The Economics of Health and Health Care : International Student Edition, 8th Edition

This step-by-step introduction to the economics of health and health care thoroughly develops and explains economic ideas and models to reflect the full spectrum of health economics literature, using such core economic themes as supply and demand. Folland, Goodman, and Stano's bestselling The Economics of Health and Health Care text offers the market-leading overview of all aspects of Health Economics, teaching through core economic themes, rather than concepts unique to the health care economy. The Eighth Edition of this key textbook has been revised and updated throughout, and reflects changes since the implementation of the Affordable Care Act (ACA). In addition to its revised treatment of health insurance, the text also introduces the key literature on social capital as it applies to individual and public health, as well as looking at public health initiatives relating to population health and economic equity, and comparing numerous policies across Western countries, China, and the developing world. It provides up-to-date discussions on current issues, as well as a comprehensive bibliography with over 1,100 references. Extra material and teaching resources are now also available through the brand new companion website, which provides full sets of discussion questions, exercises, presentation slides, and a test bank. This book demonstrates the multiplicity of ways in which economists analyze the health care system, and is suitable for courses in Health Economics, Health Policy/Systems, or Public Health, taken by health services students or practitioners Cover......Page 1 Title......Page 4 Copyright......Page 5 Contents......Page 6 Preface......Page 24 Acknowledgments......Page 28 1 Introduction......Page 30 What Is Health Economics?......Page 31 Box 1.1 Technological Change and Health Care Costs—Why Rising Health Care Costs Affect All Nations......Page 32 Health Care's Share of GDP in the United States......Page 33 Importance of the Health Economy in Personal Spending......Page 34 Importance of Labor and Capital in the Health Economy......Page 36 The Importance Attached to Economic Problems of Health Care Delivery......Page 38 Inflation......Page 39 Economic Methods and Examples of Analysis......Page 40 Use of Models......Page 41 Does Economics Apply to Health and Health Care?......Page 42 An Example: Does Price Matter?......Page 43 Prominence of Insurance......Page 44 Problems of Information......Page 46 Role of Equity and Need......Page 47 Conclusions......Page 48 Postscript......Page 49 Discussion Questions......Page 50 Exercises......Page 51 2 Microeconomic Tools for Health Economics......Page 56 Scarcity and the Production Possibilities Frontier......Page 57 Box 2.1 There's Scarcity and Then There's Real Scarcity......Page 59 The Demand Curve and Demand Shifters......Page 61 The Supply Curve and Supply Shifters......Page 62 Comparative Statics......Page 63 Linear Functions......Page 64 Demand Functions......Page 65 Consumer Theory: Ideas behind the Demand Curve......Page 66 Utility......Page 67 Indifference Curves......Page 68 Consumer Equilibrium......Page 69 Individual and Market Demands......Page 71 Elasticities......Page 72 The Production Function......Page 74 Production Functions......Page 75 Cost Minimization or Output Maximization......Page 78 Marginal and Average Cost Curves......Page 79 The Firm Supply Curve under Perfect Competition......Page 80 Monopoly and Other Market Structures......Page 83 Box 2.2 Is Competition Better than Monopoly?......Page 85 Summary......Page 86 Exercises......Page 87 3 Statistical Tools for Health Economics......Page 90 Hypothesis Testing......Page 91 Difference of Means......Page 92 The Variance of a Distribution......Page 93 Standard Error of the Mean......Page 94 Hypotheses and Inferences......Page 95 Box 3.1 Do Cell Phones Cause Cancer?—Positive Reports but Inconsistent Data......Page 96 Ordinary Least Squares (OLS) Regressions......Page 97 A Simple Regression......Page 98 Estimating Elasticities......Page 99 Multiple Regression Analysis......Page 100 Interpreting Regression Coefficients......Page 101 Box 3.2 Hormone Replacement Therapy—Rigorous Statistics Reveal Surprising Results......Page 102 Dummy Variables......Page 103 Statistical Inference in the Sciences and Social Sciences......Page 104 Discussion Questions......Page 105 Exercises......Page 106 4 Economic Efficiency and Cost-Benefit Analysis......Page 110 Economic Efficiency......Page 111 Measuring Benefits and Costs......Page 114 Risk Equity versus Equality of Marginal Costs per Life Saved......Page 116 Box 4.1 When Is Preventative Medicine a Good Investment?......Page 117 Marginal Analysis in CBA......Page 118 Discounting......Page 119 Box 4.3 Discounting and Global Warming......Page 121 Valuing Human Life......Page 122 How Valuable Is the Last Year of Life?......Page 123 Cost-Benefit Analyses of Heart Care Treatment......Page 125 Cost-Effectiveness Analysis......Page 126 Cost-Utility Analysis, QALYs, and DALYs......Page 127 Extra-Welfarism......Page 129 The Ageism Critique......Page 130 Conclusions......Page 131 Discussion Questions......Page 132 Exercises......Page 133 Appendix—Discounting......Page 135 5 Production of Health......Page 138 The Production Function of Health......Page 139 The Rising Population and the Role of Medicine......Page 141 What Caused the Mortality Rate Declines? Was It Medicine?......Page 143 Box 5.1 Tuberculosis and The Magic Mountain......Page 144 What Lessons Are Learned from the Medical Historian?......Page 147 Preliminary Issues......Page 148 The Contribution of Health Care to Population Health: The Modern Era......Page 149 Box 5.3 Sulfa: A Drug That Really Made a Difference......Page 150 On the Effect of Social Health Insurance......Page 151 Prenatal Care......Page 152 On the Importance of Lifestyle and Environment......Page 154 Cigarettes, Exercise, and a Good Night's Sleep......Page 155 Social Capital and Health......Page 156 The Role of Schooling......Page 157 Empirical Studies on the Role of Schooling in Health......Page 158 Summary......Page 159 Exercises......Page 160 6 The Production, Cost, and Technology of Health Care......Page 162 Substitution......Page 163 Elasticity of Substitution......Page 165 Box 6.1 Health Care Professionals: Expanding the Possibilities......Page 166 Estimates for Hospital Care......Page 167 Deriving the Cost Function......Page 168 Cost Minimization......Page 169 Why Would Economies of Scale and Scope Be Important?......Page 170 Difficulties Faced by All Hospital Cost Studies......Page 172 Technical Inefficiency......Page 174 Allocative Inefficiency......Page 175 Frontier Analysis......Page 176 The Uses of Hospital Efficiency Studies......Page 178 Are Hospital Frontier Efficiency Studies Reliable?......Page 179 Technological Changes and Costs......Page 180 Health Care Price Increases When Technological Change Occurs......Page 181 Box 6.3 Aspirin, the Wonder Drug at a Bargain......Page 182 Other Factors That May Affect Adoption Rates......Page 184 Diffusion of Technology and Managed Care......Page 185 Summary......Page 186 Exercises......Page 187 7 Demand for Health Capital......Page 190 The Consumer as Health Producer......Page 191 Box 7.1 Exercise Technology—FitBits or Smartphones?......Page 192 Labor-Leisure Trade-Offs......Page 193 Trading Leisure for Wages......Page 194 Preferences between Leisure and Income......Page 195 Production of Healthy Days......Page 196 Production of Health and Home Goods......Page 197 The Demand for Health Capital......Page 198 The Decreasing MEI......Page 199 Age......Page 200 Wage Rate......Page 201 Empirical Analyses Using Grossman's Model......Page 202 Box 7.2 Rational Addiction......Page 203 Obesity—The Deterioration of Health Capital......Page 204 An Economic Treatment of Obesity......Page 207 Economic Effects......Page 208 Why Has Obesity Increased?......Page 209 Conclusions......Page 210 Discussion Questions......Page 211 Exercises......Page 212 8 Demand and Supply of Health Insurance......Page 214 What is Insurance?......Page 215 Insurance Terminology......Page 216 Expected Value......Page 217 Marginal Utility of Wealth and Risk Aversion......Page 218 Purchasing Insurance......Page 219 How Much Insurance?......Page 220 Changes in Premiums......Page 222 Changes in Expected Loss......Page 223 The Supply of Insurance......Page 224 Competition and Normal Profits......Page 225 The Case of Moral Hazard......Page 226 Demand for Care and Moral Hazard......Page 227 Effects of Coinsurance and Deductibles......Page 229 The Impact of Coinsurance......Page 230 Box 8.2 Got Insurance? You Still May Pay a Steep Price for Prescriptions......Page 232 The Welfare Loss of Excess Health Insurance......Page 234 Income Transfer Effects of Insurance......Page 237 Summary......Page 240 Exercises......Page 241 9 Consumer Choice and Demand......Page 244 Box 9.1 What Happens to Costs When Patients Participate in Medical Decision Making?......Page 246 The Consumer's Equilibrium......Page 247 Demand Shifters......Page 248 Health Status and Demand......Page 250 The Role of Time......Page 251 The Role of Coinsurance......Page 253 Issues in Measuring Health Care Demand......Page 255 Differences in the Study Populations......Page 256 Box 9.2 Oregon's Health Insurance Experiment......Page 257 Price Elasticities......Page 258 Income Elasticities across Countries......Page 260 Insurance Elasticities......Page 261 Ethnicity and Gender......Page 263 Box 9.3 Disparities in Health Care: A National Priority......Page 264 Age, Health Status, and Uncertainty......Page 265 Conclusions......Page 266 Summary......Page 267 Discussion Questions......Page 268 Exercises......Page 269 10 Asymmetric Information and Agency......Page 272 Overview of Information Issues......Page 273 On the Extent of Information Problems in the Health Sector......Page 274 Asymmetric Information in the Used-Car Market: The Lemons Principle......Page 275 Application of the Lemons Principle: Health Insurance......Page 277 Inefficiencies of Adverse Selection......Page 278 The Affordable Care Act and Adverse Selection......Page 279 Experience Rating and Adverse Selection......Page 280 Box 10.1 What Happens When the Patient Is a Medical Expert?......Page 281 Consumer Information and Prices......Page 283 Consumer Information and Quality......Page 284 Other Quality Indicators......Page 285 Box 10.2 Quality Rankings and Health Care Outcomes......Page 286 Conclusions......Page 287 Summary......Page 288 Discussion Questions......Page 289 Exercises......Page 290 11 The Organization of Health Insurance Markets......Page 292 Impacts of Loading Costs......Page 293 Loading Costs and the Uninsured......Page 295 Employer Provision of Health Insurance: Who Pays?......Page 296 Spousal Coverage: Who Pays?......Page 298 How the Tax System Influences Health Insurance Demand......Page 300 Who Pays the Compensating Differentials?—Empirical Tests......Page 302 Other Impacts of Employer Provision of Health Insurance......Page 303 Box 11.2 For Many with Pre-Existing Conditions, Obamacare's Flaws are Only a Small Price to Pay......Page 304 Health Insurance and Retirement......Page 305 Health Insurance and Mobility......Page 306 The Market for Private Insurance......Page 307 Insurance Practices......Page 309 The Uninsured: An Analytical Framework......Page 310 Box 11.3 Counting the Uninsured......Page 311 The Working Uninsured......Page 312 The Impacts of Mandated Coverage......Page 313 Evidence on the Impact of the ACA on the Uninsured......Page 315 Conclusions......Page 317 Discussion Questions......Page 318 Exercises......Page 319 12 Managed Care......Page 322 What Is the Organizational Structure?......Page 324 What Are the Economic Characteristics?......Page 325 The Emergence of Managed Care Plans......Page 326 Employer-Sponsored Managed Care......Page 327 Managed Care Contracts with Physicians......Page 329 Managed Care Contracts with Hospitals......Page 330 Federal Policy and the Growth of Managed Care......Page 331 Modeling Managed Care......Page 332 How Much Care?......Page 333 What Types of Care?......Page 334 Where Managed Care Differs from FFS—Dumping, Creaming, and Skimping......Page 335 Equilibrium and Adverse Selection in a Market with HMOs......Page 336 Methodological Issues—Selection Bias and Quality of Care......Page 338 The RAND Study—A Randomized Experiment......Page 339 More Recent Evidence......Page 340 Box 12.1 What Do HMOs Actually Do?......Page 341 Growth in Spending......Page 342 Theoretical Issues......Page 343 Managed Care Competition in Hospital Markets......Page 345 Managed Care and Technological Change......Page 346 The Managed Care Backlash......Page 347 Box 12.2 Pay-for-Performance......Page 349 Accountable Care Organizations (ACOs)......Page 350 Managed Care and the Affordable Care Act......Page 351 Summary......Page 352 Exercises......Page 354 13 Nonprofit Firms......Page 358 Why Nonprofits Exist and Why They Are Prevalent in Health Care......Page 359 Nonprofits as Providers of Unmet Demands for Public Goods......Page 360 The Public Good-Private Good Aspect of Donations......Page 361 Relevance to Health Care Markets......Page 362 Applications of Contract Failure to Health Care......Page 363 The Quality-Quantity Nonprofit Theory......Page 364 The Profit-Deviating Nonprofit Hospital......Page 366 Maximizing Net Revenue per Physician......Page 368 A Comparison of the Quantity-Quality and the Physicians' Cooperative Theories......Page 369 Competition from Home Care and Outpatient Care......Page 371 The Evidence: Do Nonprofit Hospitals Differ from For-Profit Hospitals?......Page 372 What Causes Conversion of Nonprofits into For-Profits?......Page 373 Are Nonprofit Health Care Firms Less Technically or Allocatively Efficient?—Hospital and Nursing Home Studies......Page 374 Summary......Page 375 Discussion Questions......Page 376 Exercises......Page 377 14 Hospitals and Long-Term Care......Page 378 Background and Overview of Hospitals......Page 379 History......Page 380 Organization......Page 381 Hospital Utilization and Costs......Page 382 Box 14.1 Game Theory and the Medical Arms Race (MAR)......Page 384 Closures, Mergers, and Restructuring......Page 388 Box 14.2 Hospitals and Airlines: What Are the Lessons?......Page 389 Quality of Care......Page 390 Background and Costs......Page 391 Quality of Care......Page 392 Excess Demand......Page 393 Financing Long-Term Care......Page 395 Hospice, Home Health, and Informal Care......Page 396 Conclusions......Page 397 Summary......Page 398 Exercises......Page 399 15 The Physician's Practice......Page 402 Modeling Supplier-Induced Demand......Page 403 Do Physicians Respond to Profit Incentives?......Page 404 Box 15.1 SID and Target Income: A Physician's Perspective......Page 406 The McGuire and Pauly Model......Page 407 Box 15.2 Supplier-Induced Pregnancies......Page 410 A Marketplace Approach......Page 411 Small Area Variations (SAV)......Page 412 Contributions to These Variations......Page 413 The Demand Side......Page 414 Malpractice......Page 415 Box 15.3 Clinical Decision Making and Patient Preferences......Page 416 Conclusions......Page 417 Discussion Questions......Page 418 Exercises......Page 419 16 Health Care Labor Markets and Professional Training......Page 420 Production Functions and Isoquants......Page 421 Marginal Productivity of Labor......Page 422 Factor Substitution and Labor Demand......Page 424 Factor Productivity and Substitution among Factors......Page 425 The Efficient Utilization of Physician Assistants: Substitution among Inputs......Page 426 Box 16.1 Recent Productivity Studies......Page 427 Availability of Physicians......Page 428 Box 16.2 Dealing with Shortages of Primary Care Physicians......Page 429 The Role of Monopsony Power: Shortages of Registered Nurses......Page 432 Medical Education Issues and the Question of Control......Page 434 Teaching Hospitals, Medical Schools, and Joint Production......Page 435 Foreign Medical School Graduates......Page 436 Control over Entry......Page 437 Licensure and Monopoly Rents......Page 439 Licensure and Quality......Page 441 Specialization......Page 442 Private Practice or Employed......Page 443 Physician Income by Gender—The Increasing Role of Women......Page 444 Conclusions......Page 445 Summary......Page 446 Exercises......Page 447 17 The Pharmaceutical Industry......Page 450 Box 17.1 Patents and Media Attention......Page 451 Box 17.2 Martin Shkreli and Valeant Pharmaceuticals......Page 453 Competition......Page 454 Barriers to Entry......Page 455 Box 17.3 Direct-to-Consumer (DTC) Advertising......Page 456 Regulation......Page 457 The Production of Health and Substitutability......Page 458 Insurance and Substitutability......Page 460 Technological Change......Page 462 Monopoly Pricing......Page 463 Price Discrimination......Page 464 Monopsony Pricing and Price Controls......Page 465 Research and Development (R&D) and Innovation......Page 466 Investment Decisions......Page 467 R&D Spending......Page 468 Prices, Price Regulation, and Innovation......Page 469 Copayments......Page 470 Drug Formularies......Page 472 New Drugs and Health Care Spending......Page 473 The ACA and the Pharmaceutical Industry......Page 474 Summary......Page 475 Exercises......Page 476 18 Equity, Efficiency, and Need......Page 480 Efficiency and Competitive Markets......Page 481 The Concept of Pareto Efficiency (Optimality)......Page 482 The Competitive Equilibrium......Page 483 The First Fundamental Theorem of Welfare Economics......Page 484 Redistribution of the Endowment......Page 485 Trade-Offs between Equity and Efficiency......Page 486 The Assumptions under Perfect Competition......Page 487 The Theorem of the Second Best......Page 488 An Economic Efficiency Rationale for Social Health Insurance......Page 489 Need and Need-Based Distributions......Page 491 Health Care Needs and the Social Welfare Function......Page 492 Box 18.1 The Extra-Welfarist Critique......Page 494 Norman Daniels's Concept of Health Care Need......Page 496 Economic Criticisms of Need-Based Distributions......Page 497 Horizontal Equity and Need......Page 498 Income Inequality......Page 500 Schooling and Income Inequality......Page 501 Utilitarianism......Page 502 Rawls and Justice as Fairness......Page 503 Liberalism, Classical, and Modern......Page 504 Conclusions......Page 505 Discussion Questions......Page 506 Exercises......Page 507 19 Government Intervention in Health Care Markets......Page 508 Monopoly Power......Page 509 Public Goods......Page 511 Other Rationales for Government Intervention......Page 513 Commodity Taxes and Subsidies......Page 514 Box 19.1 Is There a Case for a Sugar-Sweetened Soda or "Junk Food" Tax?......Page 516 Regulation......Page 518 Box 19.2 What Is HIPAA?......Page 519 Department of Veterans Affairs and Department of Defense......Page 520 Tax Policy......Page 521 Other Government Programs......Page 522 Health Sector Regulation and the Prospective Payment System......Page 523 Description of PPS......Page 525 The Theory of Yardstick Competition and DRGs......Page 527 Who Does the Regulator Represent?......Page 530 Conclusions......Page 532 Discussion Questions......Page 533 Exercises......Page 534 20 Social Insurance......Page 538 Social Insurance Policies and Social Programs......Page 539 Program Features......Page 540 Box 20.1 Increased Longevity Favors the Rich in Social Security......Page 541 European Beginnings......Page 542 The Establishment of Medicare and Medicaid......Page 543 The Affordable Care Act (ACA) of 2010......Page 544 Medicare......Page 545 Part C—Medicare Managed Care......Page 546 Part D—Prescription Drug Insurance......Page 547 Medicaid......Page 551 Medicaid Eligibility......Page 552 Box 20.2 Oregon Medicaid's Doctor-Assisted Suicide—18 Years Later......Page 554 The Medicaid-Medicare Relationship......Page 555 Medicare and Medicaid: Conflicting Incentives for Long-Term Care......Page 556 Public Insurance and Health......Page 557 Costs and Inflation......Page 560 Health Status......Page 564 Medicare: Recent Changes and Future Prospects......Page 565 Conclusions......Page 566 Summary......Page 567 Exercises......Page 568 21 Comparative Health Care Systems......Page 570 A Typology of Contemporary Health Care Systems......Page 571 The National Health Service......Page 577 A Model of Rationed Health Care and Private Markets......Page 578 Box 21.2 How Your Health Visitor Can Help......Page 579 China—An Emerging System......Page 581 Background......Page 585 Physician Fees and Quantity......Page 587 Administrative Costs......Page 588 A Comparison......Page 589 Box 21.3 "Someone Else Needed It Before I Did"......Page 593 A Model of Health Expenditure Shares......Page 594 Summary......Page 597 Discussion Questions......Page 598 Exercises......Page 599 22 Health System Reform......Page 602 Goals of Reform......Page 603 Basic Issues in Reform......Page 604 The Costs of Universal Coverage......Page 605 Ensuring Access to Care......Page 606 Employer versus Individual Mandates......Page 607 Single-Payer versus Multiple Insurers......Page 608 Quality of Care......Page 609 Box 22.1 Preventive Care and Cost-Effectiveness Analyses......Page 610 The "Three-Legged Stool"......Page 611 The ACA—Basics......Page 612 Economic Analysis of the ACA......Page 613 Competitive Strategies in the Post-ACA Era......Page 615 Development of Alternative Delivery Systems......Page 616 Consumer-Directed Health Plans and Health Savings Accounts......Page 617 Graphical Representation of the Competitive Approach......Page 618 Health Care Access......Page 619 Box 22.2 Has the ACA Improved Access to Care?......Page 621 Health Care Costs......Page 622 The ACA and Quality......Page 623 Employment Effects......Page 624 Meeting Reform Goals......Page 626 Conclusions......Page 627 Summary......Page 628 Discussion Questions......Page 629 Exercises......Page 630 23 The Health Economics of Bads......Page 634 Box 23.1 Who Smokes and Who Drinks? Cultures and Behaviors......Page 635 Imperfectly Rational Addiction Models......Page 638 Rational Addiction......Page 639 Rationales for Public Intervention......Page 641 Advertising Restrictions on Cigarettes and Alcohol......Page 642 Box 23.2 Can Advertising Lead Patients Astray? The Case of Medical Quackery......Page 643 The Possible Effects of Brand Switching......Page 644 Increased Demand or Brand Switching?......Page 645 The Consumption-Reducing Effects of Excise Taxes in Theory......Page 646 Excise Taxes and Cigarette Consumption in Practice......Page 647 Box 23.3 Mind If I Smoke?......Page 648 Excise Taxes and Alcohol Consumption......Page 650 Summary......Page 652 Discussion Questions......Page 653 Exercises......Page 654 24 The Economics of Social Capital and Health......Page 656 The Individual Case......Page 657 How Could Increments to Social Capital Improve Health?......Page 659 Empirical Tests of Social Capital and Health......Page 660 Testing the Social Capital Effect for Causality......Page 663 Elements of Trust......Page 664 The Geography of Τrust and of Social Capital......Page 665 Social Capital and Risky Choices......Page 666 Social Capital and Smoking......Page 667 Summary......Page 668 Exercises......Page 669 Glossary......Page 670 References......Page 681 Author Index......Page 729 Subject Index......Page 732 Folland, Goodman, and Stano's bestselling The Economics of Health and Health Care text offers the market-leading overview of all aspects of Health Economics, teaching through core economic themes, rather than concepts unique to the health care economy.The Eighth Edition of this key textbook has been revised and updated throughout, and reflects changes since the implementation of the Affordable Care Act (ACA). In addition to its revised treatment of health insurance, the text also introduces the key literature on social capital as it applies to individual and public health, as well as looking at public health initiatives relating to population health and economic equity, and comparing numerous policies across Western countries, China, and the developing world. It provides up-to-date discussions on current issues, as well as a comprehensive bibliography with over 1,100 references. Extra material and teaching resources are now also available through the brand new companion website, which provides full sets of discussion questions, exercises, presentation slides, and a test bank.This book demonstrates the multiplicity of ways in which economists analyze the health care system, and is suitable for courses in Health Economics, Health Policy/Systems, or Public Health, taken by health services students or practitioners.-- provided by publisher