Health and Health Care Demand

The Determinants of Health

• Medical Care and Health

• Education and Health

• Income and Health

• Inequality and Health

• Lifestyle and Health

• Environment and Health

Grossman

Grossman Model

• Investment in health as a form of human capital the Grossman model

• Pure Consumption Model

Grossman Model

Age

Wage Effect

Education

Uncertainty

Practice

• What happens to MEI if someone gets goes to college? What happens to the optimal health stock H? And what happens to demand for health inputs?

• What does this mean for expanding health insurance to less educated?

Practice

• What happens to MEI if someone gets cancer? What happens to the optimal health stock H? And what happens to demand for health inputs?

• Using the Grossman Model what would you predict the differences would be between US citizens and A Citizen of Sub- Saharan Africa (Botswana, Lesotho, etc) in terms of their demand for HIV prevention?

The Consumption Model

• Pure Investment model vs. Pure consumption model

Grossman Model

• Additional factors that affect health in pure consumption model– Age– Wages– Education

Age

• Optimal Health stock demanded still falls with rise in d

• Demand for health care (investment in health) still rises with age.

Health and Wealth

Wage

Education

Research

• Studies using the Grossman model

• Critiques of the Model

All Death is Suicide

Since health capital is one component of human capital, a person inherits an initial stock of health that depreciates with age - at an increasing rate at least after some stage in the life cycle - and can be increased by investment. Death occurs when the stock falls below a certain level, and one of the novel features of the model is that individuals "choose" their length of life.

Consumer Utility Theory

• Utility maximization– Income as the Budget Constraint– Change in Relative Prices– Income and Substitution effects

Consumer Utility Theory

• Utility Maximization– Time as the Budget Constraint– The importance of Time– Labor Leisure trade-off

Practice

The Demand for Health Care

• Derived from Consumer Utility Maximization

• Price elasticity of demand for medical care– Insert tables on price elasticity

Elasticity

• Elasticity is a general concept that can be used to quantify the response in one variable when another variable changes.

e lastic ity o f A w ith resp ec t to BA

B

%

%

Price Elasticity of Demand

Margin

• Extensive versus Intensive.

• Prescription drugs– Getting prescriptions vs number of

prescriptions

Negative inputs into health production function

• Lifestyle

• Chemical dependency– Rational Addiction

Demand for Unhealthy Goods

• Chart on alcohol drugs, etc

• Rational Addiction– http://en.wikipedia.org/wiki/Rational_addiction

Time

• Time cost and time price elasticities.

Income Elasticity

• Is medical care normal or superior good? (luxury good?)

Finkelstein, A., Luttmer, E. F. P., & Notowidigdo, M. (2008). What Good Is Wealth Without Health? The Effect of Health on the Marginal Utility of Consumption.Unpublished manuscript.

http://youtu.be/D8VZqxcu0I0

Bayesian analysis of testing

Expenditures = Price X Quantity

Costs?

Not Likely.

Can we rein in the growth of health care expenditures?

Cancer

Heart Disease

Stroke

Car Accident

Diabetes

The Race to Death

Cancer

Heart Disease

Stroke

Car Accident

Diabetes

The Race to Death

X

Cancer

Heart Disease

Stroke

Car Accident

Diabetes

The Race to Death

X

~Robin Hanson

“Cut half of all medical spending”