Assignment 1: Applying Economic Concepts Relevant To Health Care Spending
This assignment will be submitted to Turnitin™.
Instructions
Course Objectives for Assignment:
· Explain how economic decisions are made and what economic concepts are used to evaluate economic trade-offs.
· Evaluate the economic impact of the major components of the healthcare system and assess their relative effect on health services management.
As you learned in Week 1, health care spending is growing faster than overall growth in the economy (as measured by GDP) and by 2026 is expected to consume 20 percent of GDP.
For this assignment use the course readings in Week 1 to answer the following questions:
1) Why do we care that health care spending is growing faster than growth in the overall economy as measured by GDP? Support your conclusions with evidence.
2) What are the unique characteristics of health care sector that creates inefficiencies in the market? What kind of inefficiencies? Why?
3) In general, what two metrics would you use to evaluate trade-offs of spending more on health care vs. other non-health care goods? Why?
4) From a government (policymakers) perspective, apply these two metrics to the current excessive health care spending and explain your conclusions.
This report should be at least five double-spaced pages, include a reference page, and cover page. In writing, your report you should rely largely on reference material in the course readings and summary slides in Week 1.EXTRA READING RESOURCES FOR ASSIGNMENT 1
·
CMS Website: National Health Expenditures (NHE) Landing Page
·
CMS Website: NHE Projections Landing Page
·
Interactive Tool KFF Website: National Health Spending Explorer Landing Page
·
PDF- CMS Publication NHE 2020 Highlights PDF
·
National Library of Medicine Website: Key General Economics Concepts Landing Page
·
PDF- The Hamilton Project – March 2020 Publication: A Dozen Facts about the Economics of the U.S. Healthcare System PDF
·
Economics Theory through Applications – Supplemental Reading: A Helpful Course Resource
·
HMGT 435 Week 1 Summary_RevisedSummer2022_ PPT.pptx1/5/23, 3:20 PM Assignment 1: Applying Economic Concepts Relevant To Health Care Spending – HMGT 435 6380 Healthcare Economics (2232) – …
https://learn.umgc.edu/d2l/lms/dropbox/user/folder_submit_files.d2l?db=1465521&grpid=0&isprv=0&bp=0&ou=742132 1/4
Assignment rubric 2185 start
Course: HMGT 435 6380 Healthcare Economics (2232)
Cri
ter
ia
Outstanding 90-
100%
Superior 80-89% Good 70-79%
Below Standard 60-
69%
Failure 0-59%
Criterion
Score
C
ri
ti
c
al
T
hi
n
ki
n
g
/
R
e
a
s
o
ni
n
g
3
5
%
/ 52.552.5 points
Student
demonstrates a
high degree of
critical thinking, is
consistent in
accurately
interpreting
questions &
material; provides
solid
assumptions,
reasoning &
claims; provides
thorough analysis
& evaluation with
sound
conclusions
46.725 points
Student shows
good critical
thinking;
accurately
interprets most
questions &
material; usually
identifies
relevant
arguments/reaso
ning/claims;
offers good
analysis &
evaluation with
fairly sound
conclusions
41.475 points
Student shows
occasional critical
thinking;
questions &
material are
accurately
interpreted ay
times;
arguments/reaso
ning/claims are
explained
occasinally;
offers fair
analysis &
evaluation with a
conclusion
31.5 points
Student shows
little critical
thinking,
misinterprets
questions or
material; ignores
or superficially
evaluates;
justifies little and
explains
reasoning seldom;
draws
unwarranted
conclusions
7.35 points
Student lacks
critical thinking,
consistently
offers biased
interpretations;
ignores or
superficially
evaluates; argues
using poor
reasoning, and/or
unwarranted
claims
1/5/23, 3:20 PM Assignment 1: Applying Economic Concepts Relevant To Health Care Spending – HMGT 435 6380 Healthcare Economics (2232) – …
https://learn.umgc.edu/d2l/lms/dropbox/user/folder_submit_files.d2l?db=1465521&grpid=0&isprv=0&bp=0&ou=742132 2/4
Cri
ter
ia
Outstanding 90-
100%
Superior 80-89% Good 70-79%
Below Standard 60-
69%
Failure 0-59%
Criterion
Score
A
p
pl
ic
a
ti
o
n
o
f
C
o
n
c
e
p
ts
/
A
r
g
u
m
e
n
t
D
e
v
el
o
p
m
e
n
t
3
5
%
/ 52.552.5 points
Student’s
arguments or
positions are
well-supported
with evidence
from the
readings/experien
ce; ideas go
beyond the
course material
and recognize
implications and
extensions of the
material and
concepts to the
real life and
industry.
46.725 points
Student’s
arguments or
positions are
mostly supported
by evidence from
the readings and
course content;
ideas presented
demonstrate
student’s
understanding of
the material and
concepts and
may relate to the
real life and
industry
occasionally
41.475 points
Student’s
arguments are
more often based
on opinion or
unclear views
than on position
grounded in the
readings of
material or
external sources
of material
31.5 points
Student’s
arguments are
frequently
illogical and
unsubstantiated;
studCHAPTER
19
HOW MUCH SHOULD WE SPEND ON
MEDICAL CARE?
The United States spends more on medical care than any other coun-
try—17.9 percent of its gross domestic product in 2016—and this per-
centage is expected to continue to grow. Can we afford to spend this
much of our resources on medical care? Why do we view the growth of expen-
ditures in other areas (e.g., the automotive industry) more favorably than the
growth of expenditures in healthcare? Increased medical expenditures create
new healthcare jobs, do not pollute the air, save rather than destroy lives, and
alleviate pain and suffering. Why shouldn’t society be pleased that more
resources are flowing into a sector that cares for the aged, the poor, and the
sick? Medical care would seem to be a more appropriate use of a society’s
resources than cars, electronics, or other consumer products, yet increased
expenditures on these goods do not prompt the concern that growth in health-
care spending causes.
Are we concerned about rising medical costs because we believe we are
not receiving value for our money—that more medical services and technolo-
gies are not worth the cost when compared with other potential uses of those
resources? Or is there a fundamental difference of opinion among members
of society regarding the rate at which medical expenditures should increase?
To answer these questions, we must define what we consider an appro-
priate expenditure; only then can we evaluate whether we are spending too
much on medical care. If we determine that we are spending too much, how
must public policy change to achieve the right expenditure level?
Consumer Sovereignty
The appropriate amount of health expenditure is based on a set of values and the
concept of economic efficiency. Resources are limited, so they should be used
for what consumers believe to deliver the most value. Consumers decide how
much to purchase on the basis of their perceptions of the value they expect to
receive and the price they have to pay, knowing that buying one good or service
means forgoing other goods and services. Consumers differ greatly in the value
they place on medical care and what they are willing to forgo to receive that care.
In a competitive market, consumers receive the full benefits of their purchases
2
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EBSCO Publishing : eBook Collection (EBSCOhost) – printed on 1/5/2023 8:32 AM via UNIVERSITY OF MARYLAND GLOBAL CAMPUS
AN: 1907359 ; Paul Feldstein.; Health Policy Issues: An Economic Perspective, Seventh Edition
Account: s4264928.main.eds
Health Pol icy Issues: An EcoCHAPTER
1
WHY HEALTH ECONOMICS?
Learning Objectives
After reading this chapter, students will be able to
• describe the value of economics for managers,
• identify major challenges for healthcare managers,
• find current information about health outcomes, and
• distinguish between positive and normative economics.
Key Concepts
• Economics helps managers focus on key issues.
• Economics helps managers understand goal-oriented decision making.
• Economics helps managers understand strategic decision making.
• Economics gives managers a framework for understanding costs.
• Economics gives managers a framework for understanding market
demand.
• Economics gives managers a framework for assessing profitability.
• Economics helps managers understand risk and uncertainty.
• Economics helps managers understand insurance.
• Economics helps managers understand information asymmetries.
• Economics helps managers deal with rapid change.
1.1 Why Health Economics?
Why should working healthcare managers study economics? This simple
question is really two questions. Why is economics valuable for managers?
What special challenges do healthcare managers face? These questions moti-
vate this book.
Why is economics valuable for managers? There are six reasons. We
will briefly touch on each of them to highlight the themes we will develop
in later chapters.
1
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EBSCO Publishing : eBook Collection (EBSCOhost) – printed on 1/5/2023 8:29 AM via UNIVERSITY OF MARYLAND GLOBAL CAMPUS
AN: 2144510 ; Robert Lee.; Economics for Healthcare Managers, Fourth Edition
Account: s4264928.main.eds
Economics for Healthcare Managers2
1. Economics helps managers focus on key issues. Economics helps
managers wade through the deluge of information they confront and
identify the data they need.
2. Economics outlines strategies for realizing goals given the available
resources. A primary task of economics is to explore carefully the
implications of rational decision making.
3. Economics gives managers ground rules for strategic decision making.
When rivals are not only competing against them but watching what
they do, managers must be prepared to think strategically.
4. Economics gives managers a framework for making sense of costs.
Managers need to understand costs because good decisions are unlikely
to be made without this understanding.
5. Economics gives managers a framework for thinking about value.
The benefits of the goods and services that successful organizations
provide to customers exceed the costs of producing thoCHAPTER
17
2AN OVERVIEW OF THE US HEALTHCARE
SYSTEM
Learning Objectives
After reading this chapter, students will be able to
• apply marginal analysis to a simple economic problem,
• articulate the input and output views of healthcare products,
• find current national and international information about healthcare,
• compare the US healthcare system to those in other countries, and
• identify major trends in healthcare.
Key Concepts
• Healthcare products are inputs into health.
• Healthcare products are also outputs of the healthcare sector.
• The usefulness of healthcare products varies widely.
• Marginal analysis helps managers focus on the right questions.
• Life expectancies have increased sharply in the United States in recent
years.
• Other wealthy countries have seen larger health gains with smaller cost
increases.
• The healthcare sector is changing radically in response to technology
and policy changes.
2.1 Input and Output Views of Healthcare
This chapter describes the healthcare system of the United States from an
economic point of view and introduces tools of economic analysis. It looks at
the system from two perspectives. The first perspective, called the input view,
emphasizes healthcare’s contribution to the public’s well-being. The second
perspective, called the output view, emphasizes the goods and services the
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EBSCO Publishing : eBook Collection (EBSCOhost) – printed on 1/5/2023 8:30 AM via UNIVERSITY OF MARYLAND GLOBAL CAMPUS
AN: 2144510 ; Robert Lee.; Economics for Healthcare Managers, Fourth Edition
Account: s4264928.main.eds
Economics for Healthcare Managers18
healthcare sector produces. In the language of economics, an input is a good
or service used in the production of another good or service, and an output
is the good or service that emerges from a production process. Products
(goods and services are considered products) are commonly both inputs and
outputs. For example, a surgical tool is an input into a surgery and an output
of a surgical tool company. Similarly, the surgery itself can be considered an
output of the surgical team or an input into the health of the patient.
2.1.1 The Input View
The input view of the healthcare system stresses the usefulness of healthcare
products. From this perspective, healthcare products are neither good nor
bad; they are simply tools used to improve and maintain health. The input
view is important because it focuses our attention on alternative ways of
achieving our goals, and healthcare products are only one CHAPTER
55
4DESCRIBING, EVALUATING, AND
MANAGING RISK
Learning Objectives
After reading this chapter, students will be able to
• describe the key features of a risky choice,
• construct and use a decision tree to frame a choice,
• calculate an expected value and standard deviation, and
• discuss common approaches to managing risk.
Key Concepts
• Clinical and managerial decisions typically entail uncertainty about what
will happen.
• Decision makers often have imprecise estimates of the probabilities of
various outcomes.
• Decision makers must describe, evaluate, and manage risk.
• Risk sharing and diversification are two ways to manage risk.
4.1 Introduction
Clinical and managerial decisions typically entail risk. Important information
is often incomplete or missing when the time to make a decision arrives. At
best, managers know the potential outcomes and the probability that each
will occur. At worst, managers have little or no information about outcomes
and their probabilities. Either way, managers must identify risks that are
worth analyzing, risks that are worth taking, and the best strategies for deal-
ing with them.
When outcomes are uncertain, decision making has three compo-
nents: describing, evaluating, and managing potential outcomes. Because
uncertainty is central to many areas of healthcare, the same techniques (e.g.,
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EBSCO Publishing : eBook Collection (EBSCOhost) – printed on 1/5/2023 8:31 AM via UNIVERSITY OF MARYLAND GLOBAL CAMPUS
AN: 2144510 ; Robert Lee.; Economics for Healthcare Managers, Fourth Edition
Account: s4264928.main.eds
Economics for Healthcare Managers56
hedging bets, monitoring uncertain situations aggressively) are recom-
mended for describing and evaluating potential outcomes regarding real
investments (e.g., buildings, equipment, training), financial investments
(e.g., stocks, bonds, insurance), and clinical decisions (e.g., testing, therapy).
4.2 Describing Potential Outcomes
The first step in any decision is to describe what could happen, including the
probabilities and value of possible outcomes, and calculate descriptive statis-
tics about the possible outcomes.
Description begins with an assessment of the probabilities of the pos-
sible outcomes. Ideally, the assessment should generate an objective prob-
ability—an estimate based on evidence about the frequencies of different
outcomes. For example, if 250 out of 1,000 patients reported nausea after
taking a medication, a good estimate of the probability of nausea would be
0.25 (250 dCHAPTER
1
THE RISE OF MEDICAL EXPENDITURES
The rapid growth of medical expenditures since 1965 is as familiar as the
increasing percentage of US gross domestic product (GDP) devoted to
medical care. Less known are the reasons for this continual increase. The
purpose of this introductory chapter is threefold: (1) to provide a historical
perspective on the medical sector; (2) to explain the rise of medical expenditures
in an economic context; and (3) to set forth criteria for evaluating the Patient
Protection and Affordable Care Act (ACA), which has been the most significant
healthcare legislation since Medicare and Medicaid.
Before Medicare and Medicaid
Until 1965, spending in the medical sector was predominantly private—80
percent of all expenditures were paid by individuals out of pocket or by private
health insurance on their behalf. The remaining expenditures (20 percent) were
paid by the federal government (8 percent) and the states (12 percent) (see
exhibit 1.1). Personal medical expenditures totaled $35 billion and accounted
for approximately 6 percent of GDP—that is, six cents of every dollar spent
went to medical services.
1
EXHIBIT 1.1
Personal Health
Expenditures
by Source of
Funds, 1965
and 2016
1965 2016
Source of Funds $ (Billions) % $ (Billions) %
Total 34.7 100.0 2,834.0 100.0
Private 27.6 79.5 1,479.5 52.2
Out-of-pocket 18.2 52.4 352.5 12.4
Insurance benefits 8.7 25.1 993.8 35.1
All other 0.7 2.0 133.2 4.7
Public 7.1 20.5 1,354.5 47.8
Federal 2.8 8.1 1,093.8 38.6
State and local 4.3 12.4 260.7 9.2
Source: Data from Centers for Medicare & Medicaid Services (2017b).
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EBSCO Publishing : eBook Collection (EBSCOhost) – printed on 1/5/2023 8:31 AM via UNIVERSITY OF MARYLAND GLOBAL CAMPUS
AN: 1907359 ; Paul Feldstein.; Health Policy Issues: An Economic Perspective, Seventh Edition
Account: s4264928.main.eds
Health Pol icy Issues: An Economic Perspect ive2
Two important trends are the increasing role of government in financing
medical services and the declining portion of expenditures paid out of pocket
by the public. As shown in exhibit 1.1, the government paid 47.8 percent of
total medical expenditures in 2016; the federal share was 38.6 percent and the
states contributed 9.2 percent. Meanwhile, the private share dropped to 52.2
percent (from 79.5 percent in 1965); of that amount, 12.4 percent was paid
out of pocket (from 52.4 percent in 1965).
The Greater Role of Government in Healthcare
Medicare and Medicaid were enacted in 1965, dramatically expanding the
role of government
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