Chapter 10: Life, Health, and Health Care - PowerPoint Presentation

Slide1

Chapter 10: Life, Health, and Health Care

“The Answer to the Great Question of Life, the Universe and Everything...Is... Forty-two, said Deep Thought with infinite majesty and calm.

..

I think the problem, to be honest with you, is that you’ve never actually known what the question is.”

Douglas Adams

Some Questions about the Value of LifeIs Life Priceless, or Just Highly Valuable?

If your life was worth infinity, would you be in class today?

What we mean by LIFE?

What do we mean by the VALUE of Life? Market Value?

WHOSE value of life?

Methods of Estimating the Value of LifeDiscounted Future EarningsRequired Compensation via Wage-risk studies

estimate the relationship between added risk of death and (higher) earnings holding all other influences on wages constant.

Divide the added earnings per unit of added risk by the added risk.

The answer is the estimated value of life.

Formula: Value of a Statistical Life = ∆income (all else equal) /∆ death risk

A Value of Life ExampleIf an average worker earns $3,000 more for each .001 increase in risk, her value of life would be $3,000/.001, or $3 million.

More ExamplesIf Evil requires $200 to face an additional 1/1000 risk of death, his implicit value of life would be $200/.001, or $200,000. If Ernie required $2,000 to face the same additional .001 risk of death, his value of life would be $2,000/.001, or $2,000,000 dollars.

Your Turn 10-2:

You have a choice of two jobs, extreme skier (a very dangerous but thrilling occupation) or instructor for beginning skiers. How much EXTRA money would you require in order to take the extreme skiing job? If the risk of death for the instructor is zero per year and the risk of and the extreme job has a death risk of .002 per year, what is your value of life?

Case Study: Child Safety Seats in AutosYour Turn 10-3: Assume

that

18.3 million young children ride in cars.

Child safety seat use rose by about 60 percent after the car seat requirements were passed. If

about 3/4 of the 60 percentage point increase in seat use was due to new child car seat laws, about how many children were riding in car seats because of these laws?

If 161 lives were saved by the law, what is the change in the risk of death due to these laws?

What are the total benefits of the law if the value of a child’s life is assumed to equal $5,000,000?

If car seats cost $30 per child in those days, what is the total cost of the law? (Hint: every child using a seat because of the law pays this cost)

Another Case Study: Child Safety Seats in Airplanes

YOUR TURN 10-5:

Safety Seats in Airlines.

Assume that there are 5 to 10 thousand young children flying per day. If

the average airline ticket for each infant cost $200, how much in total would families have to pay in order to buy an extra seat for all infants in a given year? (Hint,

find

the total number of infants flying per

year from this range of daily flights.)

Given the total added cost for families, how much would U.S. families have to pay per life saved if 3/5 of a life is saved each year? Is this figure reasonably close to the estimated value of a statistical life? Since the average family is now free to choose to buy an airline seat for their infant (the primary effect of this tragedy), will they do so?

Try to explain how this regulation might have actually caused the total number of infants dying in travel related accidents (not just airlines) to rise

slightly.

Quality-Adjusted Life Years (QALY)The basic principle of quality adjusted

life years is that a year spent in perfect health is more valuable to the average person than a year spent in some state of ill health.

In the QALY model the quality of life is measured by establishing a set of health categories, such as perfect health, relatively good health, relatively poor health, bedridden, or persistent vegetative state.

The

weights assigned to perfect health and other categories are determined through various survey and experimental techniques

.

Example:

The “time

tradeoff”

experiment could ask “

Would you prefer to live 5 years in perfect health or Y (10, 15, etc.) years in a bedridden state

? If the answer is 15 years 5/15 would become the weight for a year spent bedridden.

Your Turn 10-7: a QALY questionAssume that there are two health categories, (1) perfect health/active lifestyle and (2) healthy but inactive.

If

you had a choice of 30 more years of perfect health, what is the minimum number of remaining years you would accept in the healthy but inactive category?

If

the weight assigned to a year in perfect health is 30/30 or 1, what is the weight you would assign to the inactive category based on your first answer?

U.S. Health Care Costs

Health and Health CareGood health and long average lifespans are produced by a set of factors including nutrition, physical activity, environment, human biology, and health care

.

McKeown

(1976) and

Fogel

(2004)

argue that the

reduction in infectious diseases occurred before the development of effective vaccines, but after the improved nutrition that followed the first agricultural and industrial revolutions.

Cutler and Miller argue that the

decline in mortality from disease

is correlated

strongly with the development of water filtration and modern sewage systems (Cutler and Miller, 2005).

Neither

position suggests a significant role for doctors, hospitals, or medical technology in the reduction in

premature mortality.

Methods of Physician PaymentFee for

Service:

A

predetermined amount is paid for each appointment, test, or procedure performed by the doctor.

Episode of Care

Payment

(also known as a case rate) pays a single amount for all of the services needed by a patient during a given illness or injury.

Capitation

, or annual payment per patient, pays the doctor a set amount per year

whether

or not the person requires active care during that year.

Pay for Performance (P4P):

Pay for performance typically involves bonuses paid to health care providers who meet pre-determined standards for quality or cost of care.

Market Failure in Health CareH

ealth

care as practiced in the U.S. creates significant financial

externalities because

the uninsured receive some free care in hospital emergency rooms as well as local

clinics.

A more universal externality associated with health care is the potential effect of infectious

disease. Proper health care can reduce this externality, but hospitals sometimes harbor disease.

Unequal information is a universally present externality. As

highly trained professionals, doctors tend to have access to far more information than any other participant in the health care process.

The U.S. Health Care System

Insurance CoverageAs

of 2012 forty-eight percent of all Americans were covered under an employer-sponsored insurance plan. Five percent were covered by individually purchased insurance. Among publicly funded programs, Medicare and Medicaid covered fourteen percent and sixteen percent of the population,

respectively. About 15% were uninsured.

Medicare

is a federally funded program that provides health insurance for the elderly (over age 65) and some non-elderly with disabilities

.

Medicaid

,

for qualified low income households, is

jointly funded by the federal government and the

states. Qualifications differ widely across states.

Trend in U.S. Health Care Spending

Sources of U.S. Health Care Spending

Third Party Payment Effects: Market and Individual Note that with full payment by third parties such as insurance companies consumers will act as though the price is zero.

Cost Sharing: Demand Side Cost Containment

Consumers might share the cost of care through co-payments, annual premiums, and/or annual deductibles.

In Figure 10-5 first compare the full price and free coverage options. All other choices involve some type of cost sharing between the patient and the insurance company and all reduce the quantity of doctor visits below free coverage.

Supply Side Price Containment: Managed Care Organizations Over Time

The Affordable Care Act

In 2009, President Obama signed the

Patient Protection and Affordable Care Act

(ACA, also known as Obamacare). The

ACA

had three major objectives: expanding insurance coverage, containing the growth in health care spending, and

improving

the quality of care.

The

law establishes

state level insurance exchanges

through which individuals can purchase health insurance.

The

law also contained

mandates

(required insurance purchase) for both individuals and employers

.

Subsidies

are provided for

low to moderate income households and

Medicaid

coverage

is expanded

to

all households with incomes below the poverty

level

in states that agree to do so.

Political ideology strongly affects views on the act, so evidence from non-political research institutes such as the Kaiser Family Foundation is recommended.

ConclusionRational analysis of the value of life is potentially useful in weighing the costs and benefits of safety regulations, pollution policies, nuclear waste storage, or many other issues.

Health analysis measures such as Quality Adjusted Life Years are commonly used to assess the cost-effectiveness of medical procedures and the costs of diseases or unhealthy activities.

This chapter also discussed

U.S. health

care, with an emphasis on

health care costs in the

U.S. and its recent health care reform.