1. Talking Heads (https:
www.youtube.com/watch?v=gyDb4szpWmc), policymakers, and politicians often argue that rising healthcare costs in the United States are bad, and use this to argue for policies to try to reduce prices. Using economics and the supply and demand framework:
· Explain why you should not reason or make policy based on the fact that prices are rising/falling. (2 points)
· Give two demand side and two supply side factors that might explain rising prices in the US (4 points)
2. Consider a country with a “Beveridge” model healthcare system with public provision of healthcare, but also a private market that provides healthcare to those who are willing to pay more, such as the system in the United Kingdom. Assume wages for healthcare providers (doctors, nurses, etc.) are higher in the private market relative to the public sector. Could the existence of the private healthcare market negatively affect people who can only afford public healthcare? (5 points)
3. Two hospitals, A and B, are considering the purchase of a new MRI machine. The population of the town is small enough that it only needs one MRI machine. The machine costs $1 million. Suppose the hospitals face the following scenarios and each hospital knows the scenarios. Ultimately, the hospitals will make the decision topurchase a machine at the same time, without knowing the other’s decision.
· Both hospitals buy an MRI machine and this earns them -$200,000 in profit each ($1million cost of machine minus $800,000 in revenue from patients using the machine).
· If only one hospital buys a machine, that hospital earns $800,000 in profits ($1.8 million in revenue from patients using the machine minus $1million cost of machine) and the other hospital loses $300,000 in revenue because patients switch to the hospital with the new machine.
· If neither hospital buys a machine, then each hospital’s revenue is unchanged (i.e. they make $0 in revenue).
a) Consider A’s decision to buy the machine. A’s profit depends on B’s decision. Suppose B buys a machine. How much will A earn if it also buys a machine? How much will A earn if it does not buy a machine? What should A do if B buys a machine? (3 points)
· b) Now consider A’s optimal decision if B decides not to buy a machine. How much will A earn if it buys a machine in this case? How much will A earn if it does not buy a machine? What should A do if B does not buy a machine? (3 points)
· c) A and B both operate to maximize profits and as mentioned before, the hospitals will make the purchase decision at the same time without knowing what each other plans to do. Note that this problem is symmetric for A and B. In other words, B must do the same calculation that A did in parts (a) and (b). What do you expect to happen in this market? Will the socially optimal outcome - one machine is purchased – happen? Explain. Hint: think about your responses to parts (a) and (b) and consider the same options for hospital B. Recall that both hospitals know how their actions affect each other, but do not know what each other’s decision will be. (5 points)
4. Explain the basic tradeoff a state makes when it tightens/increases regulations on licenses for physicians, dentists, and other healthcare professionals. What are the costs and benefits? (5 points)
5. Many researchers have shown that expansion of Medicaid coverage under the Affordable Care Act led to increases in insurance coverage and healthcare utilization in states that decided to expand Medicaid. Suppose this increase in healthcare utilization led to nurses working more hours per week (but not necessarily longer shifts). Explain the trade-off between working more/longer hours and patient health. Would you this increase in nurses’ hours worked to affect patients’ health outcomes? Would you expect the effect on patients’ health to be different if hours increased due to some nurses moving from part-time (<35 hours/week) to full-time (>= 35 hours per week) or due to full-time nurses taking more overtime (>40 hours/week)? Explain. (5 points)
6. Below is the abstract from the Bartel et al XXXXXXXXXXpaper “Human Capital and Productivity in a Team Environment: Evidence from the Healthcare Sector”1
Using panel data from a large hospital system, this paper presents estimates of the productivity effects of human capital in a team production environment. Proxying nurses’ general human capital by education and their unit-specific human capital by experience on the nursing unit, we find that greater amounts of both types of human capital significantly improve patient outcomes. Disruptions to team functioning attributable to the departure of experienced nurses, the absorption of new hires, and the inclusion of temporary contract nurses are associated with significant decreases in productivity beyond those attributable to changes in nurses’ skill and experience.
General human capital is
oad skills that one might learn from school and apply to multiple work settings, while specific human capital includes skills and knowledge that is learned on a job or in a specific work environment that are not easily transfe
able. In the case of nurses, specific human capital may not be transfe
able to jobs within the same hospital (for example, working in the ER versus a neo-natal unit) or across different hospitals.
The authors find that when experienced nurses leave, new hires enter, and/or temporary contract nurses are hired, patient outcomes decrease more than what can be attributed to changes in changes in nurse skills and experience. Thinking about general and specific human capital, what explains these findings? What changes when experienced nurses leave, new hires enter, or temporary nurses are hired? (5 points)
7. In the United States, most people are insured through their employer (“employer- sponsored insurance”). Some have argued that this makes it difficult for people to switch employers and discourage entrepreneurship. Explain why employer-sponsored coverage may make people reluctant to switch jobs or start new businesses. (3 points)
8. In the UK, most hospitals are owned by the government, whereas in the US, most hospitals are privately owned. What effect would hospital mergers have on the price of care in the US? (2 points) Could hospital mergers increase quality of care? Explain (3 points)
9. One study found that female gynecologists charge a standard fee for a basic patient visit that is on average $4.81 higher than what male gynecologists charge. Furthermore, the study finds that waiting lists are about 1.14 weeks longer for female gynecologists than their male counterparts. Use your knowledge of economics to give two explanations for these findings: one that focuses on the demand side of the market for gynecologists and another that focuses on the supply side. (5 points)
The health policy conundrum
The health policy conundrum
ECN 361
Fall 2018
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Health policy: problems to deal with
I Markets for health care services
I Oligopoly pricing
I Monopoly rents for doctors and specialists
I Medical arms races
I Health insurance markets
I Adverse selection and underinsurance
I Moral hazard and technology overuse
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A
ow’s impossibility theorem
I How to design a national health system?
I Societies must decide:
I how much time and money they want to spend on improving their health
I how much time and money they want to spend on other national priorities
(education, defense, etc)
I This is a social optimization problem
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A
ow’s impossibility theorem
I How to design a national health system?
I Societies must decide:
I how much time and money they want to spend on improving their health
I how much time and money they want to spend on other national priorities
(education, defense, etc)
I This is a social optimization problem
3 / 35
A
ow’s impossibility theorem
I How to design a national health system?
I Societies must decide:
I how much time and money they want to spend on improving their health
I how much time and money they want to spend on other national priorities
(education, defense, etc)
I This is a social optimization problem
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Social optimization is different from individual optimization
I Individuals assumed to have consistent and transitive preferences
I Transitive preferences: you prefer Kendrick Lamar to Drake and prefer Drake to
Future =⇒ you prefer Kendrick Lamar to Future.
I Circular preferences: you prefer Kendrick Lamar to Drake and prefer Drake to
Future, but you prefer Future to Kendrick Lama
I A
ow (1951): Societies do not necessarily have transitive preferences even when
everyone in them does. “A
ow’s impossibility theorem”
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Example
I Assume three fan groups are trying to decide who wins Best Hip hop/Rap artist of
the yea
I Each group has equal an equal vote
Fan type 1st pref 2nd pref 3rd pref
Hip hop Kendrick Lamar Drake Future
R& B Drake Future Kendrick Lama
Trap Future Kendrick Lamar Drake
I Each fan group has transitive preferences
I What is the society-wide preference? Who wins the award?
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Example
I Assume three fan groups are trying to decide who wins Best Hip hop/Rap artist of
the yea
I Each group has equal an equal vote
Fan type 1st pref 2nd pref 3rd pref
Hip hop Kendrick Lamar Drake Future
R& B Drake Future Kendrick Lama
Trap Future Kendrick Lamar Drake
I Each fan group has transitive preferences
I What is the society-wide preference? Who wins the award?
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Example
Fan type 1st pref 2nd pref 3rd pref
Hip hop Kendrick Lamar Drake Future
R&B Drake Future Kendrick Lama
Trap Future Kendrick Lamar Drake
I two-thirds prefer Kendrick to Drake
I two-thirds prefer Future to Kendrick
I So society prefers Future to Kendrick and, by transitivity, Future to Drake
I But two-thirds of society also prefers Drake to Future!
I So society prefers Future to Kendrick, Kendrick to Drake, and Drake to Future!?
I Societal preferences are circular, even though individual preferences are transitive
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Example
Fan type 1st pref 2nd pref 3rd pref
Hip hop Kendrick Lamar Drake Future
R&B Drake Future Kendrick Lama
Trap Future Kendrick Lamar Drake
I two-thirds prefer Kendrick to Drake
I two-thirds prefer Future to Kendrick
I So society prefers Future to Kendrick and, by transitivity, Future to Drake
I But two-thirds of society also prefers Drake to Future!
I So society prefers Future to Kendrick, Kendrick to Drake, and Drake to Future!?
I Societal preferences are circular, even though individual preferences are transitive
6 / 35
Example
Fan type 1st pref 2nd pref 3rd pref
Hip hop Kendrick Lamar Drake Future
R&B Drake Future Kendrick Lama
Trap Future Kendrick Lamar Drake
I two-thirds prefer Kendrick to Drake
I two-thirds prefer Future to Kendrick
I So society prefers Future to Kendrick and, by transitivity, Future to Drake
I But two-thirds of society also prefers Drake to Future!
I So society prefers Future to Kendrick, Kendrick to Drake, and Drake to Future!?
I Societal preferences are circular, even though individual preferences are transitive
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Example
Fan type 1st pref 2nd pref 3rd pref
Hip hop Kendrick Lamar Drake Future
R&B Drake Future Kendrick Lama
Trap Future Kendrick Lamar Drake
I two-thirds prefer Kendrick to Drake
I two-thirds