Health Economics and Policy test #1

New Federal Taxes

- $1 trillion in additional taxes - Including taxes on health insurance premiums, prescription drugs,medical devices, increased expense threshold for medical deduction

Personal health care spending

- 84 percent of all spending: Refers to all spending related to individual healthcare, including hospital care, physician and dentist services, prescription drugs, vision care, home healthcare, and nursing home care - 16 percent of remaining healthcare spending: Includes public and private program administration, government expenditure on public health, and investment in research and structures

Supply and demand model

- Adam Smith's "invisible hand" - Everything has a price that is known to all - Transparent pricing leads to equilibrium outcomes and the efficient allocation of resources

Triple Aim (accountable care organizations (ACO) as the integrator to make goals simultaneously possible)

- Advance population health - Improve patient experience of care - Lower per capita cost

Expanded Insurance Coverage

- Expansion of Medicaid - Creation of health insurance exchanges in the states

Expanded insurance regulations

- Guaranteed issue and guaranteed renewability - No preexisting conditions exclusions - Children covered by parents' plans until age 26

Accelerated Provider Integration

- Horizontal integration of physician practices Increase practice size (higher prices) No scope economies across specialties - Horizontal consolidation of hospitals (mergers) Higher volume, faster throughput, reduced length of stay (LOS) - Vertical consolidation (fully integrated system) Reduced competition, increased bargaining power, higher prices

Incentives Matter

- In a competitive environment, appropriate incentives can lead to cost-conscious decision-making and the efficient allocation of resources - Leads to increased social welfare - Essential because of scarcity

Iron Triangle (trade-offs in trying to obtain three goals)

- Increase access - Improve quality - Lower cost

Why do Americans spend so much on medical care?

- Increased use of medical technology - Aging of the population - Differences in disease prevalence and treatment - Entry restrictions limit competition - Physician-induced demand - Predominance of for-profit providers - Relatively high incomes (we can afford to) - Expanded medical malpractice, leading to practice of defensive medicine • Increased coverage by third-party payers

personal Responsibility Mandate

- Individuals required to purchase qualified coverage - Employers with more than 50 full-time workers are required to offer affordable plan

Affordability Problems

- No preexisting conditions exclusions and coverage under parents' plans to the age of 26 populated exchange risk pools with high-risk enrollees - Led to a large increase in average premiums

What type of market is healthcare in each state ?

- Oligolopy - certain regions can have hospitals who are monoploies

Perspectives on medical care spending are diverse

- One person's spending is another's income - Every dollar spent has an opportunity cost—it is not available to address other priorities

Healthcare has a ________ elasticity

- Prefectly inelastic - if price goes up, quanity demanded stays the same - price has no effect on quanity

What does Economic Evaluation recognize?

- Resources are limited always and everywhere (No health care system can cover all individuals for all desired services) - Opportunity cost is a reality (Useful alternatives compete for resources)

Access Problems (coverage does not equal care)

- Shortages in certain specialties and low reimbursement rates to physicians - Resulted in many physicians refusing to treat Medicaid patients - Issues in exchange website - 4.7 million Americans lost their plans

Changes to Medicare

- Spending cuts in Medicare - Savings used to provide coverage for expanded Medicaid eligibility - Income-based subsidies in the insurance exchanges

Price Ceiling in a Competitive Market

- most you can charge for something - price ceiling is below equillibrim because of government intervention

Economics is...

- the study of human behavior - a way of thinking - a systematic way of examining a problem - an approach providing a rationale for the efficient allocation of scarce resources - most SCIENTIFIC of all the social sciences

Markets are evaluated in two ways

1. Efficiency: Technical efficiency (in production) or Allocative efficiency (in final distribution of consumption) 2. Equity: Different definitions based on outcome, opportunity (fairness of distribution within a society)

5 key elements of The Affordable Care Act (ACA) of 2010

1. Expanded insurance regulations 2. Expanded Insurance Coverage 3. Personal Responsibility Mandate 4. Changes to Medicare 5. New Federal Taxes

Conditions for Markets to Work Efficiently

1. Many buyers and sellers 2. No barriers, real or imagined 3. Nature of the product - Standardized (commoditized) - Variety (promotes individual choice) 4. Information on price and quality - More is better - Buyers must be able to value and rank alternatives

Markets sometimes fail to allocate resources efficiently due to:

1. Market power - Supply side - Demand side 2. Externalities (ex: covid, who is president) - Negative - Positive 3. Public goods - Nonexcludable - Non-rival

Arrow's Views of Market Distortions

1. Nature of demand: Unpredictable and irregular, uncertainty in treatment efficiency 2. Information problems: Asymmetric information between patient and provider and Physician-induced demand 3. Importance of trust 4. Barriers to entry 5. Pricing practices: Extensive price discrimination and Retrospective payment with insurance and related problems

Governments intervene in medical markets through

1. Regulations - Price controls - Entry restrictions - Limits on new product development (ex: do not need 10 manufactures for the same thing) 2. Tax policy (some hospitals are tax exempt) - Income tax exclusions - Excise taxes - Subsidies

Milton Friedman's Four Types of Spending

1. Spend someone else's money on someone else - No economizing practiced and don't worry about value 2. Spend someone else's money on yourself - Forget economizing but seek the highest value 3. Spend your own money on someone else - Economize but are not concerned so much about value 4. Spend your own money on yourself - Economize and seek the highest value

Changes in price can affect demand in two ways

1. Substitution effect (Substitue for a cheaper good) 2. Income effect (income effects prices at which you chose to buy)

Problems with increased spending

1. Wasted resources - Equivocal spending, high prices, excessive administrative costs, fraud and abuse 2. Distributional issues: high prices, substantial low-income population, desire to keep taxes low - Health and economic disparities, fewer with protected health information(PHI), access to care in public programs (restrictions on access to expensive care, such as hepatitis C treatment), crowding out of social programs

Essential Elements for Markets to Work

1. Willingness and ability to buy and sell goods and services (Providers must have goods to sell, buyers must have money to spend) 2. Buyers must be well informed and able to understand, value, and rank their options (Price transparency: patients want to know the bundled price- Quality: credentials, training, experience, outcomes, patient satisfaction- Amenities: facilities, accommodations for family) 3. Buyers must spend their money in a cost-conscious manner (First-dollar insurance with no cost sharing is nothing more than spending other people's money)

different payers in healthcare

1. commercial: Commercial payers are private, for-profit insurance companies that offer health insurance plans to individuals, employers, or other groups 2. private: Private payers encompass a broader category that includes both commercial insurance companies and non-profit organizations providing health coverage 3. Government: Government payers include national or regional government entities that directly fund or administer healthcare programs. Examples include Medicare and Medicaid in the United States.

ACA says you have to provide insurance from a company if you have over _____ employees

49

What Is Economic Evaluation?

A comparative analysis evaluating alternative uses of scarce resources

Incremental Cost-Effectiveness Ratio (ICER)

A ratio that compares the difference in the expected costs of the two interventions relative to the difference in the expected outcomes

According to economic optimization theory, which of the following statements best describes the optimal level of health care provided in a market? a. Total Benefit = Total Cost b. Marginal Benefit = Marginal Cost c. Total Benefit = Marginal Cost d. Marginal Benefit = Total Cost

B

By 2010, many progressive policy makers had adopted the opinion that access, quality, and cost in health care could be simultaneously achieved. Which of the following did they believe to be the integrator that could make this possible? a. Risk sharing b. Horizontal integration c. ACOs d. Iron Triangle

C

Which of the following statements is an explanation for why the United States spends so much on health care? a. Innovation in medical technology b. Aging population c. Decreased coverage by third-party payers d. Relatively high incomes

C

Types of hospitals explained

Care can be delivered at private for-profit institutions that are owned by investors; private not-for-profit institutions that are owned by communities, religious organizations or philanthropic groups; or public health care institutions owned and administered by the government.

What does CMS stand for?

Centers for Medicare and Medicaid Services

CON stands for

Certificate of Need: state regulatory tool that controls the number of health care resources in an area. CON laws require a hospital or health system to demonstrate community need before establishing or expanding a health care facility or service.

Opportunity Cost

Cost of any action or inaction: measured by the value placed on the fore gone opportunity - Every choice has an opportunity cost - Every resource has an alternative use - Using time and resources to satisfy one set of desires means you cannot use them to satisfy another set

All systems, public or private, must impose limits, i.e., ration

Denying some classes of services to patients Denying some classes of patients from services - It is important to consider whether a service or procedure is worth the extra money

What areas spend the most money in healthcare?

Hospital care and physicians services

There is no optimal level of healthcare spending

You cannot determine the ideal or perfect amount of resources that should be allocated to healthcare

Life expectancy and infant mortality in the United States lag behind other developed nations despite higher spending

a country's success and quality in a healthcare market is based on its infant mortality rate

Which of the following are considered to be a source of waste in healthcare spending? a. Excessive administration costs b. Fraud and abuse c. High prices d. Substantial low-income population

a, b, c

Which of the following were part of the original ACA legislation enacted in 2010? (Select all that apply) a. Expansion of Medicaid b. Spending cuts in Medicare c. New federal taxes d. Pre-existing conditions exclusions

a, b, c

Which of the following cause a shift in the demand curve? a. Increase in consumer income. b. Decrease in the price of related commodity. c. Increase in the price of the commodity. d. Change in consumer preferences.

a, b, d

Which of the following represent a recent change in the payment structure of U.S. health care? (Select all that apply) a. Third-party insurance coverage b. Retrospective payment c. Risk sharing d. Public-sector initiative

a, c, d

Be able to label this graph

add surplus and shortage

As cost goes up...

effectiveness goes up

Respect for the implications of opportunity cost is essential for ________ resource allocation

efficient

Accountable Care Organizations

groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high quality care to their Medicare patients

The Unites States has the ______ spending rate in healthcare

highest

Economy is divided into two parts

progressive and non-progressive

ACA allowd physicians...

to grow in population

Major Accomplishments of the Affordable Care Act (ACA)

• 20 million more Americans have coverage - 13.7 million new Medicaid enrollees - 7.5 million gained coverage due to subsidies in the insurance exchanges • Less than 10% uninsured, down from 16% • Out-of-pocket spending per person on health care expenditures dropped from 15.5% in 2010 to 10.6% in 2020 • Mandates have had little measurable impact on coverage

Cost-of-Illness Studies

• Answers the question: What does it cost? • Calculates the burden of a disease • Focuses solely on costs, not on benefits • Not a type of economic evaluation in strictest sense • Can help providers choose between treatment alternatives when their effectiveness is equal (used to collect data)

Comparative Effectiveness

• Current sentiment places more on importance on whether a treatment works as opposed to its cost • This approach is also known as clinical effectiveness • Answers the question: Does it work? • Focuses solely on benefit comparisons • Identifies practical effectiveness • Serves as the other end of the spectrum

Cost-Effectiveness Analysis (CEA)

• Developed outside traditional welfare economics framework • Measures health benefit by health outcome, not the dollar value of life (takes wellfare into account) • Also referred to as the decision maker's approach • Primary tool among health economists to assess health and economic effects between treatment and technological alternatives • Maximizes the level of health for a given population subject to a budget constraint

Long-term trends in health care reform focus on

• Medical care delivery • Payment mechanism • Policy and conceptual approaches

Third-Party Payers

• Moral Hazard - Insurance coverage increases both the likelihood of making a claim and the actual size of the claim • Free Riders • Adverse Selection - Parties in a transaction have access to different information, which may put one party at an advantage

Performing a Cost-Effectiveness Analysis (CEA)

• Rank the alternative treatment options by health benefit (beginning with the one with the lowest benefit). • Eliminate treatment alternatives that are strictly dominated. • Calculate the incremental cost-effectiveness ratio (ICER) between each treatment option and the next most expensive option. • Eliminate treatment options that display extended dominance. • Determine which treatment options have a cost-effectiveness ratio(ICER) that is below the threshold cost-effectiveness ratio (ICER).

Cost-Benefit Analysis

• Simple extension of capital budgeting (investments in what you need for a business) • Developed to help public sector make decisions that maximize public welfare from tax spending • Optimization in the absence of market pressure