Download Demand for Medical Care When There is Health Insurance Coverage

• Determine price elasticity of demand for
medical care—of interest to health insurers
among others
• Assess differences in use among various
population subgroups—interest in studying
health disparities
• Different levels of future demand imply
different levels of future capacity, e.g.,
medical school capacity
Basic Economic Concepts of Demand
•
• (x1-x2)/(x1 + x2)/2/(p1-p2)/(p1+p2)/2 =((x1-x2)(p1+ p2))/((p1- p2)(x1+x2)) (3.2)
•
Why arc elasticities convenient to calculate
• Substitutes and complements
• Substitutes and complements in
elasticity terms: εij =(Δxi/Δpj)/(pj/xi).
• If expression is positive good i and j are
substitutes, if it is negative, they are
complements; if it is 0, good i and j are
independent.
• Ambulatory care and inpatient care:
complements or substitutes?
• Over-the-counter drugs and physician visits:
complements or substitutes?
• Fixed dollar subsidy (“indemnity”): what it is
and how it affects demand curve for medical
care—see next slide
• Explain why the demand curve shifts how it
does when a fixed dollar subsidy is offered
• In what sense is a fixed dollar subsidy
efficiency enhancing?
Fig. 3.1. Effect of $1 Indemnity on Consumer Demand
* Ad valorem subsidy: Definition
* Rationale for ad valorem subsidy
* How ad valorem subsidy affects incentives
* Efficiency and ad valorem subsidy
* If there is efficiency loss, why are ad valorem
subsidies offered and so widespread?
* Fraction of bill paid by patient consumer is called
coinsurance: as the coinsurance rate decreases,
demand curve for medical care becomes less
elastic. Why?
Fig. 3.2. Effect of Coinsurance on the
Consumer’s Demand Curve
• What a deductible is
• Rationale for deductibles
• High deductible health insurance plans and
rationale for such plans
• Show effects of deductibles on demand for
medical care: see next slide
Fig. 3.3. Effect of a Deductible on the Consumer's
Demand Curve
• What is a copay?
• Rationale of copays
P
• Compare copays with coinsurance
• Effects of copays (say in amount of $y) on
demand for medical care: see next slide
Fig. 3.4. Effect of Copays in the Amount on the Consumer
Demand
•
•
Full price of an office visit, pf
pf. = cp + wt
(3.3)
where c=coinsurance rate, p=the physician’s fee,
w=value of the person’s (patient’s) time per unit of
time (time price), t=total patient time consumed by a
visit. w is the value of person’s time performing other
activities, e.g., foregone earnings, value of time
spent in parenting.
• For some individuals, especially those with an
insurance policy with a low c, wt could be a more
important determinant of the full price than p is.
• Observational data
• Data from randomized control trials (RCTs)
• Advantages and disadvantages of RCTs and why
they are relatively rarely used in social
sciences as contrasted with medical research
studies
• Advantages and disadvantages of observational
data
• Natural experiments and field experiments
• Research issues: (1) How does cost sharing affect
demand for personal health care services? (2) How
does cost sharing affect demand for particular
services, e.g., hospital care, dental services? (3)
Does use of personal health care services improve
health? (4) How does a change from fee-for-service
payment to capitation affect demand for personal
health care services?
• Rationale for studying HIE 30+ years after HIE
completed
* Enrolled 2,000 non-elderly (<63) families for from 35 years
* Families randomly assigned to 1 of 14 insurance
plans differing in cost sharing rates and in maximum
dollar expenditures per year (MDE or stop loss)
* At enrollment, families exchanged their existing
health insurance policy for HIE plan—held harmless
for medical expenditure higher than they would
have experienced if they had not enrolled in HIE
* Some participants randomly assigned to capitation
plan
* Participation in HIE voluntary for families
• Compute arc elasticities of demand from Table
3.2.
• Discuss public policy implications of results
• Are there any limitations of results that you
would point out to public policymakers (The
fact that the results are old does not count.)
• For 94 percent of persons in HIE, not with low
income and not in poor health at baseline,
having health insurance coverage had no effect
on health.
• This result is highly provocative, but why might
the finding be misleading or even wrong?
• What is capitation and how does it affect
patient and provider incentives?
• HIE assigned 1,149 persons who had been
enrolled in fee-for-service health plans to
capitated plan in Seattle WA; also 773 persons
who had been enrolled in this health plan
selected as controls
• Rationale for “treatment” and “control”
groups
• Key findings
• There are many empirical studies based on
observational data.
• E.g., studies of demand for prescription drugs
(formularies, 3-tier cost sharing)
• Evidence from low-income countries, e.g.,
Vietnam
• Household income
• Health
• Family size and composition
• Educational attainment
• Race/ethnicity
• Consumer surplus defined
• Why economists calculate consumer surplus
• Start with discrete case: why consider area
above P=MC line to be consumer surplus
• What happens to consumer surplus if MC
increases and conversely
• Continuous case
Figure 3.5a. Consumer Surplus: Discrete Care
Figure 3.5b. Consumer Surplus (CS) and Welfare Loss
(WL): Continuous Care
$
D
CS
B
A
F
WL
E
O
Quantity
• Relation of consumer surplus to welfare
analysis
• Applications of welfare analysis
• Underlying assumptions and why some object
to conducting welfare analysis as done by
economists