Transcript Household Health Demand

Household Health Demand
180.289 Session 200
Outline
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Household Health Demand
Household Health Input Demand
Health Production Function
Rand Health Insurance Experiment
Part 1: Household Health
Demand
How to trade beer for health?
• There is no store listed in the yellow pages
where you can trade beer bottles for health
• IT DOESN’T HAVE TO BE BEER
• Why not consider “all the things one must
sacrifice for health”
– Beer, cigars, doctor bills, etc.
• Vector of goods X
How to trade beer for health?
• There is no store listed in the yellow pages
where you can trade beer bottles for
health
• The “trading” actually occurs along the
production possibility frontier.
• Why not consider “all the things one must
sacrifice for health”
– Beer, cigars, money (spent on doctors), etc.
• Vector of goods X
Part 2 Health Care Demand
Application to Health
• The individual is both the consumer and
the producer of health
• Step 1) Ask “How much health do I want,
given that I will have to give up some
things for it?”
• Step 2) Ask, “Given that I want to have this
health level, what medical services should
I buy?”
Health Demand vs. Health Input Demand
• The two problems are intertwined
– Knowing how much health you want tells you
how many inputs to buy
– Could ask simply how utility varies with health
inputs and figure out optimal health demand
Prod. Fn.
Health Inputs
Health
Life Satisfaction
Part 3: Household Health
Production
Health Production Function
• Households “produce” health
• Producing something means combining
inputs to make an output
• Health inputs are diet, rest, exercise, safe
environments, and medical services
• How these are combined can be expressed
mathematically
A Production Function
• Production functions
are recipes that say:
Combine inputs in
this ratio and you will
get this many outputs.
• Lemonade Recipe
• Old Fashioned Healthy
Pregnancy Recipe
– 1 pregnant woman
– 3 measurements of weight
gain and fundal height
– 3 measurements of blood
sugar and blood pressure
– 1 cup
– Advice on signs of labor
– 1 spoon
– Advice on danger signs
– 1 Lemon
– 4 Ice cubes
– 3 spoons of sugar
– Water
Production by both Government
and Household
• For some aspects of
health
– The government
produces part
– The household
produces part
• The more the
government does, the
less the household
has to do and vice
versa
• Malaria
– Government kills
mosquitoes
– Household uses
bednets
• Tradeoffs
– The more the
government does its
part, the less the
household has to do
Mathematical depiction of
government and household
roles
in
health
• H =E+G(B - f )  Z +F(A - e
iJ
)  XiJ
J
J
J
J
iJ
HiJ is the health of the i-th household in the J-th
area
E is environment
G is Government health production
B J is Best available Public Health Technology in
area J
f is gap between Best and Actual in area J
Crowdout: Government vs.
Household
• Many aspects of health system
performance are affected by this balance
– Financing health care
• Households out of pocket vs. government
– Governing quality
– Drawing in supplies of workers
– Demand for medical services
Part 4 Applications
Demand Curve for Health
At Price Pm the consumer
Buys m1 units of health
D1
pm
Price
m1u
Quantity
Effect of Insurance on Demand
for Health
Let “C” be copayment
It is the fraction of
Full price that is paid
D2
D1
pm
Cpm
m1u
m1c
If C is 0.25 a price of
$100 becomes $25
Empirical Studies
• How to Test Predictions:
– Demand curve for medical care slopes
downward
– Education increases demand for medical
services
– Income increases demand for medical
services
• Empirical Problems
– Insurance distorts demand
• If richer people are more likely to have insurance
Empirical Solutions
• Experimentally control the coinsurance
rates to detect the effect of price on
income
– Letting people self-select their coinsurance
rate would be a mistake. Healthy people
would opt for cheaper premiums and lower
coinsurance
– Rand HIS study
• Study hypothetical markets
– Method called “contingent valuation” or
“willingness to pay”
The RAND Health Insurance
Study (HIS)
• 5809 enrollees from 4
cities and 2 rural sites
• Enrollees agreed to
participate for 3 or 5
years
• Persons were
enrolled in one of six
plans
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Full Coverage
25% co-payment
50% co-payment
50% co-payment for
dental and mental
and 25% co-payment
for other care
• 150/450 deductible
• catastrophic cap
Means for Annual Use of
Medical Services Per Capita
Plan Visits
per
Person
***
Admission Expected
s per
Inpatient
Person*
Expenses
per Person
Free 4.55
Expected
Outpatient
Expenses
per
Person***
$340
0.128
409
25% 3.33
$260
0.105
373
50% 3.03
$224
0.092
450
*** p<0.001; * p<0.05; ns – not significant
NS
Summary
• Medical care demand is secondary to the
demand for health
• The concept of health capital can be used
to study the way in which people anticipate
the demand for health
• Empirical studies need to control for selfselection into insurance and self-selected
health behaviors to study the demand for
health