Name

Instructor

Course

Date

Health Economics

2. (a). List at least four ways in which Nonprofit hospitals have incentives that differ from profit hospitals.

Baumol and Bowen Howard described the goal of non-profit hospitals as being ‘bottomless receptables that limitless resources can be poured. The primary incentive of non-profit hospitals is quantity-quality maximization subject to the hospitals budget constraint. According to Reder Melvin, non-profit hospitals are driven by the incentive of maximizing the weighted number of care seeker or patient treated over a given period of time, with the weights being the prestige to the physicians attending to the patients. The third incentive considers physicians as rational economic agents who are net income maximizers.

(b). What three alternatives objective functions for physicians working at non-profit hospitals do Pauly and Redisch (1973) examine?

The objective functions of the physician in non-profit hospital mainly include welfare maximization. The non-profit hospital and the physicians are acting as independent economic agents with each entity enjoying de facto power and control over the hospital. The other objectives pursued by the physician in these institutions include output-maximization and net-income maximization per physician. The physicians in non-profit hospitals are net-income maximizers whose desire is to gain maximum income from the services they offer at the facility. Therefore, at any point, the hospital physicians act in the best interest of their colleagues in order to maximize the monetary income of the entire physician staff.

(c). What would Steven Brill (2013) have to say about physician behavior at non-profit hospital?

According to Brill (2013), the physicians in non-profit hospitals portray rational economic behavior. This group of health professionals is economic agents who prioritize their personal interests and social welfare at the expense of the care seekers. Therefore, they maximize their personal interests, particularly wealth and income maximization behavior. In addition, non-profit physicians have a negating power on their practices and income. This is contrary to the professions in the profitable health institutions who lack the power to negotiate. Given their power, independence, and influence, physicians in non-profit entities benefit more than those serving in profitable hospitals.

3. According to Altman, Culter and Zeckhauser (2003):

(a). What are the two most important reasons why indemnity health plans have higher premium than HMOs? Explain how they show this.

Indemnity health insurance scheme is more costly compared to the tight MHO (managed health maintenance organization) that cost half of what indemnity cost. One cause of the difference is the enrollee mix. HMOs enroll only healthier and younger members compared to indemnity insurance plan that provides cover for the aged and disease prone persons. The indemnity, therefore, enrolls more severe cases and incidences of disease as opposed to HMOs with less severe cases, hence the difference in costs. Besides, indemnity plan is more expensive than HMOs because it provides its clients with more intensive treatment procedures for patients suffering from similar conditions under HMOs. Price variation is another source of difference that results from differences in the bargaining powers. Unlike clients under HMOs, indemnity patient have no price bargaining power, hence taking the price as given. They showed this by focusing on commonly identifiable medical complications such as births, heart attacks, cancers of the colon, cervix, prostate, and birth, and diabetes. The result revealed that the costs difference between indemnity and HMOs was attributed to price and incidence, and indemnity plan was established to be expansive.

(b). What weaknesses are there in their argument?

The major limitation of this argument concerns the selection process for treatment. In particular, the HMOs clients are less likely to visit physicians for medication or treatment except when they happen to very sick. Naively, analysis would be misleading by possibly showing that HMOs record healthier enrollees compared to the indemnity, which is invalid.

4.(a). By what percentage did total spending of these two types of office visits increase from 2007 to 2010?

Total spending for 2007 is given by PtB QtB+PtC QtC =59,004+35,973=94,977

For 2010 total spending =61,288+49,320=110,608

Total increase=110,608-94,977=15,631

Percentage increase=15,631/94,977*100=16.4567%

The spending for the two visits increased by 16.4567%

4. Decompose this overall percentage change in total spending in three components

b.) % percent change in total visits

Total visits in 2007=1,912

Total visits in 2010=1, 989

Value increase=1,989-1,912=77

Percentage change= (Qti 2010-Qti 2007)/Qti 2007*100=77/1,912*100=4.0272%

c.) % percent change in average prices, holding visits patterns fixed at 2007 level

total average prices in 2007=49.67

Total average price per visit in 2010=55.61

Percentage change= (Pti 2010-Pti 2007)/Pti 2007*100= (55.61-49.67)/49.67*100=11.9589%

d) %change in average complexity of visits

Total complex visits in 2007=571

Total complex visits in 2010=685

Percentage= (Qti 2010-Qti 2007)/Qti 2007*100=(685-571)/571*100= 19.9650%

e) Interpret your results: what was the most significant cause of the l increase in total spending

the workings shows that there is an increase in total visits, average price per visits and the total spending from the year 2007 to 2010.all the workings posted a positive increase in percentage change.

This can be as a result of increase a awareness for people to go for health centers and can also be attributed the . It can also mean the health centers do improve their health facilities hence encouraging many patients to visit them. Further the result can depict an improve economy where citizens have adequate funds to attend or visit the health facilities.

5). Ellis and McGuire (2007) use the concepts of predictability and predictiveness in their service level selection index.

a). What specific measures of predictability and predictiveness do they recommend?

Predictability=consumer demand curve

Predictiveness=marginal cost of treatment.B). What role does the demand elasticity for services play in the Ellis and MaGuire (2007) selectivity index?

It provides the compressions between the levels of treatment when care is free in a fee-for a service system and when the care is provided by the health maintenance organization. The demand elasticity states that many patients will go for free treatment services as opposed to when the services are charged. The elasticity of demand in this case can be used to determine when to offer free services and when to charge the service to cope with the patients demand.

c) Name two services vulnerable to over provision and two services vulnerable to under provision using this model.

i) Services vulnerable to over provision are the services offered to patients that have high cost and good reputations and also the hospital profits.

ii) Services vulnerable to under provision are the hospitals services rendered to patients whose cost are less than the prospective payment and low hospital reputation. Another one is the patient benefits.

6. a). Explain why mortality may decrease during recessions

During this period, there is a reduction on the working hours for individuals and hence people have adequate time to exercises and to leisure related activities. These always improve their living conditions hence better life during recessions. Further the reduction in mortality rate can be attributed to the reduce numbers of heavy smokers. When people stop smoking, their lives improve since tobacco is associated with health disease like lung cancer. A further evidence that states that during this time live is better is that when a country faces recession, there are fewer jobs available and this subsequently reduces life threatening situations like accidents.

6. b). What evidence does Ruhm provide for why mortality may decrease?

During rescissions smoking and excess body weights decline during economic hardships. This can be attributed to the fact that during this period many people are more courteous with their income and strictly spend their money on the basic items or goods of necessity.

The drop in Tobacco consumption during recessions especially from the heavy smokers always leads to a healthy living and improved life conditions hence reducing the mortality rates. The fall in body weights particularity among the obese individuals due to reduction in food intake and participating in active exercising can also leads to a healthier living during economic downturns. It should be noted that, during recessions the output of workers and work hours are reduced and this leads to increase time for leisure activities and hence healthier environment for workers.

6 (c). Explain why his results are capturing more than just the nationwide macroeconomics trends in these rates?

The trends cannot capture the nationwide macroeconomics situation in the country but neglecting them could be costly to the healthy environment. The trends provide relatively small responses towards prices variations for strongly addicted person but larger impacts can occur if temporary changes are not taken. This can leads to permanent shocks and multiple unstable equilibriums and discounts rates in the economy.

7). Steve Brill (2013) in the “Bitter Pill” (Time Magazine) documents a large number of cases where consumers pay a great deal out of pocket, much more than they would if covered by Medicare.

a). Why are these individuals paying so much, even when many have private health insurance?

This is because the master charge prices are high and devoid of calculations.

b). Do most people with private insurance pay much? Why or why not?

They do not pay much. This is because the fraction of the amount paid is relatively low. The insurance policy pays the 90% of the bill hence making it more affordable.

c). Why don’t these people apply for medical insurance?

The $1,800 month payment is too high for them to qualifier for medical care

d). Will the problems identified in this article continue if the Affordable Care Act is fully implemented?

Yes, the alleged Obamacare will make the insurance premiums go increase and this will not solve the problem.

e). What policy does he discusses for reducing or eliminating these high prices? Briefly discuss the pro and cons of each policy.

i). The Medicare should be privatized by creating a voucher system where Medicare population would get money to buy insurance from private companies. This will have a positive impact of making the Medicare accessible to many patients. However, privatizing the Medicare can later leads to unregulated prices in future and this could be too costly for the patients in US.

ii). A voiding over doctoring in the public hospitals as done by the private organizations. This will motivate the doctors hence will rendered better services to patients. The only problem the policy has is that it will require additional funds to cater for the improved staff welfare.

iii). Lowering Medicare age to capture many people since Medicare buys health care at a relatively lower rates than any insurance company. When the Medicare is reduce to patient with over eighteen years it will capture many people , however, it may not adequate funds since the majority of the youths are unemployed and will not afford to pay the premiums.

iv). Taxing hospitals profits at 75% and have a tax surcharge on all non-doctors hospitals salaries that exceed $750,000. This policy will increase hospitals profits though it will negatively discourage doctors from performing their duties due to lack of motivation.

8. An employer facing an upward sloping labor supply decides to cancel its current offering of health insurance because it’s argued that it is too expensive. It argues that the insurance costs $5000 per year per employee, but its employees only value it at $3000 per employee per year. Use supply and demand curves to show what would happen each of the following: market demand, market supply, quantity of labor hired by this firm, average annual income paid per worker.

Nominal Wage

DS1So

W1

S1

Wo So

D

0L1LoLabor Units

Following the withdrawal of the health insurance cover that the employees were entitled, it would be costly for the employees for meet the medical insurance cover alone. Therefore, many of the employees will withdraw their services and seek for new employment opportunities that are more promising. This move will lead to a significant decline in the labor supply facing the employer. The supply curve will shift inward (upward) from SoSo to S1S1. However, the demand for labor will remain unchanged at DD since the firm will still need to employ the same number of employees to remain at its original production level. With the fall in supply for labor and constant demand for labor, the equilibrium labor unit will fall from Lo to L1. This fall in the labor units employed by the firm will be accompanied by a significant increase in the nominal wage from Wo to W1. The rise in the nominal wage rate per worker will, hence leads to an increase in the average annual income that the firm will have to pay per worker.