The Economics of Health Care in America Essay

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Santerre and Neun

a) What are the three legs of the medical stool? Explain how trade-offs might take place among the three legs.

The three legs are cost, quality and access. Trade-offs take place among the three legs in the sense that sometimes cost might be high, but quality and access will be better. Or access might be good and cost low, but quality might suffer.

It all depends on the situation of the patient and the nature of the provider. The ideal situation is that all three legs of the medical stool are supportive of both patient and provider needs -- but that is not always the case.

b) What are the four basic questions and how do they relate to the concepts of productive and allocative efficiency?

The four basic questions are:

What mix of nonmedical and medical goods and services should be produced in the macroeconomy? 2. What mix of medical goods and services should be produced in the health economy? 3. What specifi c health care resources should be used to produce the chosen medical goods and services? 4. Who should receive the medical goods and services that are produced?

They relate to the concepts of productive and allocative efficiency in the sense that they organize the principles of care giving around services and goods so that there is a correlation between cost and benefit that is acceptable.

2) a) Does the U.S. health care system possess a privately or publicly financed health care system? Explain.

The US health care system is a hybrid. It possesses both a privately and publicly financed health care system. People can pay for private insurance, private care -- but they also pay into care for those who cannot pay themselves -- this is Medicare.

b) What are two major uses of medical funds in the US?

Two major uses of medical funds in the US are hospital services and pharmacy services. People pay for hospital visits, ER visits, and operations and they also pay for doctors and nurses, etc.; they also pay for drugs and the drug industry is a huge industry in the US.

These two areas receive the majority of funds in the US because a lot of people keep going for tests and procedures and a lot of people are treated with pharmacological interventions that require prescriptions.

3) Explain the change in the percentage of the U.S. population with health insurance from 1940 to 1980. Can you think of any economic factors that may have caused that change? Explain the change in the percentage insured since 1980.

Before the 1970s, the majority of people held hospital insurance. For instance in the '40s, only a tenth of the population actually had private health insurance. Just forty years later, that trend was reversed and a little more than 10% were uninsured -- everyone else had bought insurance. This was a result of the subsidization of care by the government, which raised the price of care and which prompted more people to seek coverage.

Jobs offered coverage as an incentive to come work for them, but with the increase in premiums and deductibles more people are seeing even insurance as too expensive and are now avoiding health insurance and health care altogether.

4) As you know, the U.S. government implemented a variety of policies to limit smoking over the last few decades. Can you provide an example of a structural remedy? How about a conduct remedy?

A structural remedy would be legislation that bans smoking in certain areas -- such as in government buildings, on airplanes, in public places, etc. In many bars, smoking is not permitted too nowadays and this is a structural remedy. Likewise, the Surgeon General's warning on cigarettes can be viewed as a structural remedy.

A conduct remedy would be health literature in the form of PSAs or studies that help people to see that smoking is bad; vaping is an alternative that is being promoted as well and that is a conduct remedy.

5) How can health can be classified as a "consumption" good as well as an "investment" good?

Health can be classified as a consumption because we consume services associated with health -- such as taking medicine, vitamins, exercising, going to the doctor, etc.

It can be viewed as an investment as well because there is research that needs to be done, people are investing in their futures when they invest in the health; they must maintain the investment just like with any other to ensure things are staying steady, etc.

6) With the help of a graph, discuss the concept of a health production function.

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In what sense is the individual considered a "producer" of health in the Grossman model?

As can be seen in the graph, the health production function tells the extent to which health of a person can lead to specific health-related inputs over time. Since a patient is both a producer and a consumer, the patient actively participates in the products that are produced and consumed. The more the patient participates in studies and uses medicine or treatment, the more that patient's experience goes into the consideration of how to produce the next good.

7) Explain the education-health causality debate in the context of the Grossman model. What does the model say about the education-health relationship -- that is, how does education affect the optimal health stock in the model? What are some other explanations of the observed positive relation between education and health?

Greater emphasis on health can cause more health products to be produced. The more that education drives a need for health, the larger the market becomes for health care because people will want it.

The optimal health stock in the model is affected by education because education acts as the pump which pumps up the stock, creating demand and a need for the product. The explanation for the correlation between education and health is that the more people know about how to prevent illness, the more likely they are to be healthy.

8) a) What is the effect of an increase in education on the demand for medical care?

The more one is educated, the more likely there is to be a demand for health products. At the same time, the more one is educated about how to be healthy, the less likely one is to need health care because there will be less illness.

So actually the more health literacy there is, the more preventive care will be practiced and the less likely there will be a need for an increase in medical care.

b) What is the effect of an increase in wages on the demand for medical care?

The more that wages increase, the more demand there is for medical care because people have more money to spend on an expensive service. So if there is more money in the public's pocket, the public will be willing to spend more on health care.

c) Using the Grossman model, discuss what happens to the demand for health and the demand for medical care when the price of medical care (Pm) increases.

When the price of medical care increases, the demand for medical care will decrease -- because no one will want to pay for it. The Grossman model shows that if optimal health output is low, less medical care is needed. People can obtain health by using their own selves rather than seeking out care. So a person will exercise or diet appropriately instead of going to the doctor for a prescription or intervention.

9) Using the Grossman model:

a) Discuss two factors that may have led to the increase in obesity in the United States.

1 factor is too much sugar in the diet and less exercise and another factor is the fact that everyone is working now including women and there is less time for exercise and less focus on homecooked meals that are nutritious and organic. The rise of fast food and pre-packaged food have filled the gap in nutritious meals and soda and sugary beverages have too.

b) Discuss two factors that may explain why individuals in less developed nations have a lower life expectancy relative to those in more developed nations.….....

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