Physician and Hospital Services Case Study
Order ID 53563633773 Type Essay Writer Level Masters Style APA Sources/References 4 Perfect Number of Pages to Order 5-10 Pages
Physician and Hospital Services Case Study
3.1 Give examples to illustrate how the following can be substitutes or complements: physician and hospital services; physician services and prescription drugs; dentist and dental hygienist services; optometrist and ophthalmologist services; office manager and physician.
3.2 Prior to 1970, private health insurers in the United States usually treated maternity care differently from other medical expenses; maternity care was either excluded entirely from coverage or subject to a flat lump-sum cash (“indemnity,” in insurance jargon) benefit. Why do you think this was so?
(Please give a reason other than discrimination against women, which might have been a reason as well but does not illustrate the economic principle we are looking for.)
During the 1970s, twenty-three US states mandated that treatment related to pregnancy be covered by insurers in the same way as any other types of treatment were, and in 1978, such coverage became uniform throughout the United States.
Would mandated maternity benefits make working in a salaried position more or less attractive to women?
Would it make women of childbearing age more or less attractive to employees? Would it increase or decrease the number of births performed by cesarean section (surgical removal of the baby from the mother ’s uterus, a more expensive method of delivery than a normal delivery)?
Who do you think bore the expense of implementing this mandate—consumers in the form of higher product prices, firms’ owners in the form of lower profits, or employees in the form of lower pay? Explain your answer.
3.3 Does the welfare loss from overconsumption of medical care in the presence of health insurance coverage imply that consumers will not demand health insurance? Why or why not?
3.1 Suppose a demand curve has the form x = 100 – 10p. What is the quantity consumed at p = 5? What is the elasticity of demand at p = 5? Suppose the demand curve is a demand curve facing the firm, such as a physician’s office. At what level of p is marginal revenue zero? Why may the demand curve for the firm have a negative slope? When marginal revenue is zero, what is the price elasticity at this level of p? Would giving the patient a $5 subsidy per visit tend to increase or decrease the elasticity of demand? Justify your answers. 3.2 Suppose that the price of a unit of medical care is $100 and the person ’s insurance policy covers up to $100,000 in expenditures incurred on behalf of the insured individual per year. Show graphically how the maximum payment limit affects the quantity demanded.
Assume a zero co-pay up to the limit. 3.3 An individual has preferences for an aggregate consumption commodity (x) and health (H) represented by a utility function U(x, H) = αln(x) + βln(H). The price of the aggregate commodity (x) is p x and the price of medical care (m) is pm. The input of medical care (m) produces health (H) via a health production relationship that can be represented by the function g(m) = ln(m); that is, H = ln(m). a. Compute the optimal demand for medical care (m), the aggregate consumption commodity (x) and health (H) as functions of prices (p x, p m), income (y), and the parameters of the model (α, β).
You may assume a standard budget constraint. b. Calculate the price elasticity of demand for medical care. 3.4 Explain the difference between a “stop loss” and a “deductible.” Let the demand curve for an individual be xm = 30 – p m. Suppose all doctors charge $10 per unit of care consumed. Let there be a deductible of $100 and a stop loss of $200. Let the coinsurance rate be 0.5. What is the effect of such insurance on the demand for medical care? 3.5 a. Show the effect graphically of a deductible on the demand for medical care. Assume no insurance coverage initially.
Then assume there is an insurance policy with a $500 deductible. The price of medical care is $50 per unit. After the deductible is satisfied, the health insurance plan pays for 75 percent of expenses. b. Now assume the policy does not have a deductible but pays 100 percent of expenses up to a stop loss of $2,000. Show this graphically. 3.6 The following questions are based on table 3.2: a. Compute arc elasticities for free to 25%, 25% to 50%, and 50% to 95% plans for face-to-face visits. What do these results imply about the price elasticities of face-to-visits that is relevant to public policy? Compute arc elasticities for expenses overall. Again, what are the implications for public policy? b. How does mean predicted expenditure compare in the free versus the 95% plan? c.
Cost sharing for outpatient services (individual deductible plan) produces a different pattern than does cost sharing for all services. Explain. d. The admission rate for the individual deductible plan lies roughly midway between the free plan and the family coinsurance plan rates. Explain. 3.7 a. How are the income terciles in table 3.6 defined? b. How do probability of any use, probability of admission, and expenses change with increases in income? What accounts for the differences in patterns across the three categories? c. How does cost sharing affect expenses in each of the three income groups? Describe with elasticities. Based on your calculation, please answer the question on whether the demand response to increased cost sharing is different between the poor person and the non-poor person.
Are your results obtained from table 3.6 consistent with theoretical prediction? 3.8 Suppose that doctors were to increase direct advertisement to the public about their services (with no other changes in the economic environment). What would you expect to happen to the demand for medical care (in the short run)? Explain graphically. Do not write more than five lines. What might you expect to happen in the long run (e.g., over 5 to 10 years)? Do not write more than five lines for this part as well. 3.9 Explain which of the following types of insurance coverage would most likely cause the most major problems resulting from moral hazard. (If you do not know some of the medical terms, check out Google.com.) a. indemnity payments of $10,000 for each eye or limb lost or indemnity payments of $50 for each day spent in the nursing home; b. arthroscopic surgery for knee injuries or amputation of the foot; c. family counseling or electroconvulsive therapy; d. decongestants or antibiotics. 3.10 Bill’s new insurance policy contains a prescription plan that provides all drugs through a local pharmacy with a $2 co-payment. Under the old insurance plan, Bill had to pay for his own medication and purchased nine inhalers at $17 apiece to help control his asthma.
With the new plan, Bill purchases fifteen inhalers, keeping some of the spares in his glove compartment and desk, since he only has to pay a $2 co-payment for each one. How much are the six additional inhalers worth to Bill? How much do they cost him? How much do they cost the insurance company? Is Bill better off or worse off under the new plan? 3.11 Use the equation for time price given by equation
3.3 in the text to answer the following questions.
- Would you expect the elasticity of demand with respect to c to be higher or lower for a business executive than for a day laborer? Explain your answer.
- Who would be more likely to use a “free clinic” (free in the sense that the money price of services = 0)? Why? 3.12 Suppose the county in which you live provides flu shots at pharmacies in the county for $5. Facing a budgetary crisis, the county raises the price of flu shots to $10. After two flu seasons, the county observes that the percentage of the population getting flu shots decreased from 50 percent to 40 percent. Calculate the implied arc elasticity of demand. What is potentially wrong with this calculation, and what additional data would you need to collect to fix it? 3.13 Assume there are two drugs designed to treat high blood pressure, drug A and drug B. Blood pressure readings from patients taking drug A are consistently higher than those of patients taking drug B. Does this mean that drug B is more effective than drug A? Why or why not? Describe how a randomized controlled trial could be set up to settle this issue.
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