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Health Economics & Policy 3 rd Edition James W. Henderson

Health Economics & Policy 3 rd Edition James W. Henderson. Chapter 5 Demand for Health and Medical Care. Production of Health. Production Functions Health Status Measurement Health Status Determinants. Production Function for Health. Health = H(medical care, other inputs, time). HS.

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Health Economics & Policy 3 rd Edition James W. Henderson

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  1. Health Economics & Policy3rd EditionJames W. Henderson Chapter 5 Demand for Health and Medical Care

  2. Production of Health • Production Functions • Health Status Measurement • Health Status Determinants

  3. Production Function for Health • Health = H(medical care, other inputs, time) HS Medical Care Spending

  4. Health Status Measurements • Mortality • Morbidity • Quality of life

  5. Top 10 Causes of Death

  6. Work Days Lost and Activity Impairmants

  7. Health Status Determinants • Income and education • Environmental and lifestyle factors • Genetic factors • The role of public health

  8. Demand for Medical Care • Derived demand • Demand function • Effect of health insurance • Physician induced demand

  9. Need v. Willingness to Pay

  10. Demand FunctionQMC = M(HS, DC, ES, PF) • Health status • Demographic characteristics • Economic standing • Physician factors

  11. Effect of Insurance on Demand

  12. Physician Induced Demand • Physician as agent • Demand creation

  13. Demand Inducement

  14. Measuring Demand • Price elasticity of demand • Income elasticity of demand • The Rand health insurance experiment

  15. Select Studies on Elasticity of Demand

  16. RAND Experiment – 1971-82 • Randomly assigned 2,000 non-elderly families to insurance plans differing in 2 characteristics: • Coinsurance rate (0 – 95%) • Deductible (5, 10, or 15% of annual income) • Annual spending cap of $1,000 • Examined 2 important measures: • Health spending • Health outcomes

  17. RAND ExperimentSpending • Research question: How did assignment to groups affect spending? • Compare the 0% coinsurance group with the 25% group • 0% group spent an average of $1,019 • 25% group spent $826 (19% less) • Economic lesson: increase the price and reduce the amount consumed

  18. RAND ExperimentHealth Outcomes • Study question: How did assignment to groups affect outcomes? • Health status assessment prior to the study – allows “before and after” • For average person – no substantial health benefits from free care • Exception: chronically-ill poor (6% of the study population)

  19. RAND ExperimentConclusions • Instead of free for all care • Targeted benefits for chronic conditions • Better access to primary care • Exempt low-income from cost sharing • Study changed policy debate • Cost sharing limits demand without substantially harming health

  20. Summary and Conclusions • Demand for medical care seems to be relatively insensitive to price changes • Individual income elasticities are relatively low indicating that medical care may be a necessity • Aggregate income elasticities are higher indicating that medical care may be a luxury

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