Unlike with most types of goods, deriving a demand Question # 00601906 Subject: Education Due on: 06/03/2019 Posted On: 06/03/2019 04:40 AM Tutorials: 1 Rating: 5.0/5

1. Unlike with most types of goods, deriving a demand curve
for health care is quite simple because people rarely skimp on health care.

2. The RAND study was especially useful for measuring price
elasticities because it randomly assigned insurance plans to participants (as
opposed to letting them choose).

3. The Oregon Medicaid Experiment is not truly “randomized”
because lottery winners did not all end up with insurance, and some lottery
losers did end up with insurance.

4. The RAND HIE found that people assigned to the free
health plan had the same rate of hospitalization as people assigned to the cost-sharing
plans.

5. In the RAND HIE, the arc elasticity of demand for
inpatient care was larger (in absolute value) than the arc elasticity of demand
for outpatient care.

6. Unlike the usual measure of elasticity, an arc elasticity
can be calculated from just one price-quantity data point.

7. Both the RAND and Oregon studies find that demand for
health care is approximately unit elastic, that is, ? ?1.

8. In the RAND HIE, being assigned more generous insurance
did not generally improve participants’ health outcomes, except among certain
subgroups.

9. To date, no major health insurance experiment has studied
the impact of uninsurance, just different levels of insurance.

10. Results from the Oregon Medicaid Experiment suggest that
having health insurance has a positive impact on health status.

11. Suppose you are
collecting data from a country like Japan where the government sets the price
of health care. Each prefecture in Japan has a different set of prices (for
example, Tokyo has higher prices than rural Hokkaido). Data for 1999 are displayed
in Table 2.12.

Table 2.12: Outpatient utilization

in Tokyo and Hokkaido, 1999.

Region Outpatient visits Price/visit

Tokyo 1.25/month 20U

Hokkaido 1.5/month 10U

(a) What is the arc price elasticity of demand for health
care consumers in Japan (using only these data)?

(b) Suppose that incomes are generally much higher in Tokyo
than Hokkaido. Is your answer to the last question an overestimate or underestimate
of price elasticity? Justify your answer.

(c) Using your estimated elasticity, what would the demand
for health care be if the price in Tokyo were raised to 30 U per visit? What
would the demand in Hokkaido be if the price were lowered to 5 U per visit?

You continue your observations of the Japanese health care
system into the year 2000. For inscrutable reasons having to do with internal
Japanese politics, the government changed the price in both Tokyo and Hokkaido
that year, and you observe the demand recorded in Table 2.13.

(d) Calculate the price elasticity of demand for health care
in Japan using only data from the year 2000.

(e) Use data from both years to calculate the elasticity of
demand for health care for Tokyo and Hokkaido separately.

(f) Using your estimated elasticities, what would the demand
for health care in each prefecture be if the price were raised to 60U per visit
next year (for both prefectures)?

(g) Combine the Tokyo and Hokkaido estimates from exercise
11(e) to get a single estimate of the price elasticity of health care demand
for all of Japan. Assume that Tokyo is five times as populous as all of
Hokkaido.

12. Preventative care refers to care taken to prevent future
diseases rather than to treat current ones. Compared to emergency room care,
preventative care is rarely urgent, and benefits can be difficult to measure –
if you had the flu vaccine this year but did not catch the flu, it is
impossible to tell if it was the shot or assiduous hand washing that preserved
you.

(a) Given this
description of preventative care, would you expect preventative care to be more
or less price sensitive compared to inpatient care? Why?

(b) Table 2.14 shows
evidence on preventative care from the RAND HIE. Summarize the data in the
table and note any interesting patterns. Was your prediction correct?

13. In this exercise, assume that the term “admission” in
Table 2.15 refers to inpatient care, while “any use” refers to inpatient and
outpatient care. Table 2.15 contains a lot of information. Without looking at
any specific values, summarize what type of data the table contains. Give an
example of a broad question about income levels and demand for health care that
the table might have the potential to answer.

Essay Questions

14. Here is a selection from an abstract of a recent study
entitled “The Effect of Health Insurance Coverage on the Use of Medical
Services” by Michael Anderson, Carlos Dobkin, and Tal Gross:

Substantial uncertainty exists regarding the causal effect
of health insurance on the utilization of care. Most studies cannot determine
whether the large differences in healthcare utilization between the insured and
the uninsured are due to insurance status or to other unobserved differences
between the two groups. In this paper, we exploit a sharp change in insurance
coverage rates that results from young adults “aging out” of their parents
insurance plans to estimate the effect of insurance coverage on the utilization
of emergency department (ED) and inpatient services. [In the United States,
children are eligible for insurance coverage through their parents’ insurance
only up to their 23rd birthday, at which point they lose eligibility.] Using the
National Health Interview Survey (NHIS) and a census of emergency department
records and hospital discharge records from seven states, we find that aging
out results in an abrupt 5 to 8 percentage point reduction in the probability
of having health insurance. We find that not having insurance leads to a 40
percent reduction in ED visits and a 61 percent reduction in inpatient hospital
admissions.

(a) This study does not use randomization to assign people
to different insurance plans. What two groups are being compared in this study?

(b) Identify at least one important methodological
differences between the design of this study and the RAND HIE. Give a
hypothetical reason that this difference would bias the results.

(c) Are the findings
of this study generally consistent with the findings from the Oregon Medicaid
Experiment?