The Economics of Health and Health Care

by Folland, Sherman; Goodman, Allen C.; Stano, Miron

• ISBN13: 9780131000674
• ISBN10: 0131000675
• Edition: 4th
• Format: Hardcover
• Copyright: 2004-01-01
• Publisher: Taylor & Francis

Summary

For courses in Health Economics, Public Health, and Health Care Policy. This clear, step-by-step best-selling introduction to the economics of health and health care thoroughly develops and explains economic ideas and models to reflect the full spectrum of the most current health economics literature. It uses core economic themes as basic as supply and demand, as venerable as technology or labor issues, and as modern as the economics of information.

Table of Contents

Preface	xxiii
PART I: BASIC ECONOMICS TOOLS	1	(72)
Introduction	1	(19)
The Relevance of Health Economics	1	(7)
The Size and Scope of the Health Economy	1	(6)
The Economic Side to Other Health Issues	7	(1)
Economic Methods and Examples of Analysis	8	(2)
Features of Economic Analysis	8	(1)
Examples of Health Economics Analysis	9	(1)
Does Economics Apply to Health and Health Care?	10	(1)
An Example: Does Price Matter?	10	(1)
Is Health Care Different?	11	(4)
Presence and Extent of Uncertainty	12	(1)
Prominence of Insurance	12	(1)
Problems of Information	13	(1)
Large Role of Nonprofit Firms	13	(1)
Restrictions on Competition	14	(1)
Role of Equity and Need	14	(1)
Government Subsidies and Public Provision	14	(1)
New Challenges to Health Economists -- Managed Care and Health Care Costs	15	(2)
Conclusions	17	(1)
Summary	18	(1)
Discussion Questions	18	(1)
Exercises	19	(1)
Microeconomic Tools for Health Economics	20	(33)
Scarcity and the Production Possibilities Frontier	21	(3)
Practice with Supply and Demand	24	(4)
The Demand Curve and Demand Shifters	24	(1)
The Supply Curve and Supply Shifters	25	(1)
Equilibrium	26	(1)
Comparative Statics	26	(2)
Functions and Curves	28	(2)
Linear Functions	28	(1)
Demand Functions	28	(1)
Derived Demand	29	(1)
Consumer Theory: Ideas Behind the Demand Curve	30	(4)
Utility	30	(1)
Indifference Curves	31	(1)
Budget Constraints	32	(1)
Consumer Equilibrium	33	(1)
Individual and Market Demands	34	(1)
Elasticities	35	(2)
Production and Market Supply	37	(6)
The Production Function	38	(1)
Production Functions	39	(1)
Isocost Curves	40	(1)
Cost Minimization or Output Maximization	41	(1)
Marginal and Average Cost Curves	42	(1)
The Firm Supply Curve Under Perfect Competition	43	(3)
Monopoly and Other Market Structures	46	(1)
Welfare Losses	47	(1)
Conclusions	48	(1)
Summary	49	(1)
Discussion Questions	50	(1)
Exercises	50	(2)
Appendix: Discounting	52	(1)
Statistical Tools for Health Economics	53	(20)
Hypothesis Testing	54	(1)
Difference of Means	54	(5)
The Variance of a Distribution	55	(1)
Standard Error of the Mean	56	(2)
Hypotheses and Inferences	58	(1)
Regression Analysis	59	(4)
Ordinary Least Squares (OLS) Regressions	60	(1)
A Demand Regression	61	(1)
Estimating Elasticities	62	(1)
Multiple Regression Analysis	63	(4)
Interpreting Regression Coefficients	64	(1)
Dummy Variables	65	(2)
The Identification Problem	67	(1)
Statistical Inference in the Sciences and Social Sciences	68	(1)
Conclusions	68	(1)
Summary	69	(1)
Discussion Questions	69	(1)
Exercises	70	(3)
PART II: SUPPLY AND DEMAND	73	(114)
The Production of Health	73	(23)
The Production Function of Health	73	(3)
The Historical Role of Medicine and Health Care	76	(7)
The Rising Population and the Role of Medicine	76	(2)
What Caused the Mortality Rate Declines?	78	(1)
On the Role of Public Health and Nutrition	78	(3)
What Lessons Are Learned from the Medical Historian?	81	(1)
What Does Health Care Contribute in Total?	82	(1)
The Production Function of Health in the Modern Day	83	(8)
Preliminary Issues	83	(1)
The Contribution of Health Care to Population Health: The Modern Era	84	(2)
Morbidity Studies	86	(1)
How Does Health Care Affect Other Measures of Health?	87	(1)
On the Importance of Lifestyle and Environment	88	(1)
Cigarettes and Health	89	(1)
Maternal Behavior and Newborn Health	90	(1)
Environmental Pollution	90	(1)
Income and Health	91	(1)
The Role of Schooling	91	(2)
Two Different Theories About the Role of Schooling	91	(1)
Empirical Studies on the Role of Schooling in Health	92	(1)
Conclusions	93	(1)
Summary	94	(1)
Discussion Questions	94	(1)
Exercises	95	(1)
The Production, Cost, and Technology of Health Care	96	(29)
Production and the Possibilities for Substitution	97	(4)
Substitution	97	(1)
What Degree of Substitution Is Possible?	98	(1)
Elasticity of Substitution	99	(1)
Estimates for Hospital Care	100	(1)
Costs in Theory and Practice	101	(9)
Deriving the Cost Function	101	(2)
Cost Minimization	103	(1)
Economies of Scale and Scope	104	(1)
Why Would Economies of Scale and Scope Be Important?	105	(1)
Empirical Cost Function Studies	106	(1)
Differences Among Hospital Cost Studies	107	(1)
Difficulties Faced by All Hospital Cost Studies	107	(2)
The Evidence on Hospital Economies of Scale and Scope	109	(1)
A Balance Between Structural and the Behavioral Studies	109	(1)
Does Long Run Versus Short Run Matter?	109	(1)
Summarizing These Cost Studies	110	(1)
Technical and Allocative Inefficiency	110	(5)
Technical Inefficiency	110	(1)
Allocative Inefficiency	111	(2)
Data Envelopment Analysis	113	(1)
The Stochastic Frontier Method	114	(1)
Stochastic Frontier Studies	114	(1)
Technological Changes and Costs	115	(3)
Technological Change: Cost Increasing or Decreasing?	115	(1)
Health Care Price Increases When Technological Change Occurs	116	(2)
The Diffusion of New Health Care Technologies	118	(4)
Who Adopts and Why?	118	(2)
Other Factors That May Affect Adoption Rates	120	(1)
Diffusion of Technology and Managed Care	121	(1)
Conclusions	122	(1)
Summary	122	(1)
Discussion Questions	122	(2)
Exercises	124	(1)
Demand for Health Capital	125	(16)
The Demand for Health	125	(2)
The Consumer as Health Producer	125	(1)
Time Spent Producing Health	126	(1)
Labor--Leisure Trade-Offs	127	(2)
Trading Leisure for Wages	127	(1)
Preferences Between Leisure and Income	128	(1)
The Investment/Consumption Aspects of Health	129	(2)
Production of Healthy Days	129	(1)
Production of Health and Home Goods	130	(1)
Investment over Time	131	(1)
The Demand for Health Capital	131	(2)
Marginal Efficiency of Investment (MEI) and Rate of Return	131	(1)
The Decreasing MEI	132	(1)
Changes in Equilibrium: Age, Wage, Education, and Uncertainty	133	(2)
Age	133	(1)
Wage Rate	134	(1)
Education	134	(1)
Uncertainty	135	(1)
Empirical Analyses Using Grossman's Model	135	(3)
Conclusions	138	(1)
Summary	138	(1)
Discussion Questions	139	(1)
Exercises	139	(2)
Demand and Supply of Health Insurance	141	(22)
What Is Insurance?	141	(1)
Insurance Versus Social Insurance	142	(1)
Insurance Terminology	142	(1)
Risk and Insurance	143	(3)
Expected Value	143	(1)
Marginal Utility of Wealth and Risk Aversion	144	(1)
Purchasing Insurance	145	(1)
The Demand for Insurance	146	(3)
How Much Insurance?	146	(1)
Changes in Premiums	147	(1)
Changes in Expected Loss	148	(1)
Changes in Wealth	149	(1)
The Supply of Insurance	149	(2)
Competition and Normal Profits	149	(2)
The Case of Moral Hazard	151	(4)
Demand for Care and Moral Hazard	151	(3)
Effects of Coinsurance and Deductibles	154	(1)
Health Insurance and the Efficient Allocation of Resources	155	(5)
The Impact of Coinsurance	155	(3)
The Demand for Insurance and the Price of Care	158	(1)
The Welfare Loss of Excess Health Insurance	159	(1)
Conclusions	160	(1)
Summary	160	(1)
Discussion Questions	161	(1)
Exercises	161	(2)
Consumer Choice and Demand	163	(24)
Applying the Standard Budget Constraint Model	163	(6)
The Consumer's Equilibrium	164	(2)
Demand Shifters	166	(2)
Health Status and Demand	168	(1)
Two Additional Demand Shifters -- Time and Coinsurance	169	(4)
The Role of Time	169	(2)
The Role of Coinsurance	171	(2)
Issues in Measuring Health Care Demand	173	(2)
Individual and Market Demand Functions	173	(1)
Measurement and Definitions	174	(1)
Differences in the Study Populations	174	(1)
Data Sources	174	(1)
Experimental and Nonexperimental Data	174	(1)
Empirical Measurements of Demand Elasticities	175	(6)
Price Elasticities	175	(2)
Individual Income Elasticities	177	(1)
Income Elasticities Across Countries	178	(1)
Insurance Elasticities	179	(2)
Impacts of Insurance on Aggregate Expenditures	181	(1)
Other Variables Affecting Demand	181	(2)
Ethnicity and Gender	181	(1)
Urban Versus Rural	182	(1)
Education	182	(1)
Age, Health Status, and Uncertainty	182	(1)
Conclusions	183	(1)
Summary	183	(1)
Discussion Questions	184	(1)
Exercises	185	(2)
PART III: INFORMATION AND INSURANCE MARKETS	187	(94)
Asymmetric Information and Agency	187	(15)
Overview of Information Issues	187	(1)
Asymmetric Information	188	(4)
On the Extent of Information Problems in the Health Sector	189	(1)
Asymmetric Information in the Used-Car Market: The Lemons Principle	190	(2)
Application of the Lemons Principle: Health Insurance	192	(3)
Inefficiencies of Adverse Selection	193	(1)
Experience Rating and Adverse Selection	194	(1)
The Agency Relationship	195	(1)
Agency and Health Care	195	(1)
Consumer Information, Prices, and Quality	196	(3)
Consumer Information and Prices	196	(1)
Consumer Information and Quality	197	(1)
Other Quality Indicators	198	(1)
Conclusions	199	(1)
Summary	200	(1)
Discussion Questions	200	(1)
Exercises	201	(1)
Imperfect Information: Supplier-Induced Demand and Small Area Variations	202	(23)
Supplier-Induced Demand (SID)	202	(3)
A Common Representation of SID	203	(2)
The Benchmark Models of SID	205	(5)
The Target Income Model	205	(3)
A Profit-Maximizing Model	208	(1)
A Synthesis of the Two Models	209	(1)
What Do the Data Tell Us About Supplier-Induced Demand?	210	(5)
Availability Effects	211	(1)
The Identification Problem: An Algebraic Example	211	(2)
Physician Fees, Fee Tests, and Fee Controls	213	(1)
Empirical Evidence of Income Effects	214	(1)
Information and SID	214	(1)
SID and Social Welfare	214	(1)
Small Area Variations (SAV)	215	(2)
Measuring the Variations: The CV and the SCV	216	(1)
Contributions to These Variations	217	(1)
The Physician Practice Style Hypothesis	217	(2)
Modeling Practice Style	217	(2)
Checking the Practice Style Hypothesis Against the Data	219	(3)
Education, Feedback, and Surveillance	219	(1)
Comparing Utilization Rates in Homogeneous Areas	219	(1)
Multiple Regression Approaches	219	(1)
SAV and the Social Cost of Inappropriate Utilization	220	(2)
Summary	222	(1)
Discussion Questions	223	(1)
Exercises	224	(1)
The Organization of Health Insurance Markets	225	(26)
Loading Costs and the Behavior of Insurance Firms	225	(1)
Impacts of Loading Costs	226	(2)
Insurance for Heart Attacks and Hangnails	227	(1)
Loading Costs and the Uninsured	227	(1)
Employer Provision of Health Insurance: Who Pays?	228	(6)
Spousal Coverage: Who Pays?	230	(1)
How the Tax System Influences Health Insurance Demand	231	(2)
Who Pays -- Empirical Tests	233	(1)
Other Impacts of Employer Provision of Health Insurance	233	(1)
Employer-Based Health Insurance and Labor Supply	234	(2)
Health Insurance and Retirement	234	(1)
Health Insurance and Mobility	234	(2)
The Market for Insurance	236	(3)
The Market for Private Insurance	236	(1)
Insurance Practices	237	(1)
The Past 15 Years	238	(1)
The Uninsured -- An Analytical Framework	239	(5)
The Working Uninsured	241	(2)
The Impacts of Mandated Coverage	243	(1)
Insurance, Technological Change, and Higher Costs	244	(2)
The Cost-Increasing Bias Hypothesis	244	(1)
The Goddeeris Model	245	(1)
Insurance, Technological Change, and Inflation: The Evidence	246	(1)
Does Induced Technological Change Make the Patient Better Off?	247	(1)
Conclusions	247	(1)
Summary	248	(1)
Discussion Questions	248	(1)
Exercises	249	(2)
Managed Care	251	(30)
What Is the Organizational Structure?	252	(2)
What Are the Economic Characteristics?	254	(1)
The Emergence of Managed Care Plans	255	(4)
Employer-Sponsored Managed Care	255	(2)
Medicaid Managed Care Plans	257	(1)
Managed Care Contracts with Physicians	257	(1)
Managed Care Contracts with Hospitals	258	(1)
Development and Growth of Managed Care -- Why Did It Take So Long?	259	(3)
The Economics of Price Discrimination	260	(2)
Barriers to Managed Care by Organized Medicine	262	(1)
Federal Policy and the Growth of Managed Care	262	(1)
Modeling Managed Care	262	(6)
Modeling Individual HMOs	263	(1)
How Much Care?	264	(1)
What Types of Care?	265	(1)
Framework for Prediction	265	(1)
Where Managed Care Differs from FFS -- Dumping, Creaming, and Skimping	266	(1)
Equilibrium and Adverse Selection in a Market with HMOs	266	(2)
How Does Managed Care Differ? -- Empirical Results	268	(4)
Methodological Issues -- Selection Bias and Quality of Care	268	(1)
Comparative Utilization and Costs	269	(1)
The Rand Study -- A Randomized Experiment	270	(1)
The Most Recent Evidence	271	(1)
Growth in Spending	272	(1)
Competitive Effects	273	(4)
Theoretical Issues	273	(1)
Managed Care Competition in Hospital Markets	274	(1)
Managed Care Competition in Insurance Markets	275	(1)
Managed Care and Technological Change	276	(1)
Conclusions	277	(1)
Summary	278	(1)
Discussion Questions	279	(1)
Exercises	280	(1)
PART IV: KEY PLAYERS IN THE HEALTH CARE SECTOR	281	(96)
Nonprofit Firms	281	(24)
An Introduction to Nonprofits	281	(1)
Why Nonprofits Exist and Why They Are Prevalent in Health Care	282	(7)
Nonprofits as Providers of Unmet Demands for Public Goods	282	(4)
Nonprofits as a Response to Contract Failure	286	(1)
Applications of Contract Failure to Nursing Home Care	286	(1)
The Role of Physicians in the Hospital Industry	287	(1)
Financial Matters and the Nonprofit	288	(1)
Summary of the Reasons for the Prevalence of Nonprofits	288	(1)
Models of Nonprofit Hospital Behavior	289	(6)
The Quality-Quantity Nonprofit Theory	289	(3)
The Hospital as a Physicians' Cooperative	292	(1)
A Comparison of the Quantity-Quality and the Physicians' Cooperative Theories	293	(2)
The Evidence: Do Nonprofit Hospitals Differ from For-Profit Hospitals?	295	(4)
The Harris Model	296	(1)
Summary of Models of Hospital Behavior	297	(1)
What Causes Conversion of Nonprofits into For-Profits?	298	(1)
The Relative Efficiency of Nonprofits Versus For-Profits	299	(3)
Property Rights Theory and Its Application to Nonprofits	299	(2)
Are Nonprofit Health Care Firms Less Efficient? -- Hospital and Nursing Home Studies	301	(1)
Conclusions	302	(1)
Summary	303	(1)
Discussion Questions	304	(1)
Exercises	304	(1)
Hospitals and Long-Term Care	305	(18)
Background and Overview of Hospitals	305	(4)
History	306	(1)
Organization	307	(1)
Regulation and Accreditation	308	(1)
Hospital Utilization and Costs	309	(5)
Competition and Costs	310	(1)
Hospital Cost Shifting	311	(2)
Closures, Mergers, and Restructuring in the Hospital Industry	313	(1)
Nursing Homes	314	(5)
Background and Costs	314	(1)
Quality of Care	315	(1)
Excess Demand	316	(2)
Financing Long-Term Care	318	(1)
Hospice and Home Health	319	(1)
Conclusions	320	(1)
Summary	321	(1)
Discussion Questions	322	(1)
Exercises	322	(1)
Health Care Labor Markets and Professional Training	323	(28)
The Demand for and Supply of Health Care Labor	323	(5)
Production Functions and Isoquants	324	(1)
Marginal Productivity of Labor	325	(1)
Factor Substitution and Labor Demand	326	(1)
The Supply of Labor	327	(1)
Factor Productivity and Substitution Among Factors	328	(2)
Measurement of Physician Productivity	329	(1)
The Efficient Utilization of Physician Assistants -- Substitution Among Inputs	329	(1)
Health Manpower Availability and the Meaning of Shortages	330	(6)
Availability of Physicians	330	(2)
Economic Definitions of Shortages of Health Professionals	332	(2)
The Role of Monopsony Power -- Shortages of Registered Nurses	334	(2)
Medical Education Issues and the Question of Control	336	(5)
Sources of Medical School Revenues	337	(1)
Capital Market Imperfections Justify Subsidies	337	(1)
Teaching Hospitals, Medical Schools, and Joint Production	337	(1)
Foreign Medical School Graduates (FMGs)	338	(1)
The Control of Medical Education	339	(1)
Control over Entry	340	(1)
Another View -- The Donor Preference Hypothesis	341	(1)
Licensure and Monopoly Rents	341	(4)
Public Interest or Self-Interest	342	(1)
Licensure and Quality	343	(2)
Physician Pricing, Transfer Pricing, and Price Discrimination	345	(3)
Managed Care and the Physician	347	(1)
Conclusions	348	(1)
Summary	348	(1)
Discussion Questions	349	(1)
Exercises	350	(1)
The Pharmaceutical Industry	351	(26)
Structure and Regulation	353	(4)
Competition	354	(1)
Barriers to Entry	355	(1)
Regulation	356	(1)
The Production of Health and Substitutability	357	(4)
Least-Cost Production	358	(1)
Insurance and Substitutability	359	(1)
Technological Change	360	(1)
Drug Pricing and Profits	361	(5)
Monopoly Pricing	362	(1)
Price Discrimination	363	(2)
Behavior Other Than Profit-Maximizing Behavior	365	(1)
Monopsony Pricing and Price Controls	365	(1)
Competition and Generic Entry	365	(1)
R&D and Innovation	366	(4)
Investment Decisions	367	(1)
R&D Spending	368	(1)
Firm Size and Innovation	368	(1)
Mergers and Acquisitions	369	(1)
Cost Containment	370	(2)
Copayments	370	(1)
Generic Substitutes	371	(1)
Drug Formularies	371	(1)
Conclusions	372	(1)
Summary	373	(1)
Discussion Questions	374	(1)
Exercises	374	(3)
PART V: SOCIAL INSURANCE	377	(140)
Equity, Efficiency, and Need	377	(24)
Efficiency and Competitive Markets	378	(5)
The Concept of Pareto Efficiency (Optimality)	378	(2)
The Idea of Trading Along the Budget Line	380	(1)
The Competitive Equilibrium	380	(1)
The First Fundamental Theorem of Welfare Economics	381	(1)
Redistribution of the Endowment	381	(1)
Price Discrimination	382	(1)
Okun's Leaky Bucket	383	(1)
Deviations from the Competitive Model in the Health Care Sector	383	(2)
The Assumptions Under Perfect Competition	383	(2)
Promoting Competition in the Health Care Sector	385	(1)
The Theorem of the Second Best	385	(1)
An Economic Efficiency Rationale for Social Programs in Health Care Based on Externalities	386	(2)
Need and Need-Based Distributions	388	(5)
Health Care Needs and the Social Welfare Function	389	(2)
Norman Daniels's Concept of Health Care Need	391	(2)
Horizontal Equity and Need	393	(2)
How to Compare Horizontal Equity Among Countries	394	(1)
The Results	394	(1)
Theories of Social Justice	395	(3)
Utilitarianism	395	(1)
Rawls and Justice as Fairness	396	(1)
Nozick and Entitlement Theory	397	(1)
Conclusions	398	(1)
Summary	398	(1)
Discussion Questions	399	(1)
Exercises	400	(1)
Government Intervention in Health Care Markets	401	(24)
Economic Rationale for Government Intervention	401	(6)
Monopoly Power	402	(1)
Public Goods	403	(2)
Externalities	405	(1)
Other Rationales for Government Intervention	406	(1)
Forms of Government Intervention	407	(3)
Commodity Taxes and Subsidies	407	(2)
Public Provision	409	(1)
Transfer Programs	409	(1)
Regulation	409	(1)
Government Involvement in Health Care Markets	410	(3)
Support of Hospitals	410	(1)
The Hill-Burton Act	410	(1)
The Veterans Administration and CHAMPUS	411	(1)
Food and Drug Administration	411	(1)
Mandated Health Insurance Benefits	411	(1)
Tax Policy	412	(1)
Public Health	412	(1)
Other Government Programs	412	(1)
Government Failure	413	(4)
Who Does the Regulator Represent?	413	(3)
Bureaucracy and Efficiency	416	(1)
Competitive Strategies	417	(5)
Increased Cost Sharing	418	(1)
Development of Alternative Delivery Systems	419	(1)
Medicare Managed Care	419	(1)
Medical Savings Accounts	420	(1)
Representation of the Competitive Approach	421	(1)
Conclusions	422	(1)
Summary	423	(1)
Discussion Questions	423	(1)
Exercises	424	(1)
Government Regulation -- Principal Regulatory Mechanisms	425	(29)
Do the Laws of Supply and Demand Apply?	425	(1)
Objectives of Regulation	426	(2)
Regulatory Policy	427	(1)
Regulatory Instruments in Health Care	427	(1)
Quality Controls	428	(1)
Regulation of the Hospital Sector	428	(4)
Rate Regulation, Utilization Review, and Certificate-of-Need	428	(1)
Empirical Findings on Regulation	429	(3)
Prospective Payment	432	(1)
Description of PPS	433	(1)
The Theory of Yardstick Competition and DRGs	433	(7)
On the Effects of Medicare's Prospective Payment System	437	(3)
Prospective Payment -- Recent Evidence	440	(1)
Regulation of Physician Payment	441	(2)
UCR Reimbursement, Assignment, and Alternative Payment Mechanisms	441	(1)
Relative Value Scales	442	(1)
Antitrust	443	(7)
Enforcement	444	(1)
Exemptions	444	(2)
Measuring Monopoly Power	446	(1)
Antitrust Procedures	447	(1)
The Elzinga-Hogarty Criterion	447	(3)
Conclusions	450	(1)
Summary	450	(1)
Discussion Questions	451	(1)
Exercises	452	(2)
Social Insurance	454	(27)
Social Insurance Policies and Social Programs	454	(2)
Program Features	455	(1)
Historical Roots of Social Insurance	456	(3)
European Beginnings	456	(1)
Early Experience in the United States	457	(1)
The Establishment of Medicare and Medicaid	458	(1)
Medicare and Medicaid in the United States	459	(6)
Medicare	459	(3)
Medicaid Overview	462	(3)
The Medicaid--Medicare Relationship	465	(1)
Children's Health Insurance Program	465	(1)
Public Insurance and Health	465	(2)
Take Up and Crowd Out	465	(2)
The Effects of Medicare and Medicaid	467	(10)
Costs and Inflation	467	(7)
Health Status	474	(1)
Medicare -- Recent Changes and Future Prospects	475	(2)
Criticisms of the American Health Care System	477	(1)
Conclusions	478	(1)
Summary	479	(1)
Discussion Questions	479	(1)
Exercises	480	(1)
Comparative Health Care Systems and Health System Reform	481	(36)
Contemporary Health Care Systems	481	(1)
A Typology of Contemporary Health Care Systems	482	(1)
National Health Programs: Three Examples	482	(11)
The United Kingdom -- The National Health Service	484	(3)
Germany	487	(4)
South Korea	491	(2)
The Canadian Health Care System	493	(6)
Background	493	(3)
Physician Fees and Quantity	496	(1)
Why Are Fees and Hospital Costs Lower in Canada?	496	(1)
Administrative Costs	496	(2)
A Comparison	498	(1)
Different Systems -- The Public's Evaluation	499	(2)
Differences in Health Care Spending Across Countries	501	(2)
A Simple Model of Health Expenditures Shares	501	(1)
Applying the Model	501	(1)
Cross-National Comparisons: Private Versus Public Financing Systems	502	(1)
National Health Insurance	503	(2)
Different Kinds of Possible National Health Insurance (NHI) Plans	503	(2)
The Costs of NHI	505	(1)
Ensuring Access to Care	505	(2)
Individual Versus Employer Mandates	505	(2)
Separation of Health Insurance from Employment	507	(3)
Single Payer Versus Multiple Insurers	508	(1)
Health Care Reform and International Competitiveness	509	(1)
Providing Care at Lower Cost	510	(2)
Medical Savings Accounts	510	(1)
Managed Care and Cost Containment	511	(1)
Conclusions	512	(1)
Summary	513	(1)
Discussion Questions	514	(1)
Exercises	515	(2)
PART VI: SPECIAL TOPICS	517	(44)
The Health Economics of Bads	517	(14)
The Health Economics of Bads: An Introduction	518	(2)
Models of Addiction	518	(2)
Rationales for Public Intervention	520	(1)
Other Interventions	521	(1)
Advertising Restrictions on Cigarettes and Alcohol	521	(4)
Theories of Advertising	522	(1)
The Possible Effects of Brand Switching	522	(2)
Increased Demand or Brand Switching?	524	(1)
Advertising and Alcohol Consumption	525	(1)
Excise Taxes and Consumption: Cigarettes and Alcohol	525	(3)
The Consumption-Reducing Effects of Excise Taxes in Theory	525	(1)
Excise Taxes and Cigarette Consumption in Practice	526	(2)
Excise Taxes and Alcohol Consumption	528	(1)
Conclusions	528	(1)
Summary	529	(1)
Discussion Questions	529	(1)
Exercises	530	(1)
Epidemiology and Economics: AIDS in Africa	531	(14)
Concepts from Epidemiology	531	(2)
Economic Epidemiology	533	(4)
Rational Epidemics	533	(1)
The Prevalence Elasticity of Demand for Prevention	534	(1)
The Economic Consequences of Epidemics	534	(2)
The Difficulty of Eradicating Diseases	536	(1)
Information	536	(1)
The Role of Government in Battling Epidemics	536	(1)
Case Study: AIDS in Africa	537	(6)
HIV/AIDS	537	(5)
Economic Theory and African Reality	542	(1)
Conclusions	543	(1)
Summary	543	(1)
Discussion Questions	544	(1)
Exercises	544	(1)
The Tools of Economic Evaluations	545	(16)
Cost-Benefit Analysis: Basic Principles	546	(8)
Measuring Costs	546	(2)
Marginal Analysis in CBA	548	(1)
Discounting	548	(2)
Risk Adjustment and CBA	550	(1)
Distributional Adjustments	550	(1)
Inflation	551	(1)
Valuing Human Life	551	(1)
Cost-Benefit Analyses of Disease-Screening Programs	552	(2)
Cost-Effectiveness Analysis	554	(2)
Advantages of CEA	554	(1)
An Application: The Sixth Stool GUAIAC Test	555	(1)
Cost--Utility Analysis, QALYs, and DALYs	556	(1)
Conclusions	557	(1)
Summary	558	(1)
Discussion Questions	559	(1)
Exercises	559	(2)
Glossary	561	(8)
References	569	(32)
Name Index	601	(6)
Subject Index	607

Excerpts

This is the fourth edition of a book that was conceived in 1990 and first published in 1993. To indicate how much the world of health economics has changed, the first edition made a single reference to "managed care," and that was in the context of monopoly power in the provision of health care. This book was first written to assist health economics instructors in developing a clear, step-by-step understanding of health economics for their students. We also believe that it is important for instructors to demonstrate what health economics researchers are doing in theory and in empirical work. The book synthesizes contemporary developments around a set of basic economic principles, including maximization of consumer utility and economic profit, wishing to make these principles accessible to undergraduate students, as well as to graduate students. Rather than organizing the book around the institutions specific to the health care economy, we have used core economics themes as basic as supply and demand, as venerable as technology or labor issues, and as modern as the economics of information. Moreover, we have sought to improve accessibility to the book for the wide range of health services students and practitioners whose knowledge of economics may be more limited. We have followed the philosophy that students must have a working knowledge of the analytical tools of economics and econometrics to appreciate the field of health economics. Some students may be ready to plunge directly into "The Production of Health" (Chapter 4) upon completion of the introductory Chapter 1. However, Chapter 2 ("Microeconomic Tools") and Chapter 3 ("Statistical Tools") allow the students and their teachers to develop or to review the needed analytical concepts before tackling the core subject matter. In Chapters 2 and 3, students with as little as one semester of microeconomics may review and study how economists analyze problems, using examples that are relevant to health economics. No calculus is needed. Consistent with an emphasis on clarity of exposition, this book makes extensive use of graphs, tables, and charts. Discussion questions and exercises are provided to help students master the basics and to prompt them to think about the issues. Features on up-to-date applications of theory and policy developments are also included, as well as the occasional tidbit containing purely background information. Finally, we caution that some of the chapters, such as those on insurance, although devoid of advanced mathematics, may still require considerable effort. No painless way is available to appreciate the scope of the contributions that scholars have made in recent years. More advanced students of the health care economy who wish to be challenged further can utilize a comprehensive references section, with more than 800 sources, so that their (and our) work can be enriched through referral to the original sources. WHAT'S CHANGED IN THE FOURTH EDITION? It is critical that this textbook contains the most current knowledge and addresses the needs of our readers. As with previous editions, almost every chapter is revised to incorporate significant developments in the field. In response to the instructors and students who use this book, we have made some changes in its organization. Our newly arranged Part IV identifies key players in the health care sector, with special reference to nonprofit firms (Chapter 13), hospitals (Chapter 14), physicians and labor (Chapter 15), and the pharmaceutical industry (Chapter 16). The section on social insurance and governmental actions, Part V has been moved forward to begin with Chapter 17 on equity and need, looking at governmental regulation (Chapters 18 and 19), social insurance (Chapter 20), and finishing with comparative systems and health care reform (Chapter 21). Our new Part VI examines special topics. Chapter 22 continues from the previous edition, lo