1) Customers don't want health, per se, but health itself
2) Consumers don't purchase health from the market, but instead they produce it
3) H is a capital good
H (Health Stock) = g(m) (m = health care)
It depreciates but not instantly.
4) Health is both a consumption good and an investment good
5) Budget constraints
Health Stock equation
H (sub t) = H (sub t - 1) + Investment - Health Depreciation
Budget constraint equation
Income = Px(X) + Pm(m)
Px(X) = total cost of other expenditures
Pm(m) = total cost of health expenditures
exit / enter
Important Aspects of health econ
1) Government interaction
3) Asymmetric information
uncertainty exists in the health care market because neither health care providers nor patients know when or with what sickness patients will contract.
Consumers don't have the knowledge to do it themselves. at a disadvantage.
Definition: a cost or benefit not transmitted by price
Applied to health care context: Being well is a positive externality because you're more productive and do not get others sick. Being sick is a negative externality because there is a high risk of spreading your sickness.
Evolution of Physician Payments
1) UCR - Usual, Customary, Reasonable
2) Fee Schedule
3) Relative Value Scale (RVS)
4) Resource-based Relative Value Scale
a list of health service prices. prices are how much insurance will pay physicians. Doctors do more because they are paid by the amount of services rendered. Incentive to do more tests.
schedule based on objective standards showing relative value points for each service compared to a common unit. Adding a dollar value per points makes it a fee schedule.
pays fixed amount of money per person, per month regardless of how much services are used. Doctors do less because they are payed by person not services rendered. So they recieve same amount of money regardless of how much they do.
similar to RVS but uses different criteria to place value. Uses: physicians time, intensity of effort, practice costs, and cost of advanced specialty training.
relative value schedule used by medicare for physician fees.
Common patient expenditures
a method of denying bills that are outside of the usual, customary, and reasonable charges made by physicians for the same service last year.
Forms of patient payments
1) individual reimbursement (patient pays charges, sends bill to insurance company, and is reimbursed for the expenses that are covered.)
2) Assignment (physician sends bill to insurance company, patient is charged co-payment
Labor - Leisure choice
as physicians work more leisure becomes more valuable to them. "backward bending supply curve" occurs when physicians feel wealthy enough that higher income per hour makes them work fewer hours.
Shifters in Demand
Price of substitutes and compliments
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