discuss the first two assumptions mentioned in the Hour 3-5 lecture notes

discuss the first two assumptions mentioned in the Hour 3-5 lecture notes

HA 645-QL: Health Economics
Problem Set #1
Due 6 February 2016
1. Suppose that patients who have previously had care provided for free are asked to pay for care for the first time. As a manager at a physician group practice, you must
try to anticipate how the use of care will change. Please answer the following questions.
a. The first thing you need some information about is a particular type of curve. That curve is called ademand curve.
b. With patients being asked to pay something for the first time, will this lead to a shift of the demand curve or movement along the demand curve?
c. Please list three things about the population served by your practice that could affect how quantity of services will change, in other words things that could lead to the
demand varying from one population to another.
d. Give a brief explanation of how each of the things listed in item (c) affect the demand for care.
2. Now suppose you are managing a third party payer. Let’s continue with the example from number 1. In that example, we assumed that the patients went from having
to pay nothing to having to pay something.
a. When the consumers had to pay nothing, describe what determines how much revenue would the third party payer need to collect to pay the claims for the care
utilization.
b. When the consumers have to pay something, is the change in the premium simply the price per service multiplied by the change in utilization or is the change more
complex? If it is more complex, please describe how the premium necessary to cover the expenditures on health care utilization will change.
3. Please discuss the first two assumptions mentioned in the Hour 3-5 lecture notes. These are (1) that consumers are the best judge of their own welfare and (2) that
consumers have the information they need to make decisions. Do you agree with these assumptions outside of health care? Do you agree with these assumptions in
health care? If you disagree either in general or for healthcare, please describe why. Does your answer suggest that a public authority or private firm should influence
individual decision making about health care? If you suggest that individuals should be influenced should that be by mandate or by incentives?
4. Imagine that you are managing at a hospital outpatient unit and consider that your administrative staff has been cut by one person. As a result, it takes longer to
manage each visit for the patients who come to your facility. Suppose that consumers had been paying a small amount for each service before you had to let staff go.
Assume that the unit is covering its costs before you have to cut the administrative staff.
a. With the reduction in staff how do your unit’s expenses change?
b. With the reduction in staff, assuming that there is a fixed amount of operational time, will you be able to produce the same number of visits? If yes, what would have to
happen to the staff you have?
c. Will the demand for outpatient services change if your outpatient unit maintains the same monetary price?
d. Consider your answers to (b) and (c). In light of this, will the outpatient center be able to cover its costs? Do you have enough information to answer the question? If
not, what other information do you need?
5. Consider a new cancer screening technology that can be administered at a primary care visit. In our hypothetical health care system, individuals have to pay for the
visit and the screening. The new technology is less invasive and more accurate than the old technology, but the new technology requires patients to pay twice as much
out of pocket. Suppose that the old technology is no longer available.
a. Reason through whether there will be more people who receive cancer screening with the new technology than with the old technology.
b. Since the cost of cancer screening has gone up, will anything happen to the demand for primary care visits? With the type of change you suggest in the demand for
primary care visits, what type of goods are primary care visits and cancer screenings?
c. Suppose we have two populations. One population of higher income individuals. A second population of lower income workers. The higher income individuals make
twice as much as the lower income individuals. Would you expect the cancer screening to be used twice as much, more than twice as much, or less than twice as much
by the higher income individuals compared with the lower income individuals? Based on your answer, does that make cancer

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