HA 645-QL: Health Economics Problem Set #1

HA
645-QL: Health Economics

Problem Set #1

Due
6 February 2016

1. Suppose that patients who have previously had care provided for free
are asked to pay for care for the first time. As a manager at a physician group
practice, you must try to anticipate how the use of care will change. Please answer the following questions.

a. The first thing you need some information about is a particular type
of curve. That curve is called ademand curve.

b. With patients being asked to pay something for the first time, will
this lead to a shift of the demand curve or movement along the demand curve?

c. Please list three things about the population served by your
practice that could affect how quantity of services will change, in other words
things that could lead to the demand varying from one population to
another.

d. Give a brief explanation of how each of the things listed in item
(c) affect the demand for care.

2. Now suppose you are managing a third party payer. Let’s continue with the example from number
1. In that example, we assumed that the
patients went from having to pay nothing to having to pay something.

a. When the consumers had to pay nothing, describe what determines how
much revenue would the third party payer need to collect to pay the claims for
the care utilization.

b. When the consumers have to pay something, is the change in the
premium simply the price per service multiplied by the change in utilization or
is the change more complex? If it is
more complex, please describe how the premium necessary to cover the expenditures
on health care utilization will change.

3. Please discuss the first two assumptions mentioned in the Hour 3-5
lecture notes. These are (1) that
consumers are the best judge of their own welfare and (2) that consumers have
the information they need to make decisions.
Do you agree with these assumptions outside of health care? Do you agree with these assumptions in health
care? If you disagree either in general
or for healthcare, please describe why. Does
your answer suggest that a public authority or private firm should influence
individual decision making about health care?
If you suggest that individuals should be influenced should that be by
mandate or by incentives?

4. Imagine that you are managing at a hospital outpatient unit and
consider that your administrative staff has been cut by one person. As a result, it takes longer to manage each
visit for the patients who come to your facility. Suppose that consumers had
been paying a small amount for each service before you had to let staff go. Assume that the unit is covering its costs
before you have to cut the administrative staff.

a. With the reduction in staff how do your unit’s expenses change?

b. With the reduction in staff, assuming that there is a fixed amount
of operational time, will you be able to produce the same number of
visits? If yes, what would have to
happen to the staff you have?

c. Will the demand for outpatient services change if your outpatient
unit maintains the same monetary price?

d. Consider your answers to (b) and (c). In light of this, will the outpatient center
be able to cover its costs? Do you have enough information to answer the
question? If not, what other information
do you need?

5. Consider a new cancer screening technology that can be administered
at a primary care visit. In our
hypothetical health care system, individuals have to pay for the visit and the
screening. The new technology is less
invasive and more accurate than the old technology, but the new technology
requires patients to pay twice as much out of pocket. Suppose that the old technology is no longer
available.

a. Reason through whether there will be more people who receive cancer
screening with the new technology than with the old technology.

b. Since the cost of cancer screening has gone up, will anything happen
to the demand for primary care visits?
With the type of change you suggest in the demand for primary care
visits, what type of goods are primary care visits and cancer screenings?

c. Suppose we have two populations.
One population of higher income individuals. A second population of lower income
workers. The higher income individuals
make twice as much as the lower income individuals. Would you expect the cancer screening to be
used twice as much, more than twice as much, or less than twice as much by the
higher income individuals compared with the lower income individuals? Based on your answer, does that make cancer
screening a normal good or an inferior good?
If it is a normal good does that make cancer screening a luxury or a
necessity? Please explain why you
believe that cancer screening is the type of good you have chosen.

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