health economics taggert j. brooks spring 2013. “the curious task of economics is to demonstrate...
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Health Economics
Taggert J. Brooks
Spring 2013
“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
~F. A. Hayek The Fatal Conceit
Why study health economics?
The basic economic questions which every society faces
• PPF• Opportunity cost • Pareto optimal• Positive versus normative
Research in Economics
• RAND Health Experiment– Gold standard, randomized treatments
What is special about Health (Care) Economics?
• Uncertainty and Incomplete Information• Asymmetric Information• Regulation and Government Intervention• Externalities
Uncertainty and Incomplete Information
• Random illness striking individuals• Random outcomes from medical
interventions• Professional uncertainty about efficacy of
treatment
Asymmetric Information
• Health professional know more about the healing process and the efficacy of different treatments
• Consumers know more about their own health condition than insurers
• Physician Agency
Regulation and Government Intervention
• Health Practitioners (Licensure)• Drugs and Products• Price Controls• Capital Construction, entry, and exit• Provision of insurance• Research and Development• Professional Education• Favored Tax Treatment
Externalities
• Negative– Communicable Diseases– Reckless Lifestyles (e.g., Drunk Driving)– Gun Ownership
• Positive– Production of Knowledge
Medical Care vs. Health Care
• Most of the improvement in life expectancy comes from public health– Chlorinated and Filtered water.
• Effect of medical care on health– Limited– Extensive versus Intensive Margins
From: Peter Orszag - Director CBO
From: Peter Orszag - Director CBO
Grossman Model
• Economists think about Health in terms of a stock of Health.– The stock of health generates flow of utility
increasing life – Medical Care is an investment in that stock– Other investments
Preconceptions
• Health Care Spending as % of GDP
• Government’s Share of Health Care Spending
• % of people covered by health insurance
• Life Expectancy at Birth.
99% 44 44 Kurtosis 3.63458995% 40 40 Skewness 1.2084890% 36 36 Variance 113.897275% 18 32 Largest Std. Dev. 10.6722650% 16 Mean 17.52174
25% 10 8 Sum of Wgt. 2310% 6 6 Obs 23 5% 5 5 1% 5 5 Percentiles Smallest care?-us spends the us currently spends what % of gdp on health
. sum q11_1, d
Spring 2010
99% 59 59 Kurtosis 4.41828795% 45 45 Skewness 1.18904690% 39 39 Variance 112.165275% 31 37 Largest Std. Dev. 10.5908150% 26 Mean 26.37037
25% 18 16 Sum of Wgt. 2710% 16 16 Obs 27 5% 16 16 1% 15 15 Percentiles Smallest care?-us spends the us currently spends what % of gdp on health
. sum q11_1, d
Spring 2013
99% 75 75 Kurtosis 2.0800695% 71 71 Skewness -.102881890% 70 70 Variance 353.99675% 61 65 Largest Std. Dev. 18.8147850% 46 Mean 43.78261
25% 28 25 Sum of Wgt. 2310% 25 25 Obs 23 5% 10 10 1% 10 10 Percentiles Smallest consist of ___% of all health c government expenditures on health care currently
Spring 2010
Spring 2011
Spring 2013
99% 100 100 Kurtosis 2.99536395% 85 85 Skewness .059825790% 84 84 Variance 202.487275% 76 84 Largest Std. Dev. 14.229850% 65 Mean 66.77778
25% 60 52 Sum of Wgt. 2710% 47 47 Obs 27 5% 41 41 1% 37 37 Percentiles Smallest or private health insurance?-c what percentage of citizens are covered by public
99% 93 93 Kurtosis 3.74603395% 90 90 Skewness -1.16628690% 85 85 Variance 518.936875% 85 85 Largest Std. Dev. 22.7801850% 72 Mean 65.86957
25% 60 45 Sum of Wgt. 2310% 39 39 Obs 23 5% 11 11 1% 10 10 Percentiles Smallest or private health insurance?-co what percentage of citizen are covered by public
Spring 2010
Spring 2011
Spring 2013
99% 79 79 Kurtosis 1.88983595% 75 75 Skewness -.029962690% 71 71 Variance 304.772175% 60 64 Largest Std. Dev. 17.4577250% 50 Mean 47.18519
25% 33 25 Sum of Wgt. 2710% 24 24 Obs 27 5% 23 23 1% 18 18 Percentiles Smallest consist of ___% of all health c government expenditures on health care currently
Health Insurance Coverage in the U.S., 2008
Employer-Sponsored Insurance
52%
Uninsured15%
Private Non-Group5%
Medicare14%
Medicaid/Other Public
13%
NOTE: Includes those over age 65. Medicaid/Other Public includes Medicaid, SCHIP, other state programs, and military-related coverage. Those enrolled in both Medicare and Medicaid (1.9% of total population) are shown as Medicare beneficiaries. SOURCE: Kaiser Commission on Medicaid and the Uninsured/Urban Institute analysis of March 2009 CPS
Total = 300.5 million
Source: Stan Dorn, Bowen Garrett, John Holahan, and Aimee Williams, Medicaid, SCHIP and Economic Downturn: Policy Challenges and Policy Responses, prepared for the Kaiser Commission on Medicaid and the Uninsured, April 2008
Impact of Unemployment Growth on Medicaid and SCHIP and the Number Uninsured
1%
Increase in National Unemployment
Rate
=1.0 1.1
Increase in Medicaid
and SCHIP Enrollment
(million)
Increase in Uninsured(million)
&$2.0
$1.4
$3.4
Increase in Medicaid and
SCHIP Spending(billion)
State
Federal
Japan United States
Ukraine Venezuela -
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
Longest Life Expectancy at Birth: Your Responses Spring 2010
Rank Country Life
3 Japan 82.12
50 US 78.11
103 Venezuela 73.61
150 Ukraine 68.25
Life Expectancy at Birth
Sources of Rising “Costs”
• Expenditures = Price X Quantity
From: Peter Orszag - Director CBO
1960 1965 1970 1975 1980 1985 1990 1995 2000
National Compensation Measures as a Share of GDP, NIPA 1960-2006
Source: Kaiser Family Foundation analysis of data from the U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts, 1960-2006, Tables 1.1.5, 2.1, 6.11B, 6.11C, & 6.11D, 2008.
2006
Wages
Other Fringe Benefits and Payroll Taxes
51.8%
Private Group Health Insurance
0.6%
3.8%
45.6%
4.1%
6.7%
56.3% of GDP
56.4% of GDP
Health Care as an Economic Issue
11%
6%
6%
6%
9%
10%
11%
13%
26%Inflation or rising prices overall
All of these/Other/Don’t Know
Price of gasoline
Health care costs
Problem getting a good-paying job or a raise in pay
Cost of housing
Difficulty saving for retirement
Credit card debt and other personal debt
High taxes
Which of the following is the single most important economic issue facing you and your family? (Feb. 2008, registered voters)
SOURCE: Kaiser Health Tracking Poll: Election 2008 Issue 6: March 2008 (conducted February 7-16, 2008)
16%
18%
18%
19%
29%
44%
28%
As a result of recent changes in the economy, have you and your family experienced any of the following problems, or not? Was this a serious problem,
or not?
Problems Experienced as a Result of Changes in the Economy
Percent saying each was a “serious problem”
Problems paying for gas
Problems getting a good-paying job or a raise in
pay
Problems paying yourrent or mortgage
Problems paying for health care and health insurance
Problems paying for food
Problems with credit card debt or other personal
debtLosing money in
the stock market
SOURCE: Kaiser Family Foundation Health Tracking Poll: Election 2008 (conducted April 3-13, 2008)
Mean Health Insurance Costs Per Worker Hour for Employees with Access to Coverage, 1999-
2005
$1.60$1.72
$1.81
$2.01
$2.23
$2.42$2.59
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
1999 2000 2001 2002 2003 2004 2005
Source: Kaiser Family Foundation analysis based on data from the National Compensation Survey, 1999-2005, conducted by the Bureau of Labor Statistics.
International comparisons:
• Some stylized facts about health care
Top 10 Causes of Death: 1900 vs. 2010.
Jones DS et al. N Engl J Med 2012;366:2333-2338.
Total 27 100.00 physician salaries 3 11.11 100.00medical malpractice/litigation 7 25.93 88.89 rising incomes 1 3.70 62.96 government intervention 8 29.63 59.26 prescription drugs 8 29.63 29.63 health care costs in t Freq. Percent Cum. most likely cause of rising which of the following is the
$10,000 $20,000 $30,000 $40,000 $50,000$0
$2,000
$4,000
$6,000
$8,000
GDP Per Capita $PPP
To
tal
exp
en
dit
. o
n h
ea
lth
/ca
pit
a,
$
PPP France
US
Korea
$10,000 $20,000 $30,000 $40,000 $50,000$0
$2,000
$4,000
$6,000
$8,000
GDP Per Capita $PPP
To
tal
exp
en
dit
. o
n h
ea
lth
/ca
pit
a,
$
PPP France
US
Korea
• Notes:– Differences in mortality, life expectancy at
different ages and causes of death over time and across countries