Slide #1.

Health Economics Taggert J. Brooks Spring 2013
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Slide #2.

“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
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Slide #3.

Why study health economics?
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The basic economic questions which every society faces • • • • PPF Opportunity cost Pareto optimal Positive versus normative
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Slide #5.

Research in Economics • RAND Health Experiment – Gold standard, randomized treatments
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What is special about Health (Care) Economics? • • • • Uncertainty and Incomplete Information Asymmetric Information Regulation and Government Intervention Externalities
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Uncertainty and Incomplete Information • Random illness striking individuals • Random outcomes from medical interventions • Professional uncertainty about efficacy of treatment
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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
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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
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Slide #10.

Externalities • Negative – Communicable Diseases – Reckless Lifestyles (e.g., Drunk Driving) – Gun Ownership • Positive – Production of Knowledge
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Slide #11.

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
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Slide #12.

From: Peter Orszag - Director CBO
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Slide #13.

From: Peter Orszag - Director CBO
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Slide #14.

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
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Slide #15.

Preconceptions • Health Care Spending as % of GDP • Government’s Share of Health Care Spending • % of people covered by health insurance • Life Expectancy at Birth.
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Spring 2010 . sum q11_1, d the us currently spends what % of gdp on health care?-us spends 1% 5% 10% 25% Percentiles 5 5 6 10 50% 16 75% 90% 95% 99% 18 36 40 44 Smallest 5 5 6 8 Largest 32 36 40 44 Obs Sum of Wgt. 23 23 Mean Std. Dev. 17.52174 10.67226 Variance Skewness Kurtosis 113.8972 1.20848 3.634589
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Slide #17.

Spring 2013 . sum q11_1, d the us currently spends what % of gdp on health care?-us spends 1% 5% 10% 25% 50% 75% 90% 95% 99% Percentiles 15 16 16 18 Smallest 15 16 16 16 26 31 39 45 59 Largest 37 39 45 59 Obs Sum of Wgt. 27 27 Mean Std. Dev. 26.37037 10.59081 Variance Skewness Kurtosis 112.1652 1.189046 4.418287
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Slide #19.

Spring 2010 government expenditures on health care currently consist of ___% of all health c 1% 5% 10% 25% Percentiles 10 10 25 28 50% 46 75% 90% 95% 99% 61 70 71 75 Smallest 10 10 25 25 Largest 65 70 71 75 Obs Sum of Wgt. 23 23 Mean Std. Dev. 43.78261 18.81478 Variance Skewness Kurtosis 353.996 -.1028818 2.08006
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Slide #20.

Spring 2011
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Spring 2013 what percentage of citizens are covered by public or private health insurance?-c 1% 5% 10% 25% 50% 75% 90% 95% 99% Percentiles 37 41 47 60 Smallest 37 41 47 52 65 76 84 85 100 Largest 84 84 85 100 Obs Sum of Wgt. 27 27 Mean Std. Dev. 66.77778 14.2298 Variance Skewness Kurtosis 202.4872 .0598257 2.995363
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Slide #23.

Spring 2010 what percentage of citizen are covered by public or private health insurance?-co 1% 5% 10% 25% Percentiles 10 11 39 60 50% 72 75% 90% 95% 99% 85 85 90 93 Smallest 10 11 39 45 Largest 85 85 90 93 Obs Sum of Wgt. 23 23 Mean Std. Dev. 65.86957 22.78018 Variance Skewness Kurtosis 518.9368 -1.166286 3.746033
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Slide #24.

Spring 2011
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Slide #25.

Spring 2013 government expenditures on health care currently consist of ___% of all health c 1% 5% 10% 25% 50% 75% 90% 95% 99% Percentiles 18 23 24 33 Smallest 18 23 24 25 50 60 71 75 79 Largest 64 71 75 79 Obs Sum of Wgt. Mean Std. Dev. Variance Skewness Kurtosis 27 27 47.18519 17.45772 304.7721 -.0299626 1.889835
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Slide #26.

Health Insurance Coverage in the U.S., 2008 Total = 300.5 million 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
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Slide #27.

Impact of Unemployment Growth on Medicaid and SCHIP and the Number Uninsured $3.4 $1.4 State 1.0 1% 1.1 = Increase in National Unemployment Rate & $2.0 Federal Increase in Increase in Medicaid Uninsured and SCHIP (million) Enrollment (million) Increase in Medicaid and SCHIP Spending (billion) Source: Stan Dorn, Bowen Garrett, John Holahan, and Aimee Williams, Medicaid, SCHIP and Economic Downturn: Policy Challenges and Policy Responses, prepared for the Kaiser
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Slide #28.

Longest Life Expectancy at Birth: Your Responses Spring 2010 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 - Japan United States Ukraine Venezuela
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Slide #30.

Life Expectancy at Birth Rank Country Life 3 Japan 82.12 50 US 78.11 103 Venezuela 73.61 150 Ukraine 68.25
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Slide #37.

Sources of Rising “Costs” • Expenditures = Price X Quantity
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Slide #39.

From: Peter Orszag - Director CBO
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Slide #40.

National Compensation Measures as a Share of GDP, NIPA 1960-2006 56.3% of GDP 3.8% 0.6% Private Group Health Insurance 56.4% of GDP Other Fringe Benefits and Payroll Taxes 6.7% 4.1% 51.8% Wages 45.6% 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, &
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Slide #41.

Health Care as an Economic Issue Which of the following is the single most important economic issue facing you and your family? (Feb. 2008, registered voters) Inflation or rising prices overall High taxes Price of gasoline Health care costs Problem getting a goodpaying job or a raise in pay Cost of housing Difficulty saving for retirement Credit card debt and other personal debt All of these/Other/Don’t Know SOURCE: Kaiser Health Tracking Poll: Election 2008 Issue 6: March 2008 (conducted February 7-16, 2008)
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Slide #42.

Problems Experienced as a Result of Changes in the Economy 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? Percent saying each was a “serious problem” Problems paying for gas Problems getting a goodpaying job or a raise in pay Problems paying for health care and health insurance Problems paying your rent or mortgage Problems paying for food Problems with credit card debt or other personal debt Losing money in the stock market SOURCE: Kaiser Family Foundation Health Tracking Poll: Election 2008 (conducted April 3-13, 2008)
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Slide #43.

Mean Health Insurance Costs Per Worker Hour for Employees with Access to Coverage, 1999-2005 Source: Kaiser Family Foundation analysis based on data from the National Compensation Survey, 1999-2005, conducted by the Bureau of Labor Statistics.
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Slide #44.

International comparisons: • Some stylized facts about health care
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Slide #45.

Top 10 Causes of Death: 1900 vs. 2010. Jones DS et al. N Engl J Med 2012;366:2333-2338.
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Slide #54.

which of the following is the most likely cause of rising health care costs in t Freq. Percent Cum. prescription drugs government intervention rising incomes medical malpractice/litigation physician salaries 8 8 1 7 3 29.63 29.63 3.70 25.93 11.11 29.63 59.26 62.96 88.89 100.00 Total 27 100.00
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Slide #55.

To t a l e x p e n d i t . o n h e a l t h $8,000 US $6,000 $4,000 France $2,000 $0 $10,000 Korea $20,000 $30,000 $40,000 GDP Per Capita $PPP $50,000
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Slide #56.

To t a l e x p e n d i t . o n h e a l t h $8,000 US $6,000 $4,000 France $2,000 $0 $10,000 Korea $20,000 $30,000 GDP Per Capita $PPP $40,000 $50,000
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Slide #57.

• Notes: – Differences in mortality, life expectancy at different ages and causes of death over time and across countries
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