Assignment: HEALTH ECONOMICS

1. The Internet publishes many examples of health "report cards." For example, look at material on the website www.opa.ca.gov/Pages/Home.aspx, which was compiled by the State of California's Office of the Patient Advocate. To what extent do you think consumers can use this information to make effective choices regarding health plans, hospitals, and medical groups? What sorts of individuals will be the most likely to be successful at making these choices?

2. View the You Tube video Pareto Optimality and Pecan Pie. If various assumptions are met, market competition results in Pareto optimality. What are the advantages of an economy being in a Pareto optimal state? What shortcomings are there to the concept? Argue for or against the following statement: "If we can improve the health of a wealthy person while keeping a poor person's health the same, we should do so."

3. How is the concept of diminishing marginal utility relevant to healthcare? Demonstrate your point with an example.

4. Suppose a person is considering the purchase of a health insurance policy with a premium of $4,000 per year. For simplicity, assume that it covers all costs (i.e., there are no patient cost-sharing requirements). Further assume that he does not have any coverage options from his employer or spouse. After conducting some research, he finds that a person of his age and health status spends, on average, $3,500 on healthcare services. Explain why such a purchase might be economically rational. Can you think of an instance where it might not be rational for him to purchase the coverage?

5. Health savings accounts (HSAs) are often touted as a way in which health expenditures can be lowered. Suppose that an individual is given a $1,500 account and a health insurance plan with a $1,500 annual deductible, but that covers all expenses thereafter. The person can use the account toward meeting the deductible, and any money not spent is transferred into the person's account the following year. Advocates say that such a system would provide coverage for catastrophic losses but make people think twice before using services of marginal benefit. Critics believe that such a system would be harmful to those with chronic illnesses and would not save much money. Do you favor such a system over the status quo? Why?

6. It is sometimes contended that people are better off if they face more choices in the Marketplace. This issue has been raised in the context of the US Medicare program, where seniors often face 50 or more different health plan choices (in Medicare Advantage and Part D, combined). Provide and discuss two reasons why more choice might be advantageous to seniors and two reasons why it might be detrimental.