3 Basic Steps in Economic Evaluation.ppt

Health, Medical Care, andMedical Spending Health EconomicsProfessor Vivian HoFall 2009 Outline An economic model of utility, health, and medical care Measuring health status Empirical evidence on health production Health care expenditures A Basic Economic Model Health as a consumer durable good: Utility = U (X, Health) X represents “other goods and services” H is a stock -- every action will affect health On its own or combined with other goods and services, the stock of H generates a flow of services that yield satisfaction=utility A Basic Economic Model (cont.) Medical care is not homogeneous and differs in: Structural quality (e.g. facilities and labor) Process quality (e.g. waiting time, case mgmt.) Outcome quality (e.g. patient satisfaction, mortality) Therefore medical services are often difficult to quantify A Basic Economic Model (cont.) Health=H(Profile, Medical Care, Lifestyle, Socioeconomic Status, Environment) If an individual has a heart attack, then overall health decreases, regardless of the amount of medical care consumed The total product curve for medical care shifts down As a person ages, both health and the marginal product of medical care are likely to fall The total product curve shifts down and flattens out MEASURING HEALTH Important for all health care managers today Insurers and consumers are demanding ? costs AND ? quality HEALTH OVER THE LIFE CYCLE HEALTH OVER THE LIFE CYCLE Individuals make choices about health (make tradeoffs) which maximize U over time Relatively high value for the future Low discount rate e.g. Low-fat diet and exercise to avoid heart disease Relatively low value for the future High discount rate e.g. Smoking, excess drinking, drug abuse DISCOUNTING Required when costs are incurred in the future Why? Individuals have a positive value of time preference If r = 10%, then $100 invested today yields $110 next year Spending $100 one year from now is “cheaper” than spending $100 today If costs occur ove