Lec2_Health - Health, Medical Care, and Medical Spending...

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Health, Medical Care, and Health, Medical Care, and Medical Spending 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
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Can we apply the tools of managerial economics to health care?
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Outline Outline An economic model of utility, health, and medical care Measuring health status Empirical evidence on health production Health care expenditures
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A Basic Economic Model A Basic Economic Model Health as a consumer durable good: Utility = U (X, H ealth) 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
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A Basic Economic Model A Basic Economic Model (cont.) (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
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A Basic Economic Model A Basic Economic Model (cont.) (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 total product curve shifts down and flattens out
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MEASURING HEALTH MEASURING HEALTH Important for all health care managers today Insurers and consumers are demanding costs AND quality
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HEALTH OVER THE LIFE CYCLE HEALTH OVER THE LIFE CYCLE TIME HEALTH BIRTH H min Appendicitis Auto Crash Cancer (radiation therapy) Cancer complications
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HEALTH OVER THE LIFE CYCLE 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
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DISCOUNTING 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
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CHOICES Spend $100 today Invest $100 = $90.91 (1 + .10) and have $9.09 left over DISCOUNTING
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If costs occur over multiple time periods, we
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Lec2_Health - Health, Medical Care, and Medical Spending...

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