Economics 5550

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Economics 5550

• Health Economics
• A. Goodman

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The course

• Class Meets MW 935 1125
• Office Hours MW 1130 1230, or by appointment
• Office location 2145 FAB
• Phone [phone] e-mail agoodman_at_econ.wayne.edu
• Department and Course Web-site
  http//www.econ.wayne.edu/agoodman/

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Text materials

• The text materials will be
• The Economics of Health and Health Care, by
  Sherman Folland, Allen C. Goodman, and Miron
  Stano, to be purchased at the appropriate
  bookstore.
• Selected readings on reserve at the library.

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Exams and Grading

• There will be 2 in-class mid-term exams and a
  final exam. The mid-term exams will be
• Wednesday, October 6 20 of course grade
• Wednesday, November 10 20 of course grade.
• The final exam, as noted on Page 18 of the Fall
  course schedule will be
• Tuesday, December 21, from 800 until 1030. It
  will be worth 30 of the course grade.

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Other assignments

• 30 of your grade.
• These will include presentations and short
  writing assignments, including materials
  available on the Universitys personal computing
  facilities and the World Wide Web.
• We will use the EXCEL spreadsheet program, and
  you will be expected to have (or to obtain) a
  passing familiarity with it.

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The Curve
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Relevance of Health Economics

• The health care sector is big, and is getting
  bigger. In 1950, less than 5 of GNP went to
  health care. By 1976, it was about 8, and now
  it's over 13. 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.
• s pq/y.

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Health Share

• s pq/y.
• So the increased share of health care in the
  economy is related to three possibilities
• - Increased prices (relative to other goods) p.
• - Increased usage q.
• - Changed income y.

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Some Numbers

• Nominal health expenditures per capita were
• 143 in 1960 2,566 in 1990 - a factor of 18.
• Real health expenditures per capita were
• 143 in 1960 713 in 1990. Increase of about
  400. Are we 5 times as healthy. No!

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Still another cause for concern

• Problems that people have getting insured.
• Somewhere around 1 in 7 Americans do not have
  health insurance.
• Only the U.S. and South Africa, among advanced
  countries, do not have some form of universal
  health coverage.

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Origins -- 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. x physicians per capita), then
  calculating the number of physicians necessary,
  and comparing it to the number available.

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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 ???
• Agt 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.

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Does Economics Apply to Health and Health Care?

• 1. Uncertainty
• Most analysis that we do in economics ignores the
  possibility of 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?

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Does Economics Apply to Health and Health Care?

• 2. Prominence of Insurance
• Perhaps no other sector features insurance so
  prominently. In 1960 about 56 percent of all
  personal health care expenditures were paid
  out-of-pocket 44 percent by third party payers
  and/or government. By 1990, over 76 percent paid
  by third party payers.

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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?

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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.

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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? Agt Probably pretty
  well informed for a substantial proportion of
  their care. Pauly did kind of a back of the
  envelope calculation for 1971

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How well informed?

• About 10 to pediatricians
• About 10 for general checkup, immunization/vacc,
  or pre- or post-natal care
• Half of all physician visits made for chronic
  conditions.
• Sometimes, patient knows he is not healthy, but
  can hide it from insurer. This can lead to
  breakdowns in the insurance markets.

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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?

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Does Economics Apply?

• 5. Restrictions on Competition
• There are many. These include
• Licensure requirements for providers
• Restrictions on advertising
• Standards which frown on price competition

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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 is a manifestation of this concern.

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What Next??

• Some tools !!!
• For analysis -- Chapter 2
• For numbers -- Chapter 3