notes ch01 intro

8/3/2019 Notes Ch01 Intro

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Dr. Katie Sauer Health Economics

Introduction to Health EconomicsChapter 1

Outline:I. What is Health Economics?II. The Relevance of Health EconomicsIII. Economic Methods of AnalysisIV. Does Economics Really Apply to Health Care?V. Is health care so different that it needs its own branch of economics?

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I. What is Health Economics?Health economics is the study of how (scarce) resources are allocated to and within thehealth economy.

Who are the health economists?- 96% hold Ph.D.s, nearly ¾ in economics- 64% work in a university setting (24% in econ departments, 26% in publichealth, 18% in med schools)- 15% work for nonprofit organizations and-12% work for government (mostly federal)

What do health economists do?50% study the behavior of individuals

34% study the behavior of firms50% study government policies48% study health insurance50% study outcomes research31% study other issues

II. The Relevance of Health Economics

Health Spending in the US National Health Expenditures (NHE)

Source: Centers for Medicare and MedicaidServices , Offices of the Actuary: Data from th National Health StatistGroup http://www.cms.hhs.gov NationalHealthExpendDta/



Health Care Spending as a share of GDP

Source: OECD Health Data 2008

In a share calculation, general inflation is cancelled out.Why has the health care share been increasing?

Per Capita Expenditures on Health Care (PPP$)

Source: OECD Health Data 2008



B. An Example(1975) Milton Friedman and Simon Kuznets (both later Nobel laureates) studied the so-called physician shortage of the 1930s.

- physicians earned 32 % per year more than dentists- training costs were 17 % higher

- attributed part of the higher returns on investment to barriers to entry into the

medical profession

IV. Does Economics Really Apply to Health Care?Are health care consumers rational?Do they calculate optimally at the margin?Does price matter?

V. Is health care so different that it needs its own branch of economics?

distinctive features of the health sector:- presence and extent of uncertainty- prominence of insurance- information asymmetry- role of nonprofit firms- restrictions on competition

- role of equity and need- government subsidies and public provision

The coinsurance rate is the percentthat the patient pays out of pocket.

As the coinsurance rate falls, peopleare paying less out of pocket.

What is the impact on utilizingservices?

notes ch01 intro

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