were:
$147 in 1960; $1,248 in 2015.
$1,248/$147 = 8.49
Increase of about 749%. Are we 7.5 times as healthy as in 1960?
CPI
CPI

17. Nat’l Health Expend per Year
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Nat’l Health Expend per Year

18. Nat’l Health Exp per capita
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Nat’l Health Exp per capita

19. Nat’l Health Expenditures per capita by Year
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Nat’l Health Expenditures per capita by Year

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U.S. Expenditure Shares
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Is it Worth it?
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A key question in this context is whether people value these innovations at their incremental social cost.
No one knows for sure, but economist Dana Goldman reiterates a provocative insight: “if you had the choice between buying 1960s medicine at 1960s prices or today's medicine at today's prices, which would you prefer?”
A vote for today’s medicine is validation of the improvement, and willingness to pay for improved quality!

23. Still another cause for concern
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Still another cause for concern
Problems that people have had getting insured.
Prior to passage of ACA, the most recent estimate was 50 million, or almost 1 in 6 Americans We have a feature in the book that talks about how this is measured.
Only the U.S., among advanced countries, has not had some form of universal health coverage.
ACA will insure about 2/3 of those currently uninsured, but it will take a while.
It is NOT a census of the uninsured.
At the beginning, they were calling it PPACA – now they only do ACA.

24. Origins of HealthEconomics – Physician Shortage
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Origins of HealthEconomics – Physician Shortage
Health economics has evolved from applied work in more general economics. An example.
In early 1940s Milton Friedman and Simon Kuznets, looked at the so-called physician shortage of the 1930s.
These shortages are often defined through the health care sector, by positing a technological ratio (e.g. z physicians per capita), then calculating the number of physicians necessary, and comparing it to the number available.
NY Times ( ) had a piece on this. Not “no care” but “delayed care.” Are they the same?

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Physician shortage
FK discovered that physicians, at the time, were earning about 32% more than dentists, while their training costs were about 17% higher. What would we expect to see over some adjustment period ???
A> Barriers to Entry into the physician market. Friedman and Kuznets attributed long-term high returns to barriers to entry into the medical profession through licensure, and education.

26. Shortages approaching?
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Shortages approaching?
Shortages estimated by fixed coefficient method.
NY Times
Article

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For a physician what does a downward sloping D curve mean? Is this perfect competition?
Price Discrimination
Reuben Kessel addressed the practice of physicians to charge different patients different fees.
The physicians often argued that this was charity. That is, they charged some more, to subsidize charging others less.
Kessel argued, instead that it increased profits by getting money from those who were most able to pay. D P MC P* MR Q* Q

28. Price Discrimination D P MC P* MR Q* Q
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Price Discrimination
Now suppose the physician wants to treat 1 more customer, who he knows, can only pay less than P*. MR is still greater than MC. Further, most health care can not be re-sold; if you break your leg, I can't go and get cheaper treatment and re-sell it to you.
Hence, additional profits can be made, even if physicians charges subsequent buyers less money.
Incremental Profit D P MC P* MR Q* Q

29. Does Economics Apply to Health and Health Care?
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Does Economics Apply to Health and Health Care?
1. Uncertainty
Most analysis that we do in economics ignores uncertainty. Where does this occur?
Patient status - How healthy are we? Will we need treatment?
Efficacy of treatment - Do we need it? Will it work?

30. Does Economics Apply to Health and Health Care?
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Does Economics Apply to Health and Health Care?
2. Prominence of Insurance
No other sector features insurance so prominently. In 1960 about 55 percent of all personal health care expenditures were paid out-of-pocket; 45 percent by third party payers and/or government. By 2000, 82.6 percent was paid by third party payers.
In 2009, the percentage was 88.0.

31. Does Economics Apply to Health and Health Care?
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Does Economics Apply to Health and Health Care?
2. Prominence of Insurance
Availability of insurance. Who has it? Who doesn’t?
Effect of insurance on technology. Does insurance impact which kinds of treatments are given, and which aren’t?
Do insurance and medical care prices combine to raise health care costs?

32. Does Economics Apply to Health and Health Care?
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Does Economics Apply to Health and Health Care?
Information
Lots of economic analysis assumes perfect information on the parts of buyers and sellers. This is “symmetric” information. Both parties have it.
Sometimes neither party has the information. e.g. Neither the gynecologist nor her patient may recognize early stages of cervical cancer without a Pap smear.

33. Does Economics Apply to Health and Health Care?
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Does Economics Apply to Health and Health Care?
Sometimes, physician knows more about disease, and must act as an agent for the patient. Some feel that this can lead to the recommendation of too much, or even unnecessary care.
How informed are patients? A> Probably pretty well informed for a substantial proportion of their care.
Think about yourself. How well-informed are you? How about your parents? How well-informed are they?

34. Does Economics Apply? 4. Role of Non-Profit Firms
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Does Economics Apply?
4. Role of Non-Profit Firms
Unlike most other economic analysis, there is an important role for non-profit firms in the industry. How does this work out in economic models in which profits are maximized?
How does a hotel differ from a nursing home?
If we want to send aid to Haiti, who do we go to? Why?

35. Does Economics Apply? 5. Restrictions on Competition
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Does Economics Apply?
5. Restrictions on Competition
There are many. These include:
Licensure requirements for providers
Traditional restrictions on advertising (although these seem to be waning – there doesn’t seem to be much that we can’t advertise), at least here in US.
Only US and New Zealand allow advertising of prescription drugs.
Standards which frown on price competition.

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NZ Drug Ads

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US Drug Ads

38. Does Economics Apply? 6. Need and Equity
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Does Economics Apply?
6. Need and Equity
Finally, the health care sector engenders considerable discussion of the role of need, as well as many equity concerns.
The whole debate about National Health Care policy illustrates this.

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Does Economics Apply?
This is a particularly interesting issue teaching things as an economist. As an economist, we look at markets FIRST. The rest of the world, including those who make policy, are more likely to look at government FIRST, markets LAST.
For next Lecture look at Fuchs (AER, 1996), and Zweifel and Breyer (Ch. 1).

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Compared with Others