1. Suppose Providence wants to reduce childhood obesity. As part of its plan, the city would impose a tax on sugary drinks like soda, Gatorade, etc because their consumption has been associated with childhood obesity, however the tax would be applied statewide. The tax would be paid by suppliers. According to standard economic theory, how would the tax affect the market equili
ium price and quantity of soda sold in Providence? (2 points) Do you think the tax would be effective in reducing childhood soda consumption in Providence? Would it be effective in reducing childhood obesity in Providence (assume that soda consumption does increase obesity)? Explain. (4 points)
2. Consider the Rothschild-Stiglitz model of insurance with asymmetric information and heterogeneous types. Suppose the government collects a lump-sum tax of $X from both the robust and frail types when they are healthy. How does this affect the endowment? Can a separating equili
ium still exist? Explain. (3 points)
3. One of the goals of the Affordable Care Act (ACA) was to increase insurance coverage through a variety of policies. The ACA was largely successful in reducing the number of uninsured in the US. How would this affect the demand for medical care? Would healthcare consumption increase or decrease? Would we expect this to increase or decrease the price of care? (3 points) Explain why, theoretically, it is ambiguous that increased insurance coverage could increase or decrease health. (4 points)
4. Using the Grossman model as your framework, explain whether changes in business cycles are likely to have stronger or weaker effects on health for retirees relative to the prime working-age population (age XXXXXXXXXXpoints)
5. Consider the cu
ent COVID-19 pandemic. A major concern is that a rapid increase in cases of the virus will overwhelm the healthcare system because of a limited number of intensive care unit beds, ventilators, etc. What does this imply about the price elasticity of supply of these goods in the short run? (2 points)
6. The federal dependent coverage mandate (FDCM) allows young adults to stay on family/parent health insurance plans until they reach age 26. At 26, they must find their own insurance coverage. Many studies show that this age limit causes individuals to be 4-10 percentage points less likely to be insured at 26.
a. One study shows that individuals who lose insurance at 26 because of the FDCM do not change their smoking or drinking behavior. What would the theory of moral hazard say should happen to smoking and drinking behavior when individuals lose insurance
coverage? (3 points) What might explain why these individuals’ smoking and drinking
ehaviors do not change? (3 points)
. Another study on the FDCM shows that when individuals lose insurance coverage, they
are less likely to purchase addictive prescription drugs such as benzodiazepines (for example, Xanax), opioids (OxyContin), and stimulants (Adderall). What does this imply about price elasticity of demand of prescription drugs? (2 point)
7. One policy of the ACA was to mandate insurance providers introduce zero cost-sharing (0 out-of- pocket cost for the consumer) for the cost of at least one version of each form of prescription contraception. A recent study found that this policy reduced condom use and increased sexually transmitted infections (STIs), more specifically chlamydia and gono
hea. Using economic theory, explain why this policy caused the decrease in condom use and increase in STIs. (4 points)
8. In the early 2000s, Massachusetts implemented a health reform to enroll people without health insurance into an insurance plan. The reform required people without insurance to buy insurance, and penalties on those who did not buy insurance. A study found that counties with larger increases in insurance coverage during the reform period faced the smallest increase in average hospital costs for the insured population. Is this result consistent with predictions from the Rothschild-Stiglitz model? In other words, is this consistent or inconsistent with adverse selection into insurance before the Massachusetts health reform? Explain why or why not. (4 points)
Overview of health economics
Overview of health economics
ECN 360
Spring 2020
1 / 8
Why study health economics?
I Health care economy is MASSIVE
I Uncertainty and externalities
I Public finance issues
I Welfare economics
2 / 8
Size of the health care economy
3 / 8
Size of the health care economy - questions to tackle
I What are the main factors driving the increase in health care expenditures in the
US?
I Similar across countries?
I Are we healthier?
4 / 8
Uncertainty and externalities in health care
I Is the economics of the market for health care different from the economics of
typical consumer goods?
Yes.
I Demand for health care is uncertain. We experience “health shocks” throughout
life.
I Examples?
I Asymmetric information
I Health insurance, adverse selection, moral hazard
I Externalities
I Other people’s health decisions affect you and your health decisions affect others.
Examples?
5 / 8
Uncertainty and externalities in health care
I Is the economics of the market for health care different from the economics of
typical consumer goods? Yes.
I Demand for health care is uncertain. We experience “health shocks” throughout
life.
I Examples?
I Asymmetric information
I Health insurance, adverse selection, moral hazard
I Externalities
I Other people’s health decisions affect you and your health decisions affect others.
Examples?
5 / 8
Uncertainty and externalities in health care
I Is the economics of the market for health care different from the economics of
typical consumer goods? Yes.
I Demand for health care is uncertain. We experience “health shocks” throughout
life.
I Examples?
I Asymmetric information
I Health insurance, adverse selection, moral hazard
I Externalities
I Other people’s health decisions affect you and your health decisions affect others.
Examples?
5 / 8
Uncertainty and externalities in health care
I Is the economics of the market for health care different from the economics of
typical consumer goods? Yes.
I Demand for health care is uncertain. We experience “health shocks” throughout
life.
I Examples?
I Asymmetric information
I Health insurance, adverse selection, moral hazard
I Externalities
I Other people’s health decisions affect you and your health decisions affect others.
Examples?
5 / 8
Health economics and public finance
I Role of government in health care varies, but generally heavily involved.
I US: Medicare, Medicaid, Affordable Care Act policies
I UK: National Health Service (NHS)
I In US: 1/6 of GDP spent on health care, half of which was spent by the
government: ≈ $1.1 trillion (2008).
6 / 8
Welfare economics
I Many health policy questions revolve around normative issues
I Health care as a human right vs. limited role of government in health care
I Health economics helps determine positive facts about health care
I Do patent protections increase innovation?
I Do medical malpractice laws affect health care services/quality?
I Do taxes on unhealthy foods make people healthier?
I How would changes in physician licensing affect costs and care?
7 / 8
Welfare economics
I Many health policy questions revolve around normative issues
I Health care as a human right vs. limited role of government in health care
I Health economics helps determine positive facts about health care
I Do patent protections increase innovation?
I Do medical malpractice laws affect health care services/quality?
I Do taxes on unhealthy foods make people healthier?
I How would changes in physician licensing affect costs and care?
7 / 8
Welfare economics
I Many health policy questions revolve around normative issues
I Health care as a human right vs. limited role of government in health care
I Health economics helps determine positive facts about health care
I Do patent protections increase innovation?
I Do medical malpractice laws affect health care services/quality?
I Do taxes on unhealthy foods make people healthier?
I How would changes in physician licensing affect costs and care?
7 / 8
Welfare economics
I Many health policy questions revolve around normative issues
I Health care as a human right vs. limited role of government in health care
I Health economics helps determine positive facts about health care
I Do patent protections increase innovation?
I Do medical malpractice laws affect health care services/quality?
I Do taxes on unhealthy foods make people healthier?
I How would changes in physician licensing affect costs and care?
7 / 8
Welfare economics
I Many health policy questions revolve around normative issues
I Health care as a human right vs. limited role of government in health care
I Health economics helps determine positive facts about health care
I Do patent protections increase innovation?
I Do medical malpractice laws affect health care services/quality?
I Do taxes on unhealthy foods make people healthier?
I How would changes in physician licensing affect costs and care?
7 / 8
Welfare economics
I Many health policy questions revolve around normative issues
I Health care as a human right vs. limited role of government in health care
I Health economics helps determine positive facts about health care
I Do patent protections increase innovation?
I Do medical malpractice laws affect health care services/quality?
I Do taxes on unhealthy foods make people healthier?
I How would changes in physician licensing affect costs and care?
7 / 8
Welfare economics
I To answer the previous questions, we need welfare economics
I Main idea: people know what is best for them
I Preferences (revealed by choices under constraints) should be a guide for policy
I Issues with typical approach? Insights from behavioral economics
8 / 8
Welfare economics
I To answer the previous questions, we need welfare economics
I Main idea: people know what is best for them
I Preferences (revealed by choices under constraints) should be a guide for policy
I Issues with typical approach? Insights from behavioral economics
8 / 8
Welfare economics
I To answer the previous questions, we need welfare economics
I Main idea: people know what is best for them
I Preferences (revealed by choices under constraints) should be a guide for policy
I Issues with typical approach? Insights from behavioral economics
8 / 8
Welfare economics
I To answer the previous questions, we need welfare economics
I Main idea: people know what is best for them
I Preferences (revealed by choices under constraints) should be a guide for policy
I Issues with typical approach? Insights from behavioral economics
8 / 8
Demand for health and health care
Demand for health and health care
ECN 360
Spring 2020
1 / 17
Demand for health care
2 / 17
Demand for health care
I What is the shape of the demand curve fo
health care?
I Is the demand curve for health care
downward-sloping? (people are price
sensitive)
I Or is it vertical? (people don’t care about
price)
3 / 17
Demand for health care
I What is the shape of the demand curve fo
health care?
I Is the demand curve for health care
downward-sloping? (people are price
sensitive)
I Or is it vertical? (people don’t care about
price)
3 / 17
Demand for health care
I What is the shape of the demand curve fo
health care?
I Is the demand curve for health care
downward-sloping? (people are price
sensitive)
I Or is it vertical? (people don’t care about
price)
3 / 17
Demand for health care
I What is the shape of the demand curve fo
health care?
I Is the demand curve for health care
downward-sloping? (people are price
sensitive)
I Or is it vertical? (people don’t care about