Download - Health Production /Demand for Health Care
Health Production /Demand for Health Care
Outline
Link between Income Inequality and Health Demand for Health Care
Price Elasticity of Demand for Health Care Income Health Insurance Etc.
Health Production ContinuedIncome Inequality -- TheoryWhy is income inequality associated with
health? (mechanisms – theory)
Evolutionary history predisposes us toward fairness, and sickens us when we live in unequal environments.
Relative deprivation a cause of ill health Relative Income Hypothesis
Health Production ContinuedIncome Inequality -- Theory1. Evolutionary history predisposes us toward
fairness, and sickens us when we live in unequal environments.
Came from a society were the most egalitarian tended to do better (hunters and gathers).
Food could not be kept and could be hard to get so needed to share
Have only moved away from that sort of society for a relatively short time period (10,000 – 20,000 years).
Health Production ContinuedIncome Inequality -- Theory2. Relative deprivation a cause of ill health.
Psychosocial stress is the main pathway through which inequality affects health.
Those societies that are more equal, have the precondition for the existence of stress-reducing networks of friendships.
Those societies that are unequal run under more stressful strategies such as dominance, conflict and submission.
Health Production ContinuedIncome Inequality -- Theory3. Relative Income Hypothesis: Relative
income determines access to material goods or rank not absolute amount of money matters
Lots of people with less money than someone living in downtown NY but they live in a much better house.
It is relatively poor people live in worse neighborhoods for pollution. Even if the town is expensive and they have to pay a lot for their property.
Health Production ContinuedIncome Inequality -- Theory
Rank at work is important for determining control others have over our lives.
If health is lower for those whose income is relatively low, then higher inequality makes the poor even poorer in relative terms.
Health Production ContinuedIncome Inequality -- Evidence Studies have taken many forms.
Across countries analysis. (i.e comparing countries) A big problem is data comparability (income
inequality measure) even in developed countries Within countries but across states
Maybe be less variations in inequality within a country so harder to find effects (US an exception)
This is aggregate data by state so is hiding variation in income at the individual level.
Health Production ContinuedIncome Inequality -- Evidence
Individual Data Variation in income levels, but need to be able to
follow the same group of people over time. Not many studies with long panel data sets.
Mortality long time series need large sample sizes since a rare event
Health Production ContinuedIncome Inequality -- EvidenceEmpirical Evidence: Cross-Country Comparisons:
Wilkinsons (1992,1994,1996) over time France and Greece narrowed income distributions
by reducing relative poverty, increased life expectancies
Ireland and England income inequality widened, life expectancy decreased
When countries are poor absolute income matters For wealthier countries chronic diseases become
more important, it is social disadvantage (such as through income inequality) that affects health.
He believes social disadvantage promotes stress which leads to chronic illness.
Health Production ContinuedIncome Inequality -- EvidenceEmpirical Evidence Cross-Country Cont. Most convincing study Judge et al. (1997) Examined life expectancy and infant mortality for
high income countries. Best data available. Find a positive relation between income inequality and
infant mortality – but mainly driven by the US. Other things may be going on in US i.e. race
relations. Overall, is mixed evidence from cross-country
analysis, may be due to data problems.
Health Production ContinuedIncome Inequality -- EvidenceEmpirical Evidence Within-Country Figure 6 from Deaton 2003 shows strong
relationship between income inequality and mortality in US.
Some studies say that in 1990, the lose of life from income inequality “is comparable to the combined loss of life from lung cancer, diabetes, motor vehicle crashes, HIV infection, suicide, and homicide in 1995” (Kawachi et al. 1997)
Health Production ContinuedIncome Inequality -- EvidenceEmpirical Evidence Within-Country Cont. Controlling for race breaks relationship
Inequality looks like more of a race effect Hard to disentangle these.
In areas with a larger % of blacks the death rates for whites and blacks is higher Could be due to poor quality health care. Is this
something to do with how health care is funded?
Health Production ContinuedIncome Inequality -- Evidence No relationship found in Canada or Australia
(where race not an issue) But there may not be enough variation in income
inequality No study on income inequality and health in
UK, would be interesting as they have more income inequality.
No clear conclusion that income inequality is a major problem there are other factors that are associated with
income inequality that could be driving things. Omitted variable bias.
Health Production ContinuedIncome Inequality -- EvidenceEmpirical Evidence: Individual Use mortality and self-reported health
measures. Again mixed results, but seems that results
are weaker and more ambiguous than within-country studies.
Have problems developing good inequality measures.
Health Production ContinuedIncome Inequality -- EvidenceSummary Only result that seems to hold is that income
inequality is associated with homicides (crime).
We see that income inequality is important through its effect on poverty.
This does not mean that social environment does not matter, just that income inequality per se may not be the driving force behind health status.
Health Production ContinuedInequality (Rank)Whitehall Study Investigated civil servants in Britain in recent
years. Found that morbidity and mortality was
related to administrative rank Sees income as a marker for underlying
socioeconomic status (i.e your rank) – the underlying cause of health discrepancies.
Health Production ContinuedInequality (landholdings)Inequality in landholdings in developing
countries affects nutrition and therefore health. The landless can’t grow enough food to be
well nourished, and they cannot make a large enough wage because are not healthy.
Policy Issue: redistribution of land a big issue in developing countries (Latin American, Nepal).
Health Production ContinuedInequality (Political)Political Inequality Theory: When preferences of a population are
heterogeneous (wide ranging/different), it is more difficult for people to agree on the provision of public goods (i.e. health).
Average value of public good to members of a community diminishes with heterogeneous preferences (heterogeneity due to income, race, geographic). For example public park is not as attractive to rich if
homeless are sleeping on benches.
Health Production ContinuedInequality (Political)Political Inequality Evidence: Alesina et al. looked at racial divisions in the
US. Unit of analysis is cities and counties of US. Look at % of population that is black, and find it is
negatively correlated with share of spending on “productive” public goods such as health, roads, and education.
Health Production ContinuedInequality (Political)Political Inequality Evidence:Almond, Chay, and Greenstone (2001) Use data from Mississippi Prior to 1965 hospitals segregated by race 1964 Civil Rights Act: segregation illegal Show that between 1965 and 1971 there was
a large reduction in black post-neo-natal infant mortality rates (< one month olds), especially for conditions such a diarrhea and pneumonia.
Points to possible negative health impacts from unequal political arrangements or rank.
Demand for Health ServicesDemand for health services is a function of price of health services Income Type of insurance Level of education Age Lifestyle (do you smoke, do you exercise) Quality of care Your health status Time costs to reach medical care Prices of substitutes and complements
Demand for Health Services
Quantity of Physician Services
Price of Physician Services
D
Demand of HS is a derived demand, because what we really want is the demand for good health not just a visit to the doctor.
Change in prices cause a movement along the demand curve.
Law of Demand: Inverse relationship between price and quantity.
Demand for Health ServicesFuzzy (Thick) Demand Curve
Relationship between medical care and health improvement is not exact. Uncertainty in what type of care needed to get you
better Consumer does not have medical knowledge
to know what they need to get better so depends on physician. Physicians, not consumers choose medical
services and this affects the quantity of care you may demand.
Demand for Health ServicesFuzzy (Thick) Demand Curve Difficult to accurately delineate the
relationship between price and quantity demanded of medical care. Prices differ and amount of care for a given prices
differs for difference people. Hard to control and measure quality.
Demand for Health ServicesFuzzy Demand Curve
Quantity of Physician Services
Price of Physician Services
1. For a given price may observe variation in quantity of medical services.
2. For a given quantity of services, may see various prices.
Demand for Health ServicesEffect of Price of health careOwn Price Elasticity:
Price HS
Quantity HS
Perfectly Inelastic (E=0);
Large change in price no change in quantity demanded.
Perfectly Elastic ( E=∞):
Small change in price large change in quantity)
- A good is elastic if E<-1
%%
dhs
hs
QP
Demand for Health CareEmpirical Estimates Own Price Elasticity: %
%
dhs
hs
QP
Estimates tend to be between -0.1 and -0.7 for Primary Care and Hospital Care.
So a 10% increase in price of primary care leads to a 1 to 7 percent decrease in quantity demanded – inelastic.
This is why some argue that you should increase the price. Will not reduce health care so much, and hopefully people will reduce unnecessary visits.
In developing countries increasing the price has been meet with a lot of opposition – not a lot of unneeded visits.
Demand for Health ServicesEffect of Income
Quantity of Physician Services
Price of Physician Services
D1
D2
Q1
Q2
Increase in income demand more (health an normal good):
Shifts the curve out away from the origin and would demand more health care.
Demand for Health ServicesEffect of Health InsuranceHow much you demand may depends on type of
insurance Co-insurance: consumer pays a fixed percent of
the cost (say 20%) and the insurance company picks up the rest.
Indemnity Insurance: Pays a fixed amount for each type of services (say $150 if you go to the emergency room).
Deductibiles: consumer must pay out of pocket for all health care, until reaches a threshold (such as $1000), then is fully reimbursed for expenses above the threshold.
Demand for Health ServicesHealth Insurance: Coinsurance
Dwo.5*50
50
5
Consumer Pays with insurance
Dwo: Demand without insurance
Effective Price: Amount paid out of pocket
Model using DWO curve
Assume: .5 co-insurance
Quantity of Physician Services
Price of Physician Services
6
Consumer pays without insurance
Demand increased by one unit
Demand for Health ServicesHealth Insurance: Coinsurance
Dwo
Dwi
.5*50
50
5
Dwo: Demand without insurance
Dwi: Demand with insurance
Model by using market price
-Insurance makes her demand more health care,
-makes demand less elastic: for the same increase in price will reduce demand less with insurance.
Quantity of Physician Services
Price of Physician Services
6
A
Demand for Health ServicesHealth Insurance: Indemnity
Price of Physician Services
Quantity of Physician Services
Pay $30 instead of 60 for a doctors visit.-demand more health care
-elasticity does not change.
$30DwoDwi
5
60
6
Demand for Health ServicesHealth Insurance: DeductiblePurpose of deductible is to lower cost for
insurance company
1. Reduce administrative costs because lower number of small claims.
2. May lower demand for medical care Depends on cost of the medical episode
Small costs small problem may not demand health care, big costs you are more likely to get the health care.
Demand for Health ServicesHealth Insurance: Deductible Cont. Time when medical care is demanded
If close to time when deductible is reset, may wait for care
If just after deductible has started more likely to have care
Probability of needing additional medical care in the remainder of the deductible period. If know definitely will meet deductible, won’t wait
to go to doctor.
Demand for Health ServicesEducation Relationship could be positive or negative
Educated take more proactive action to keep healthy so need less medical care (produce health care at home)
Want to keep healthy so can work more and earn more, so demand more health care.
Know when they need to get medical care – so demand more medical care.
Empirically not sure of direction, do find that those who have more medical knowledge demand more medical care.
Demand for Health ServicesAge, Health Status, Sex, Quality Very young and the elderly demand more
medical care. People with lower health status (sicker) tend
to demand more health Females tend to demand more health
services (child bearing) If quality of care is higher, tend to demand
more health care.
Demand for Health ServicesPrices of Substitutes and Complements Substitute: Herbal and Non-Western
Medicine Price of substitute rises demand more medical
care. Complements: Drugs, if can’t afford the drugs
may not bother to go to doctor. Price of a complement rises demand less medical
care.
Demand for Health ServicesTravel Time CostsDemand will depend on how long it takes to get
to the doctor and if there are waiting times. E.G. Kaiser, will no longer be in North
Boulder – those in North Boulder may go less. – depends on type of illness.
Important in developing countries