Embed Size (px)
Citation preview
Advanced Health EconomicsEcon555/HPA543
Week 1:Introduction and Overview
• Why Health Economics?– size and scope of the health care
economy
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
Bil
lio
ns
of D
oll
ars
Total Private Federal State & Local
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 e a r
Do
llars
Total Private Federal State & Local
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
Millio
ns o
f D
ollars
Food Housing Medical Care Transportation Hshld.Op.
Recreation Clothing Pers.Bus. Other
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
Annual Percentage Change in US Health Care Expenditures, 1961-2003
0
2
4
6
8
10
12
14
16
18
20031999199519911987198319791975197119671963Y e a r
US Health Care Expenditures as Percent of GDP, 1960-2003
0
2
4
6
8
10
12
14
16
18
20031999199519911987198319791975197119671963
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
CP
I
All Medical Care P resc. Drugs Phys. Svcs. Hosp. Svcs.
Source: Heffler, et al. (2003), Health Affairs
Source: Huber and Orosz, Health Care Financing Review, 2003
Source: Huber and Orosz, Health Care Financing Review, 2003
Source: Huber and Orosz, Health Care Financing Review, 2003
US Health Care Spending, 2003 – Major Categories
Source: DHHS, http://www.cms.hhs.gov/statistics/nhe/historical/chart.asp
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 HomeOth.Pers. Admin Pub.Hlth/Res. Const.
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 HomeOth.Pers. Admin Pub.Hlth/Res. Const.
• Why Health Economics?– size and scope of the health care economy– Role of government in health care markets
• share of overall spending
US Health Care Spending, 2003 – Source of Funds
Source: DHHS, http://www.cms.hhs.gov/statistics/nhe/historical/chart.asp
Percent of Total Health Care Expenditures by Source, 1960-2003
0%
20%
40%
60%
80%
100%
20031999199519911987198319791975197119671963Y e a r
Private Federal State & Local
Federal Health Care Expenditures, by Program, 1960-2003
0
100,000
200,000
300,000
400,000
500,000
600,000
20031999199519911987198319791975197119671963
Total Medicare Medicaid/SCHIP Defense/VA Public Health/Research Other
Federal Health Care Expenditures, by Program, 1960-2003
0%
20%
40%
60%
80%
100%
20031999199519911987198319791975197119671963
Medicare Medicaid/SCHIP Defense/VA Public Health/Research Other
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
State and Local Health Expenditures, by Program, 1960-2003
0%
20%
40%
60%
80%
100%
20031999199519911987198319791975197119671963
Medicaid/SCHIP Public Health Workers' Comp Hospitals/Schools Other
Source: Huber and Orosz, Health Care Financing Review, 2003
• Why Health Economics?– size and scope of the health care economy– Role of government in health care markets
• share of overall spending• regulation, legislation and programs
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……..
• Why Health Economics?– size and scope of the health care economy– Role of government in health care markets
• share of overall spending• regulation, legislation and programs
– Role of Uncertainty
• 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
US Health Care Spending, 2003 – Source of Funds
Source: DHHS, http://www.cms.hhs.gov/statistics/nhe/historical/chart.asp
Private Health Care Expenditures, by Source, 1960-2003
0
100,000
200,000
300,000
400,000
500,000
600,000
20031999199519911987198319791975197119671963Year
Mill
ions
of
Dol
lars
Out-of-Pocket Private Insurance Other Private
Private Health Care Expenditures, by Source, 1960-2003
0%
20%
40%
60%
80%
100%
20031999199519911987198319791975197119671963
Y e a r
Out-of-Pocket Private Insurance Other Private
Source: Heffler, et al. (2003), Health Affairs
• Information and Types of Medical Care– Pauly (1978, 1988) describes three types of
‘medical care’• “services which are purchased relatively frequently
by most households”• “services a typical producer produces relatively
frequently but which a typical consumer can consume relatively infrequently, perhaps once in a lifetime”
• “services which a typical produce produces and a typical consumer consumes relatively infrequently”
Concludes that increased “commercialism” has made medical care less different from other goods &services over time
• Why Health Economics?– size and scope of the health care economy– Role of government in health care markets
• share of overall spending• regulation, legislation and programs
– Role of Uncertainty– Externalities
• Externalities– Communicable diseases
• Significant reductions in spread of communicable disease account for much of improvement in health in developed countries
• Still a significant problem in less developed countries
– Individual behaviors• Direct impact on health • Impact on publicly provided health costs
Source: UC Atlas of Global Inequality, http://ucatlas.ucsc.edu/health
Causes of Death, Developed vs.Developing Countries
Source: UC Atlas of Global Inequality, http://ucatlas.ucsc.edu/health/cause.php
Leading Causes of Death in 2001
499 00010.Self-inflicted674 00010.Measles
571 0009. Tuberculosis748 0009. Chronic obstructive pulmonary 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
Source: UC Atlas of Global Inequality, http://ucatlas.ucsc.edu/health
Actual Causes of Death in US, 2000
Source: Mokdad et al, 2004
Actual Causes of Death in US, 2000
Source: Mokdad et al, 2004
Life Expectancy at Birth, 1990-1998
Source: World Bank, http://www.worldbank.org/depweb/english/modules/social/life/map1.html
Source: UC Atlas of Global Inequality, http://ucatlas.ucsc.edu/health
Life Expectancy at Birth, United States
0.020.040.060.080.0
100.0
1900 1950 1960 1970 1980 1990 2000
Year
Ye
ars
Male Female
• Why Health Economics?– size and scope of the health care economy– Role of government in health care markets
• share of overall spending• regulation, legislation and programs
– Role of Uncertainty– Externalities– Importance of Non-Profits
• Why Health Economics?– size and scope of the health care economy– Role of government in health care markets
• share of overall spending• regulation, legislation and programs
– Role of Uncertainty– Externalities– Importance of Non-Profits– Issues of Equity and Need
Human Capital Model of the Demand for Health
• Based on Grossman (1972a,b)– Explains demand for health and demand for health
care– Key features:
• Consumers want health• Demand for medical care is derived from demand for
health• 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 investment
good
Health
Consumption
Indifference curves reflecttradeoffs between healthand other consumption
Income
Leisure Time
Time(days)=365 = TH + TI + TW + TL
TLo
Yo
Improved Health increases timeAvailable for work and leisure
TL1
Y1
Labor – Leisure Tradeoff
Consumption Good
Medical Care
Budget constraint
Y = PMM + PCC
Mo
Co
M1
C1
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
Health
Consumption
Production Possibilities Frontierreflects tradeoffs between what can be produced given resources, technologies, etc.
H0
H1
4 Quadrant ModelHealth
Consumption
Consumption
Medical Care
Rise in Medical Care Prices Health
Consumption
Consumption
Medical Care
Factors affecting demand for health
• Prices of medical care and other goods• Wages• Education • Age • Health Endowment• Preferences• Environmental Factors
