Health Care Economics Assignment 1 Assignment Instructions Assignment 1 should be done after you have completed Units 1, 2, 3, and 4. This assignment is worth 25% of your final grade. It contains 12...

E Health Care Economics
Assignment 1
Assignment
Instructions
1. Assignment 1 should be done after you have completed Units 1, 2, 3, and 4.
2. This assignment is worth 25% of your final grade. It contains 12 questions, which
have been assigned various marks. Assignment 1 has a total of 100 marks.
3. Prepare written responses to all questions. Although your responses should be
concise, ensure that you answer all portions of each question as completely as
possible.
4. When you have completed Assignment 1, save a copy for your records, and then
send it to your tutor using the assignment link.
5. When you receive your graded assignment, carefully review the comments your
tutor or evaluator has made. This review component is an important step in your
learning process. If you have any questions or concerns about the assignment
evaluation, contact your tutor as soon as possible
Questions
10 marks
1.
A model of the determinants of health combines three economic variables and two
economic relationships.
For instance, the three economic variables are:
 the amount a patient pays for a visit to a physiotherapist (P);
 the number of times the patient visits the physiotherapist (V);
and
 the length of time it takes the patient to recover from a rotator
cuff (shoulder) injury (D) (max.  365 days).
The two economic relationships are:
 the number of visits (V)  18  $0.09 (P).
In other words, if the price is zero, the patient will make 18 visits in order to receive
treatment for this injury. If the price is $200, the patient will make zero visits.
 the number of days to recover (365  D).
In this case, the number of healthy days (D) in the next year will be 180  5V. If the
number of visits is zero, the patient will have 180 healthy days and it will take 185
(365  180) days to recover from the rotator cuff injury. If the number of visits is 18,
the patient will have 270 [180  5(18)] healthy days, and the time to recover from the
injury will be 95 days (365  270).
Use the above information to determine the relationship between price and health status
in this model. In other words, solve for D and for P, and set up two equations: one
showing the value of D in terms of P; and one showing the value of P in terms of D. Once
you have determined the two equations, provide an interpretation of each equation.
Solution:
We have given two equations: V = 18  $0.09 (P).
And D = 180 + 5V
Substituting for V in equation of D, we got our equation showing the value of D in terms of P
D = 180 + 5(18 -0.09P)
D = 180 + 90 -0.45P
D = 270 – 0.45P
It shows that if P = 0, there will be 270 healthy days and if P = 200 then healthy days will be
180
If we want to determine P in terms of D then we will get:
P = (270 – D)/0.45
P = 600 – 2.23(D)
It implies that if number of healthy days are zero then P will be 600 and if number of
healthy days are 270, then P will be zero dollar.
2.

Year
Population

of Canada
Physicians

in Canada
Physician
Services
(thousands)
2002 31,577,000 56,080 520,800
2003 31,988,700 58,230 558,500
2004 32,509,000 59,850 570,200
2005 33,037,000 60,925 589,300
5 marks
a. Calculate the number of physicians, per thousand population in Canada, from
2002 to 2005. What conclusions can be drawn about the physician coverage
of Canada’s population?
Solution: number of physicians per thousand = (number of physicians *
1000)/population
Here is the number of physicians per thousand:
Y
e
a

Popul
ation
of
Canad
a
Physi
cians
in
Cana
da
the number of physicians,
per thousand population
2
0
0
2

31,577
,000
5608
0
1.775976185
2
0
0
3

31,98
8,700
5823
0
1.820330304
2
0
0

32,50
5985
0
1.841028638
4 9,000
2
0
0
5

33,03
7,000
6092
5
1.844144444
The Physician coverage of Canada’s population is very low. And is rising very slowly at the
ate of 0.77% per year.
5 marks
. Calculate the per capita usage of physician services in Canada for each of the
above four years, and determine the annual percentage changes in per capita
usage. (Show all of your work to earn full marks.)
Solution:
Per Capita usage of physician services in Canada = Physician
Services/Population of Canada
And annual percentage changes in per capita usage = (cu
ent Year percapita
usage – previous year per capita usage)*100/previous year per capita usage
Here is the calculations:

A B C D D*1000/C

Year
Population of
Canada
Physicians
in Canada
Physician Services
(thousands)
per capita usage of
physician services
percetage
annual
change
2002 31577000 56080 520800 16.49301707 NA
2003 31988700 58230 558500 17.45929031 5.85868091
2004 32509000 59850 570200 17.53975822 0.460888773
2005 33037000 60925 589300 17.83757605 1.697958584
10 marks
3. Green Shield Insurance provides NEMO Corporation with coverage for
prescriptions, dental work, and extended health services. Each subscriber
uses $435 worth of dental services per year; $410 worth of prescriptions per
year; and $385 worth of extended health coverage per year. Green Shield
has a 25 percent copayment clause, and a loading factor of 65
percent. NEMO will pay 50 percent of the plan costs. What is the annual and
monthly premiums charged to the employees of NEMO corporation? (Show
all of your work to earn full marks.)
Solution: Total cost per subscriber per year = $435 + $410 + $385 = $1230
After deducting 25% copayment = $1230 * 0.75 = $922.5
Adding the loading factor = 922.5 + 0.65(922.5) = $1522.12
50% will be paid by Nemo, so an employee will have to pay annualy = 1522.12/2 =
761.06
And monthly = $761.06/12 = $63.42
4. The services of a certified psychologist cost $110 per hour, and an extended health
plan covers 50 percent of that cost. Under the plan, the clients covered used 625 hours of
this service in a typical three-month period. To save money, the extended health plan
educed its coverage to 40 percent of the cost. As a result, the clients covered reduced
their use of this service to 482 hours in a typical three-month period.
4 marks
a. Calculate the total cost of providing this insured service to the plan before and
after the change in coverage. (Show all of your work to earn full marks.)
Solution: Cost = Charge/hr * hrs * coverage %
Before change cost = $110 * 625 * 0.50 = $34,375
After change cost = $110 * 482 * 0.40 = $21,208
6 Marks
. Based on the data above, calculate the elasticity of demand for the services of a
certified psychologist. (Show all of your work to earn full marks.) Interpret the
elasticity of demand, and explain the behaviour of the clients covered based upon
this interpretation.
Solution: Before Client was paying per hour = $110*0.50 = $55 old price
After change client was paying per hour = $110*0.60 = $66
Percentage Change in demand = (new demand – old demand)*100/old demand
= (482-625)*100/625 = -22.88%
Percentage Change in price = (new price – old price)*100/old price
= (66-55)*100/55 = 20%
elasticity of demand for the services of a certified psychologist = % change in demand
%change in price = -22.88%/20% = -1.14
When the price of service per hour changes by 1%, demand declines by 1.14%
Client’s purchase of certified psychologist’s service reduces as the price increase.
12 marks
5. The northern community of Assiniboine Na
ows has a population of 12,000. It has
one medical clinic with three doctors, each working 40 hours per week. Each doctor sees
four patients per hour. The clinic would like to hire one or two more doctors.
The mortality rate in the community is 11 per 1,000 population. This rate will fall to 9.5
per thousand if one doctor is added and to 9 per thousand if two doctors are added. Each
new doctor will cost the system $250,000 per year.
An alternative plan is to
ing in two home care nurses. Each home care nurse will see
two patients per hour. The addition of the first nurse will reduce the mortality rate by
0.8 per thousand, and the addition of a second nurse will reduce the mortality rate by
0.6 per thousand. Each home care nurse will cost the system $100,000 per year.
Use calculations to examine the alternatives available to Assiniboine Na
ows. Then,
ased on your calculations, make a recommendation as to the prefe
ed course of action.
Ensure that you calculate the output and outcome of each additional health
professional.
Solution: The clinic has four options available:
1. Hire one doctor and one nurse
2. Hire two doctors
3. Hire two nurses
4. Hire one doctor
In first option: Total cost = Cost of one doctor + cost of one nurse
= $250,000 +$100,000 = $300,000
And decline in mortality rate = (11-9.5) + 0.8 = 2.3 per thousand
Cost of reducing one per thousand = 300,000/2.3 = $130,434
In second option: Total cost = Cost of two doctor
= 2*$250,000
= $500,000
And decline in mortality rate = (11-9) = 2 per thousand
Cost of reducing one per thousand = 500,000/2 = $250,000
In third option: Total cost = Cost of two nurses
= 2*$100,000
= $200,000
And decline in mortality rate =0.8 + 0.6 = 1.4 per thousand
Cost of reducing one per thousand = 200,000/1.4 = $142,857
In fourth option: Total cost = Cost of one doctor
= $250,000
= $250,000
And decline in mortality rate =1.5 per thousand
Cost of reducing one per thousand = 250,000/1.5 = $166,666
Clearly if the clinic can hire one doctor and one nurse then, given the lowest cost of
educing mortality by on one per thousand, option 1 is the best option. If option 1 is not
available then option 3 is best option.
10 marks
6. Assume a given demand curve for massage therapy services. In the context of
providing massage therapy services, list, and describe in detail, five different variables
that may cause an increase in the demand for these services.
Solution: Here are the five major variables, that may cause an increase in the demand of
these services:
1. Growing Awareness: If the awareness for positive impacts of the massage therapy
services is growing, then people will demand more and more of these services
2. Change in government policy: If the...