Lecture Health economics - Chapter 2: Health, medical care, and medical spending. This chapter presents the following content: An economic model of utility, health, and medical care, measuring health status, empirical evidence on health production, health care expenditures.
Health, Medical Care, and Medical Spending Health Economics Professor Vivian Ho Fall 2009 These slides summarize material in Santerre & Neun: Health Economics, Theories Insights and Industry Studies, Southwestern Cengate 2010 Can we apply the tools of managerial economics to health care? Outline An economic model of utility, health, and medical care Measuring health status Empirical evidence on health production Health care expenditures A Basic Economic Model Health as a consumer durable good: Utility = U (X, Health) X represents “other goods and services” H is a stock every action will affect health On its own or combined with other goods and services, the stock of H generates a flow of services that yield satisfaction=utility A Basic Economic Model (cont.) Medical care is not homogeneous and differs in: Structural quality (e.g facilities and labor) Process quality (e.g waiting time, case mgmt.) Outcome quality (e.g patient satisfaction, mortality) Therefore medical services are often difficult to quantify A Basic Economic Model (cont.) Health=H(Profile, Medical Care, Lifestyle, Socioeconomic Status, Environment) If an individual has a heart attack, then overall health decreases, regardless of the amount of medical care consumed The total product curve for medical care shifts down As a person ages, both health and the marginal product of medical care are likely to fall The out total product curve shifts down and flattens MEASURING HEALTH Important for all health care managers today Insurers and consumers are demanding costs AND quality HEALTH OVER THE LIFE CYCLE HEALTH Appendicitis Auto Crash Cancer (radiation therapy) Cancer complications Hmin TIME BIRTH HEALTH OVER THE LIFE CYCLE Individuals make choices about health (make tradeoffs) which maximize U over time Relatively high value for the future • Low discount rate e.g Low-fat diet and exercise to avoid heart disease Relatively low value for the future • High discount rate e.g Smoking, excess drinking, drug abuse DISCOUNTING Required when costs are incurred in the future Why? Individuals have a positive value of time preference If r = 10%, then $100 invested today yields $110 next year Spending $100 one year from now is “cheaper” than spending $100 today Determinants of Infant Health Corman and Grossman, 1985 Determinants of Infant Health Selected Regression Results, Neonatal Mortality Rates Whites Blacks -0.037 -0.056 Newborn Intensive Care Hospitals/1000 -44.196 -86.196 Abortion Providers/1000 -3.198 -16.838 % HS Educated Corman and Grossman, 1985 Determinants of Infant Health Does more schooling and the availability of more providers improve infant health? Is the marginal productivity of more providers greater for blacks or whites? Determinants of Infant Health Why might the marginal productivities for blacks and whites differ? The regressions have poor controls for income,health status, preferences, etc which may be correlated with schooling and the availability of providers If the marginal productivity for most factors is greater for blacks then whites, why isn’t the overall neonatal mortality rate lower for blacks than whites? Marginal Productivity of Provider Services for Infant Health (1-mortality rate)% Blacks Whites Medical Care Marginal Productivity of Provider Services for Infant Health (cont.) For any given level of provider services, marginal productivity may be higher for blacks than whites However, the level of services may be higher for whites than blacks Knowing the shape of the total product curve is not enough You must also know where you are on it Health in the 50 States One measure of health status in the population in the # of deaths (per 100,000 residents) from heart disease Suppose we have data on deaths from heart disease and other population characteristics by state See Excel Spreadsheet What factors might explain death from HD? Why? Health in the 50 States Health in the 50 States Health in the 50 States Health in the 50 States Health in the 50 States Health in the 50 States Which of the previous variables would you include in the multivariate regression for the determinants of death from heart disease? Smoking? Overweight/Obese? Binge Drinking? Household Income? High School Graduation Rate? Health in the 50 States Which of the variables are statistically significant at the 95% confidence level? Suppose the fraction of residents who are obese/overweight were reduced by 0.10 How fall? much would death rates from heart disease Suppose that you could obtain data on a different variable that may explain heart disease death rates, but isn’t in this data set What would it be? Conclusions In an economic model, medical care and other goods and services are combined to produce health, which yields utility to the consumer The production of health can be measured in a variety of ways Both higher health care expenditures and other factors are improving health status over time ... tools of managerial economics to health care? Outline An economic model of utility, health, and medical care Measuring health status Empirical evidence on health production Health care expenditures... curve shifts down and flattens MEASURING HEALTH Important for all health care managers today Insurers and consumers are demanding costs AND quality HEALTH OVER THE LIFE CYCLE HEALTH Appendicitis... (1969) 10% ↑ in medical services →↓age-adjusted mortality rate by 1% Enthoven (1980) “flat-of-the-curve” medicine LIFESTYLE cigarette smoking 10% → mortality: men 4 5-6 4 women 4 5-6 4 blacks 2.3%