METHODICAL INSTRUCTION FOR STUDENTS OF THE
LESSON № _5_ (PRACTICAL – 6 HOURS)
Theme: 5. The Demand for Medical Care. Factors that Determine the Demand for Health Care. – 6 hours.
Aim: explores the demand side of the medical care market. Determine the theoretical derivation of the demand curve for medical services, economic and noneconomic variables that influence the demand for medical services, the impact of health insurance on the demand for medical services.
Professional orientation of students: Many people have the misconception that economic theory has little relevance to the demand for medical care because economic factors are not important when an individual needs urgent medical attention. Recall Joe in Topic 1, who awoke one night with a pain in his chest and realized he was having a heart attack. It is highly unlikely that he and his wife considered the price of medical care as Joe was rushed to the hospital.
However, most visits to a physician’s office and the majority of visits to a hospital emergency room are not of a life-threatening nature. Thus, for many medical care transactions, there is sufficient time to make conscious choices, and price often plays an important role in the determination of choices. Results of a survey of various types of health care providers and insurers substantiate the critical role price plays in determining the demand for medical care (Winslow, 1994). According to the survey, price was ranked as more important than patient satisfaction or access to doctors, among other factors, in determining the economic success of health care providers.
To derive the demand curve for medical care, we must first establish the relation between the quantity of medical services and utility. Recall from Topic 2 that the stock of health can be treated as a durable good that generates utility and is subject to the law of diminishing marginal utility. As a reminder, note that we continue to ignore the intermediate step between the stock of health, the services it provides, and utility. This means that each incremental improvement in health generates successively smaller additions to total utility. We also know that medical services are an input in the production of health because a person consumes medical care services for the express purpose of maintaining, restoring, or improving health. However, the law of diminishing marginal productivity causes the marginal improvement to health brought about by each additional unit of medical care consumed to decrease.
1. Individual Students Program.
Theme № 1 for the Practical Class on “The Demand for Medical Care. Factors that Determine the Demand for Health Care”
The Demand for Medical Care and the Law of Demand;
The Utility-Maximizing Rule;
The Law of Demand;
Other Economic Demand-Side Factors;
The Relationship between Health Insurance and the Demand for Medical Care;
Noneconomic Determinants of the Demand for Medical Care;
The Market Demand for Medical Care;
The Fuzzy Demand Curve;
Own-Price Elasticity of Demand;
Other Types of Elasticity;
Empirical Estimation;
Own-Price, Income, Cross-Price, and Time-Cost Elasticity Estimates;
The Impact of Insurance on the Demand for Medical Care;
The Impact of Noneconomic Factors on the Demand for Medical Services.
2. Test evaluation and situational tasks:
a) For the Practical Class on “The Demand for Medical Care. Factors that Determine the Demand for Health Care”
1. What demand under the price if the factor of elasticity is less than unit?
A. Demand is inelastic
B. Demand is elastic
C. Demand falls
D. Demand grows
E. Remains as it was
2. What is essence of registration function of the price?
A. Transforms into the monetary form the material goods and services
B. Beats off the goods or service cost price
C. Beats off consumer cost of the goods or service
D. Beats off real cost of the goods or service
E. Beats off profitable cost of the goods or service
3. What prices happen depending on the state regulation?
A. Regulated and free
B. Legal and illegal
C. Liberal and conservative
D. Fixed and floating
E. Real and nominal
4. What is demand price in public health services system?
A. It is a ceiling price on which patients agree to receive services
B. It is a floor price at which consumers still receive medical aid
C. It is a floor price at which medical workers receive medical aid
D. It is a ceiling price at which medical workers still receive medical aid
E. It is a floor price on which patients agree to receive services
5. Whether always in system of public health services the price is proportional to demand?
A. No
B. Yes
C. Such dependence is not present
D. It is unconditional communication
E. As well as everywhere
3. Correct answers of test evaluations and situational tasks for Practical Class on “The Demand for Medical Care. Factors that Determine the Demand for Health Care”:
4. References:
А – Basic:
1. Rexford E. Santerre, Stephen P. Neun. Health Economics: Theory, Insights, and Industry Studies, 5 editions. ‒ S-th-W-rn C-ge P-b, 2009.‒ ISBN: 0324789076. ‒ 624 p.
2. Philip A. Musgrove. Health Economics in Development. ‒W..d B-k P—ns< 2003. ‒ ISBN: 0821355708. ‒ 455 p.
3. A.J. Culyer, J.P. Newhouse. Handbook of Health Economics, Volume 1A. ‒Publisher: Nor the Holland, 2000. ‒ ISBN: 0444504702. ‒ 1000 p.
4. Rice, Jones. Applied Health Economics. ‒ Routledge, 2007. ‒ ISBN: 0415397715. ‒ 335 p.
5. Jordan Braverma. Health Economics. Pharmaceutical Press, 2009. ‒ ISBN: 0853698678. ‒ 359 p.
6. Peter Zweifel, Friedrich Breyer, Mathias Kifmann. Health Economics. ‒Springer, 2009. ‒ ISBN: 3540278044. ‒ 529 p.
7. Ceri J. Phillips. Health Economics: An Introduction for Health Professionals. ‒ Wiley-Blackwell, 2005-11-04.‒ ISBN:0727918494. ‒ 160 p.
В – Additional:
1. Anthony J. Culyer. The Dictionary of Health EconomicsPublisher. ‒EdwаrdElgаr Pub., 2005-09-05.‒ ISBN: 1843762080. ‒ 390 p.
2. Stefan Felder, Thomas Mayrhofer. Medical Decision Making: A Health Economic Primer. ‒Springer, 2011-07-25.‒ ISBN: 3642183298. ‒ 217 p.
3. David Hyman. Improving Healthcare: A Dose of Competition (Developments in Health Economics and Public Policy). Publisher: Springer, 2006. ‒ ISBN: 0387257519. ‒ 436 p.
4. Francesco Paolucci. Health Care Financing and Insurance: Options for Design (Developments in Health Economics and Public Policy). ‒ Publisher: Springer, 2010. ‒ ISBN: 3642107931. ‒ 115 p.
5. Barbara Mcpake. Health Economics: An International Perspective. ‒ Routledge, 2002. ‒ ISBN: 0415277361, 0415277353. ‒ 344 p.
6. Anthony Scott, Alan Maynard, Robert Elliott. Advances in Health Economics. ‒Wiley, 2003-01-17. ‒ ISBN: 0470848839. ‒ 274 p.
7. Dr. Ross M. Mullner. Encyclopedia of Health Services Research. ‒ English, 2009. ‒ ISBN: 1412951798. ‒ 1409 p.
5. Methodology of Practical Class. (900-1115)
Theme № 1 for Practical Class on “The Demand for Medical Care. Factors that Determine the Demand for Health Care”
Work 1.
Personal work: Time to fulfill task: 60 min
In your own words, use utility analysis and production theory to explain why the demand curve for medical care is downward sloping.
After reading the topic on demand theory, a classmate turns to you and says, “I’m rather confused. According to economic theory, people demand a good or service because it yields utility. This obviously does not apply to medical services. Just last week I went to the dentist and had a root canal, and you can’t tell me I received any utility or satisfaction from that!” Explain to your classmate how utility analysis can be used to explain why he went to the dentist.
Use a graph to illustrate how the following changes would affect the demand curve for inpatient services at a hospital in a large city.
A. Average real income in the community increases.
B. In an attempt to cut costs, the largest employer in the area increases the coinsurance rate for employee health care coverage from 10 percent to 20 percent.
C. The hospital relocates from the center of the city, where a majority of the people live, to a suburb.
D. A number of physicians in the area join together and open up a discount-price walk-in clinic; the price elasticity of demand between physician services and inpatient hospital services is -0.50.
Work 2.
In recent years, many elderly people have purchased Medigap insurance policies to cover a growing Medicare copayment. These policies cover some or all of the medical costs not covered by Medicare. Use economic theory to explain how the growth of these policies is likely to influence the demand for health care by elderly people.
If you are covered by a private or a public insurance plan, obtain a pamphlet outlining the benefits provided and the cost of the plan. Are there any copayments or deductibles? If so, use economic theory to explain how they may influence your demand for medical care.
In your own words, explain what a fuzzy demand curve is. Why does it exist? What are its implications?
In reaction to higher input costs, a physician decides to increase the average price of a visit by 5 percent. Will total revenues increase or decrease as a result of this action? Use the concept of price elasticity to substantiate your answer.
You have just been put in charge of estimating the demand for hospital services in a major
Define own-price elasticity of demand, and explain how it is related to the demand curve. Provide four reasons why the demand for medical services is likely to be inelastic with respect to its price.
You are employed as an economic consultant to the regional planning office of a large metropolitan area, and your task is to estimate the demand for hospital services in the area. Your estimates indicate that the own-price elasticity of demand equals -0.25, the income elasticity of demand equals 0.45, the cross-price elasticity of demand for hospital services with respect to the price of nursing home services equals -0.1, and the elasticity of travel time equals -0.37. Use this information to project the impact of the following changes on the demand for hospital services.
Average travel time to the hospital diminishes by 5 percent due to overall improvements in the public transportation system.
The price of nursing home care decreases by 10 percent.
Average real income decreases by 10 percent.
The hospital is forced to increase its price for services by 2 percent.
According to Whitney et al. (1997), the price of dental services “decreased by $4.86 per day wait for a new-patient appointment and by $5.20 per minute wait in the reception room” (p. 783). Based on these findings, what would happen to the position of the demand curve for dental services if patients had to wait even longer for an appointment with a dentist?
A study estimates the demand for over-the-counter cough and cold medicines to be:
Log Q = 0.885 – 0.744 log(P) – 0.50 log(INC) + 0.253 log(ADV) – 0.30 log(PHYSP)
(5.52) (4.92) (1.40) (6.64) (0.99)
Adj. R2 = 0.30 N = 243
where Q = Annual dosages demanded of cough and cold medicines P = Price per dosage of cough and cold medicines INC = Average income of buyers
ADV = Advertising expenditures on cough and cold medicines
PHYSP = Market price of a physician visit
t-statistics shown in parentheses below the estimated coefficient
All variables expressed in logarithms so the coefficient estimates can be interpreted as elasticities.
Which of the estimated coefficients have signs contrary to theoretical expectations? Explain. Be specific in your explanation.
Which coefficient estimates are statistically significant from zero at the 5 percent level or better? Explain.
What percentage of the variation in dosages demanded remains unexplained? Explain.
Suppose the price per dosage increased by 10 percent. By how much would dosages demanded change? Explain. Would total revenues to cold medicine producers increase or decrease? Explain.
6. Seminar discussion of theoretical issues. (1145-1315)
7. Student’s independent work (1315-1400).
8. Initial level of knowledge and skills. (1415-1500)
9. Students should know:
Theme № 1 for Practical Class on “The Demand for Medical Care. Factors that Determine the Demand for Health Care”
The theoretical derivation of the demand curve for medical services;
Economic and noneconomic variables that influence the demand for medical services;
The impact of health insurance on the demand for medical services;
The concept of elasticity of demand;
A review of the empirical literature concerning the factors that determine the demand for medical care;
An examination of health spending in the
A review of the sources and uses of health care funds in the
10. Students should be able to:
Theme № 1 for Practical Class on “The Demand for Medical Care. Factors that Determine the Demand for Health Care”
Determinate the demand for Medical Care;
Find The Market Demand for Medical Care;
To calculate and make analysis of Quantity demanded = f (out-of-pocket price, income, time costs, prices of substitutes and complements, tastes and preferences, profile, state of health, and quality of care;
Methodical instruction has been worked out by:
Senior teacher Fedchyshyn N.Ye.
Methodical instruction was discussed and adopted at the Department sitting
____on August, 27th___2012. Minute № _1__
Methodical instruction was adopted and reviewed at the Department sitting
__________201_ . Minute № ___
