Healthcare Economics

income effect

Insurance making people "richer" by making expensive medical treatments affordable when they may have been unaffordable without insurance.

copayment

Insurance provision in which enrollees pay a fixed amount for each medical episode and the insurer covers the rest.

coinsurance

Insurance provision in which enrollees pay a percentage of each medical bill, and the insurer covers the remaining portion.

Which of the following questions does the Grossman model attempt to answer?

Is health random or chosen?

monopolistic competition

Large # of sellers, selling differentiated products. Entry barriers are low Faces downward sloping demand curve. Economic profits do not exist in the long-run. Does not achieve allocative nor productive efficiency.

Access to care hypothesis

Lower access to care is a strong predicament of higher rates of hospitalization.

risk selection

When insurers seek to enroll low-risk customers and avoid high-risk ones.

Productive time hypothesis-

Worsening health diminishes productive time and hence the ability to produce income.

normative statement

a claim or opinion about how the world should be

Monopoly rents

a firm's dominating a market and setting prices above what the market would permit if competition existed

Tradeoff

a key prediction of the Grossman model- that in maximizing their utility, people make tradeoffs that lead to less than maximal health.

utility

a measure of pleasure or satisfaction

randomized experiment

a study that assigns treatments randomly to different groups of study participants

Natural experiment

a study that uses an environment shock that creates a treatment group and control group naturally. This is useful in identifying casual effects because it eliminates selection bias.

single-period utility

an individuals utility is based on their health and other non-health goods consumed

One reason scientists use randomized experiments is ...

because randomized experiments allow us to answer the question of causality (the relationship between cause and effect).

Rothschild-Stiglitz model predicts

bulk mark ups There is a positive correlation between risk and insurance coverage.

US medical schools ...

decreased in numbers between 1900 and 1950.

Production Possibilities Frontier (PPF)

demonstrates the trade-off between health production and home good production.

time preference

describes how patient a person is.

defensive medicine

deviations from optimal medical practice in order to reduce the risk of conflict with patients, especially in he form of malpractice lawsuits.

Statistical discrimination

differential medical treatment for certain groups of patients based on stereotypes of their biological or behavioral tendencies.

statistical discrimination

differential medical treatment for certain groups of pt's based on stereotypes of their biological or behavioral tendencies.

Economists believe that the demand for health care is ...

downward sloping.

Physician-induced demand (PID)-

extra demand for medical goods and services induced by the advice of a physician who takes into account goals other than the patients objectives, such as the physicians own financial gain.

The Herfindahl-Hirschman Index (HHI) is usually used to indicate competitiveness of a market. For hospitals, the market HHI is usually...

fairly high.

In the Grossman model, people choose an optimal time to die when ...

their depreciation rate of health capital is so high that it on longer makes sense to invest in health.

The fact that physicians are earning monopoly rents indicates that...

there are barriers to entry in the market for physicians.

Hospitals in the United States ...

used to be avoided by people with recourses because of its poor environment and care.

Cost-shifting

using richer pt's to subsidize poorer recipients of care.

Consider two investment streams, w and z, which pay out some amount, w(t) and z(t), in each period t (the amount may be negative in some periods). If the interest rate is exactly equal to the internal rate of return of w(t), the net present value of choosing w over z is ...

zero

Both the RAND HIE and Oregon studies found that health care has a demand that is ...

inelastic.

In the Grossman model, the PPF indicates that ...

it is possible to increase health and leisure simultaneously.

Aging ...

moves upward along the MEC because it proves that it is too costly to stay young forever.

cost-sharing plan

one with a positive copayment rate, so that the costs are shared between the insured and the insurer.

According to the PPF in the Grossman Model, if someone chooses the maximum health point, then this person ...

only cares about health good H.

Viatical settlement

people who already own a life insurance policy sell their policies to third party members, who buy the right to collect on the original policy when the seller dies.

Marginal efficiency of capital (MEC)

plots the marginal lifetime utility returns against initial levels of health.

taste-based discrimination

preferential medical treatment for certain groups of pt's due to the tastes of the physician, whether conscious or subconscious.

In the Whitehall study, the key variable that determines the relative health outcomes of British civil servants is ...

the ranking of their positions.

ambulatory care

the same meaning as outpatient care

nonprofit organization

Entities whose purpose is not to maximize financial gain.

natural hazard

Events that occur naturally that cause losses.

Medical arms races, since they are a form of private competition, lead to socially optimal levels of technology acquisition by hospitals.

False, because the existance of insurance, moral hazard, and asymmetric information can distort the market.

price competition

Firms attempt to gain more market share by pricing lower than the competitors

collusion

Firms work together to raise joint profits at the cost of consumers.

RAND Health Insurance Experiment (HIE)

First large randomized study in which insurance status was randomly assigned. Only study in the ever conducted in the US. Shows parents are price sensitive even with healthcare for their children. Proves the effects of price changes on demand.

Fuchs hypothesis

Individuals with a lower rate of time discounting, in other words more patient, invest more in both health and education.

marginal utility

Welfare or satisfaction received from consuming one more unit of a good or service.

bulk markups

A higher per-unit price for a larger purchase of a commodity.

bulk discount

A lower per-unit price for a larger purchase of a commodity.

Herfindahl Index

A measure of the competitiveness of a market.

Oligopoly

A situation in which few major firms control most or all of a market.

Advantageous Selection

A situation in which less risky customers seek more insurance.

Adverse Selection

A situation involving asymmetric information in which risker customers seek more insurance.

Inefficient Discrimination

Differential treatment by race that harms patients on average.

Most health economists believe that ...

A. socioeconomic status has a major impact on health. B. health affects socioeconomic status.

partial insurance

An insurance contract that yields different income depending on the state of health.

unfair insurance

An insurance contract that yields positive expected profits.

full insurance

An insurance contract that yields the same income regardless of the state of health.

actuarially fair insurance

An insurance contract which yields zero profit in expectation.

How soon after medical school can physicians in the United States be licensed to practice?

At least 3 years of residency is required.

ex ante moral hazard

Behavior changes that occur before an insured event happens and make that event more likely.

Fuchs Hypothesis

Both health and Socio-economic disparities are simultaneously caused by innate differences in the willingness to delay gratification. Individuals with more patience invest more in health and education.

Efficient Discrimination

Differential treatment by race that improves patient outcomes on average.

Oregon Medicaid Experiment

Compared two groups of low-income adults who won an opportunity to apply for public health insurance through Medicaid. Focused solely on low-income pop. Proves the effects of price changes on demand.

Which type of insurance is usually most preferred by a risk-averse consumer?

Full and actuarially fair insurance.

residency

Graduate medical education in a specialty that takes the form of paid on-the-job training, usually in a hospital.

Income inequality hypothesis-

Health disparities are caused by income inequality, which in and of itself is a source of allostatic load for the poor.

Efficient producer hypothesis

Health disparities exist because better educated individuals are more efficient producers of health than less well-educated individuals.

Three Roles of Health in the Grossman model:

Health is a consumption good. It contributes directly to an individual's utility function each period. Being healthy is valuable in and of itself. 2. Health is an input into production. It generates productive time Tp which is useful for producing more H and Z. 3. Health is a form of capital. Unlike the home good, it endures from period to period. It can accumulate or depreciate over time, improvements on health today can lead to better health tomorrow.

Diagnosis-related groups (DRGs)

Hospitals receive a fixed fee that depends on the patient's diagnosis at the time of hospital admission and on nothing else,

Fee-for-service (FFS)

Hospitals receive payments for each service performed.

deductibles

Minimal levels of expenses below which the insurer does not help reimburse medical expenses

Health disparities hyothesis:

More income allows better access to health care. More education means more productivity. Some people are born more prone to diseases.

inpatient care

Patients who stay overnight in the hospital

Allostatic load hypothesis

Predicts that people on the lower end of the socioeconomic status suffer more stress and face worse health outcomes as a result.

product differentiation

Producers offer similar but slightly altered products.

Physician training in the U.S. is different than in Europe because ...

US medical schools generally require a bachelor's degree before admission; while in Europe, students are admitted right after high school.

What two experiments proved that patients who face lower prices use more prescription drugs?

RAND HIE and Oregon

market power

The ability to determine pricing in a market.

Akerlof's model predicts

The adverse selection death spiral.

Quality Competition

The attempt to gain market share through offering better products.

price distortion

The change in the price a person has to pay due to insurance coverage.

social loss

The cost of extra resources needed due to moral hazard.

What does it mean to have full insurance?

The expected payout equals the difference between the sick and healthy incomes.

Physician training in the United States is different than in Europe because ...

US medical schools generally require a bachelor's degree before admission; while in Europe, students are admitted right after high school.

In the model of insurance and uncertainty, what is the condition for an individual to exhibit declining marginal utility of income?

The individual has to be risk-averse.

Moral hazard

The lack of incentive to guard against risk when one is protected by insurance

volume-outcome relationship

The observed positive correlation between the number of procedures performed and patient outcomes.

insurance premium

The payment required for insurance enrollment.

Which the following would eliminate moral hazard from an insurance market?

The price elasticity of demand for health care is perfectly inelastic.

elasticity of demand

The ratio of a % change in price leads to a change in quantity demanded.

ex-post risk

The riskiness of a customer after he buys an insurance policy against that risk.

Expected Income

The sum of the income from each of the possible outcomes, weighted by each outcome's probability.

expected profit

The sum of the profits from each of the possible outcomes, weighted by each outcome's probability

expected utility

The sum of the satisfaction from each of the possible outcomes, weighted by each outcome's probability

risk aversion

The tendency to avoid risk.

Explain the existence of nonprofit hospitals?

There are organizations that are altruistic. People trust nonprofit hospitals more than for-profit ones. Many nonprofit hospitals are actually for-profits in disguise.

In the Grossman model, which of the following is a constraint?

Time constraint and market budget constraint.

In the Grossman Model, health is an investment good.

True

In the Grossman model, the marginal efficiency of investment in health care declines as health improves.

True

There has been evidence from research that health status earlier in life can predict health later in life.

True

In the United States, hospitals ...

generally depend on physicians for patient referrals.

In the United States, well-educated people ...

generally live longer than poorly-educated people.

If a patient with no ability to pay visits an ER at a hospital ...

he will receive care, and the cost is absorbed by a number of parties, including other paying patients.

Direct income hypothesis-

health disparities arise because the rich have more resources available to invest in health

Thrifty phenotype hypothesis

health outcomes through life are determined in part by deprivation that occurs in early childhood or even in the womb.

socioeconomic disparities

health status that can be determined by income, education, or occupation. Linked to a wide range of health problems. Lower status is linked to higher mortality.

Uncompensated care

hospital costs that are not covered by out of pocket payments, public insurance, or private insurance.

medical arms race

hospitals compete on quality by adopting the best medical technologies available to appeal to physicians and their pt's. This competition results in a race for each hospital to have the best medical technologies available and may cause overconsumption of medical technology.

labor-leisure graph

illustrates the tradeoff in allocating finite time between work and play.

randomized controlled experiment

includes a control group which is randomly chosen and receives no treatment, a placebo treatment, or the casual treatment they would have received if not enrolled in the trial.

According to the Grossman model, education ...

increases productivity, thus shifting up the PPF, leading to better health.

gatekeeping

increasing levels of first contact care with primary care physicians, thereby reducing patients' self referrals

cross-subsidization

pt's with health insurance pay more for hospital care than the uninsured do.

Health production:

relates health to availability of productive time (Tp) for work, play, and health improvement.

outpatient care

services that do not require the patient to stay overnight in the hospital

positive statement

statements that are based on facts.

In the Grossman model, optimal health declines with age because ...

the depreciation rate of health capital continues to rise.

Net Present Value (NPV)

the discounted sum of all future earnings from t=0 onward.

Copayment

the fraction of the medical bill for which the patient is responsible.

July effect

the increase in mortality, medical errors and length of patient stays at hospitals during the month of July each year, which is attributed to the annual changeover of residents, when the most experienced residents leave and the newest residents assume responsibilities for clinical care.

In a DRG payment system, hospitals receive payment according to ...

the initial diagnosis of the patient.

Price sensitivity

the larger this angle is the more responsive behavior is to price distortions and the larger the social loss from moral hazard.