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Health Economics

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Health Economics Unit 12 * Definition of Economics Demand relationship between quantities and prices that addresses how much bought at each price Supply ... – PowerPoint PPT presentation

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Title: Health Economics


1
Health Economics
  • Unit 12

2
Definition of Economics
  • Demand - relationship between quantities and
    prices that addresses how much bought at each
    price
  • Supply relationship between quantities and
    prices that addresses how much sold at each price

3
Definition of Economics (cont.)
  • As price increases, demand decreases but supply
    increases in free market
  • Market reaches equilibrium when supply and demand
    are equal at a given price
  • Economics is about choices made about production
    and consumption of goods and services

4
Economic Decision Making
  • Scarcity choice of which services to provide
    with scarce resources
  • Preferences refers to personal preferences or
    choices about a resource
  • Opportunity costs - choices in saving money by
    providing alternative opportunities
  • Uncertainty choices made when outcomes are
    uncertain

5
Basic Economic Reasoning
  • Economic reasoning based on concept of making
    decisions at the margin
  • Marginal benefit - spending one more dollar or
    trying to bring about one more positive health
    outcome
  • Utility achievement of life satisfaction or
    usefulness without additional societal
    expenditures
  • Profit net revenue of an action or product

6
Economic Evaluation
  • Cost-benefit Analysis
  • Compares costs of intervention with the dollar
    value of the benefits
  • Limitations - difficult to put a dollar value on
    health
  • Cost-effectiveness Analysis
  • Compares costs of intervention with benefits

7
Economics of the Labor Market
  • Labor supply describes how wages relate to the
    number of hours of work that can be obtained.
  • Expected to indicate that an increasing number
    of hours of labor will be supplied as the
    wage increases.
  • Does not indicate magnitude of response to
    increasing wages.

8
Example of Labor Supply and Demand of Nurses
  • Decision to become nurse based on lifetime
    earnings and individual preferences (utility
    maximizing decision).
  • As wage increases (price), number of nurses
    increases (supply), resulting in more hours of
    nursing time (demand) leading to lower wage
    (price) because prices decrease when supply
    increases.

9
Demand for Health Care
  • Health insurance insulates individuals from cost
    of health care, leading to increase in demand for
    health care (moral hazard).
  • Moral hazard leads to increase in demand for
    health care and increase in health care
    expenditures.
  • Managed care attempts to decrease moral hazard.
  • Main dilemma in US health care How to reach
    equilibrium in the supply and demand of health
    care, given health insurance and uninsured.

10
Supply of Health Care
  • Suppliers of health care - health care providers
    and institutions of care.
  • Provider-induced demand offering services not
    needed to compensate for reduced payment.
  • Managed care attempts to decrease supplier
    tendencies to increase provider-induced demand.
  • Minimal difference in cost containment between
    managed care and traditional insurance practices.
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