Please answer to all the questions on the attachment

Health Production

Part 1 (6 pts.):

Health Production:

Non-Smoker Smoker

Units of Health Care (HC) Health (H) Marginal Product of Health Care Health (H) Marginal Product of Health Care

0 —– —–

1

2

3

4

5

6

7

8

9

10

11

Questions for Part 2:

1. Given the information in the table, is it possible for iatrogenesis (medically-induced illness) to occur?

If so, at what level of health care utilization do we begin to observe it for each group (non-smokers and smokers)?

2. Assume the marginal product of health care is measured in dollars.

If all individuals were charged $30 for every unit of health care, how many units of health care would be consumed by a member of each group?

3. Suppose there is an increase in the level of pollutants in the air.

How will that affect every individual’s–whether a non-smoker or smoker–initial level of health (i.e. when HC=0)?

How will that generally affect (i.e. for any quantity of health care consumed) the marginal product of health care?

Health Economics First Problem Set (There are 5 worksheets to this assignment)

Learning Objectives

Upon completion of this problem set, students performing up to expectaion will be able to analyze and calculate:

1. the economic relationship between health care and health

2. an individual or organization’s costs and benefits of a health care decision

3. the cost-effectiveness of a health care decision

4. moral hazard and deadweight loss under the traditional and Nyman perspective of health insurance.

Health Production

Non-Smoker 0 1 2 3 4 5 6 7 8 9 10 11 0 0 0 0 0 0 0 0 0 0 0 0 Smoker 0 1 2 3 4 5 6 7 8 9 10 11 0 0 0 0 0 0 0 0 0 0 0 0 Health Care

Health

Health Production

Suppose an individuals health (H) depends on: the individual’s basic health status (HO), the consumption of health care (HC), the consumption of cigarettes (S), and the concentration of pollutants in the air (P). The relationship between these four inputs and the individual’s health (H) can be expressed as:

H = HO 400*S P3 + [HC*(5*S + 12*P)] 3*[(HC/S)2] (NOTE: The last term in brackets is (HC/S) raised to the 2nd power.)

(Also note: Excel only allows parentheses, which means you’ll need to use parentheses where I have brackets above.)

Let: HO=900, P=2.5. Also, S=1 if an individual does not smoke (i.e. is a non-smoker)

S=2 if an individual is a smoker

Use this information in the problem, which consists of two parts:

Part 1: Enter a formula for Health (H) in the first cell of each column for a member of each group (non-smoker and smoker). Copy this formula for the remaining cells in each column (To copy, click and hold the small cross in lower right-hand corner of the cell you want to copy, then drag the cursor down the column).

(Note: A graph of the health production functions will appear in the chart to the right)

In the second row of each “Marginal Product of Health Care” column, calculate the marginal product of health care for each member. Copy this formula down each column.

Part 2: Answer the questions below the table.

Cost_Benefit Analysis

1. Enter a formula to calculate what the typical hospital would be willing to pay for a pressure-ulcer prevention program.

2. Should the typical hospital offer such a program to its nursing staff? Briefly explain.

Cost-Benefit Analysis: Education of Hospital Nurse Staff to Reduce Stage 3 and 4 Pressure Ulcers

Stage 3 and 4 pressure ulcers (i.e. severe bedsores) are serious adverse events that a patient in a hospital can experience if not properly monitored by nursing staff. It is estimated that, for a typical hospital, total cases of stage 3 and 4 pressure ulcers lead to about $1.2 million (i.e. $1,200,000) in annual excess costs, costs for which the hospital cannot be reimbursed by insurance. However, specific hospital-based education programs that teach nurses how to recognize and prevent pressure ulcers can reduce the excess costs by 18 percent (i.e. 0.18). The annual cost of conducting one of these programs–which would have to be offered each year by the hospital due to regular staff turnover–is $160,000.

Use the information above to answer the questions below.

Cost Eff. Analysis (I)

1. In the boxes below, for each type of intervention (“MAT Only” and “MAT + Cognitive”), calculate the number of life-years saved among the cohort in the study.

MAT Only:

MAT + Cognitive:

2. Suppose the weekly cost of medication-assisted treatment (MAT), without a cognitive intervention, is $40 for each patient, while the weekly cost of MAT combined with a cognitive approach is $300 for each patient.

In the boxes below, calculate the five-year cost of each type of intervention for the entire cohort of patients in the study.

(NOTE: There are 52 weeks in a year)

MAT Only:

MAT + Cognitive:

3. In the boxes below, calculate the incremental cost-effectiveness ratio (ICER) for each intervention, based on the following assumptions:

1. For “MAT Only,” the alternative intervention is to do nothing.

2. For “MAT + Cognitive,” the alternative intervention is “MAT Only.”

MAT Only:

MAT + Cognitive:

4. Which type of intervention (if either) would be considered cost effective, based on the standard criterion? Briefly explain.

Cost Effectiveness Analysis (I): Treatment for Opioid Use Disorder (OUD)

Opioid use disorder (OUD) has become a significant cause of morbidity and mortality in the U.S., with the cost of treating the disorder rising by more than eight-fold since 2004 (Kaiser Family Foundation, 2018). A recent study analyzed the cost effectiveness of various interventions to treat the disorder, including medication-assisted treatment (MAT) and cognitive approaches, such as patient education and psycotherapy. Over a five-year period, the study looked at a cohort of 100,000 patients, finding that MAT, alone, reduced the incidence of fatal overdoses by 6 percent (0.06), while a combination of MAT and a cognitive approach (“MAT + Cognitive”) reduced the incidence of fatal overdoses by 15 percent (i.e. 0.15).

NOTE: In answering the questions below, assume the average remaining life expectancy among the patients in the study (in the absence of OUD) is 30 years.

Cost Eff. Analysis (II)

1. If every infant were vaccinated against the pneumococcal infection, how many life-years would be saved among the cohort born in the same year?

NOTE: Enter a formula to calculate the life-years saved.

2. Assuming 99 percent of the cohort of births survives to age 3, if every 3-year-old child of that cohort were vaccinated against the pneumococcal infection,

how many life-years would be saved?

NOTE: Enter a formula to calculate the life-years saved.

3. Suppose, for infants, the cost of each administration of the pneumococcal conjugate vaccine is $50, while the cost of the single vaccine for 3-year-old children is $300.

In the boxes below, calculate the total cost of each type of vaccination for the cohort of children at each point in time (infancy and age 3).

Infancy:

Age 3:

4. In the boxes below, calculate the incremental cost-effectiveness ratio (ICER) for vaccinating the cohort of children at each point in time.

NOTE: In each case, assume the alternative is to do nothing.

Infancy:

Age 3:

5. Which administration of the pneumococcal conjugate vaccination (if either) would be considered cost effective, based on the standard criterion? Briefly explain.

Production Possibilities

0 0 Health Care Services

All Other Goods

Cost-Effectiveness (II): Pneumococcal Vaccine for Young Children

A medical study indicates that administering a routine vaccination of the pneumococcal conjugate vaccine, recently approved by the FDA, to a cohort of newborn infants could reduce the risk of death from pneumococcal infection by 6 for every 100,000 (i.e. 0.00006). To be effective, the vaccine has to be administered 4 times to each infant, at 2, 4, 6, and 12 months. Alternatively, giving only 1 dose of the vaccine to children age 3 could reduce the risk of death by 12 for every 100,000 (0.00012), due to the fact that children at this age are more at risk of acquiring the infection in day-care settings.

In answering the questions below, use the following information for a cohort of infants born in the same year (e.g. 2018):

Total number of cohort births: 3.99 million (i.e. 3,990,000)

Average life expectancy at birth: 78.5 years

Health Care Demand

Questions:

1. Without insurance, how many office visits will the individual make in one year?

NOTE: Enter a formula to calculate the number of visits, rounding your answer to the nearest whole number.

2. Suppose the individual has insurance and pays only a $40 copayment for each visit.

How many office visits will the individual make in one year?

NOTE: Again, enter a formula, rounding your answer to the nearest whole number.

3. What is the moral hazard and deadweight loss (DWL) associated with having insurance?

NOTE: Enter formulas in the respective boxes below.

Moral Hazard:

DWL:

4. Based on the Nyman model, suppose the value the individual places on each visit increases by $50 when the individual is ill and has insurance.

a. In the box below, write the general expression for the inverse demand equation, accounting for the increased value of insurance for the individual.

NOTE: If necessary, round terms in the equation to the nearest whole number (for instance, P = 174.6 – 12.45Q should be expressed as: P = 175 – 12Q).

b. What value of Q (i.e. number of visits) represents the dividing line between welfare-increasing and welfare-decreasing moral hazard?

Note: Enter a formula using the inverse equation above (4a.). Round answer to the nearest whole number.

c. From Nyman’s perspective, what is the welfare-increasing moral hazard, the welfare-decreasing moral hazard, and deadweight loss (DWL)

associated with having insurance?

Note: Enter formulas in the respective boxes below.

Welfare-increasing Moral Hazard:

Welfare-decreasing Moral Hazard:

DWL:

Health Care Demand

An individual’s demand for physician office visits in a given year is given by, Q = 11 – 0.045P, where Q is the number of office visits and P is the out-of-pocket price paid by the individual for each visit. Assume the market price of an office visit is $180.

Use this information to answer the questions below.

December 10, 2022

December 10, 2022