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The Economics of Health and Health Care, Fifth Edition

by Sherman Folland - Professor of Economics, Oakland University; Allen C. Goodman - Professor of Economics, Wayne State University; Miron Stano - Professor of Economics and Management, Oakland University

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Copyright, iv
Preface, xxiii
Acknowledgments, xxv
I. Basic Economics Tools, 1
1. Introduction, 1
The Relevance of Health Economics, 1
Economic Methods and Examples of Analysis, 8
Does Economics Apply to Health and Health Care?, 10
Is Health Care Different?, 11
New Challenges to Health Economists—Managed Care, Health Care Costs, and Health Insurance, 14
Conclusions, 17
Summary, 17
Discussion Questions, 18
Exercises, 18
2. Microeconomic Tools for Health Economics, 20
Scarcity and the Production Possibilities Frontier, 21
Practice with Supply and Demand, 24
Functions and Curves, 27
Consumer Theory: Ideas Behind the Demand Curve, 29
Individual and Market Demands, 34
Elasticities, 35
Production and Market Supply, 36
The Firm Supply Curve Under Perfect Competition, 43
Monopoly and Other Market Structures, 45
Welfare Losses, 46
Conclusions, 48
Summary, 49
Discussion Questions, 49
Exercises, 50
3. Statistical Tools for Health Economics, 51
Hypothesis Testing, 52
Difference of Means, 53
Regression Analysis, 57
Multiple Regression Analysis, 61
Statistical Inference in the Sciences and Social Sciences, 64
Conclusions, 65
Summary, 65
Discussion Questions, 66
Exercises, 66
4. Economic Efficiency and Cost Benefit Analysis, 68
Economic Efficiency, 68
Cost-Benefit Analysis: Background, 71
Cost-Benefit Analysis: Basic Principles, 72
Cost-Effectiveness Analysis, 80
Cost-Utility Analysis, QALYs, and DALYs, 81
Is CUA Consistent with CBA?, 83
Extra-Welfarism, 83
The Ageism Critique of QALYs, 84
Conclusions, 84
Summary, 85
Discussion Questions, 86
Exercises, 86
Appendix, 88
II. Supply and Demand, 89
5. The Production of Health, 89
The Production Function of Health, 89
The Historical Role of Medicine and Health Care, 92
The Production of Health in the Modern Day, 99
The Role of Schooling, 106
Conclusions, 108
Summary, 109
Discussion Questions, 109
Exercises, 110
6. The Production, Cost, and Technology of Health Care, 111
Production and the Possibilities for Substitution, 112
Costs in Theory and Practice, 116
Technical and Allocative Inefficiency, 124
Technological Changes and Costs, 128
Diffusion of New Health Care Technologies, 132
Conclusions, 134
Summary, 134
Discussion Questions, 135
Exercises, 135
7. Demand for Health Capital, 137
The Demand for Health, 137
Labor-Leisure Trade-Offs, 139
The Investment/Consumption Aspects of Health, 141
Investment over Time, 143
The Demand for Health Capital, 144
Changes in Equilibrium: Age, Wage, Education, and Uncertainty, 145
Empirical Analyses Using Grossman’s Model, 148
Conclusions, 151
Summary, 151
Discussion Questions, 151
Exercises, 152
8. Demand and Supply of Health Insurance, 153
What Is Insurance?, 153
Risk and Insurance, 155
The Demand for Insurance, 158
The Supply of Insurance, 162
The Case of Moral Hazard, 164
Health Insurance and the Efficient Allocation of Resources, 168
Conclusions, 173
Summary, 173
Discussion Questions, 174
Exercises, 174
9. Consumer Choice and Demand, 176
Applying the Standard Budget Constraint Model, 176
Two Additional Demand Shifters—Time and Coinsurance, 181
Issues in Measuring Health Care Demand, 185
Empirical Measurements of Demand Elasticities, 188
Impacts of Insurance on Aggregate Expenditures, 193
Other Variables Affecting Demand, 193
Conclusions, 195
Summary, 196
Discussion Questions, 197
Exercises, 197
III. Information and Insurance Markets, 199
10. Asymmetric Information and Agency, 199
Overview of Information Issues, 200
Asymmetric Information, 200
Application of the Lemons Principle: Health Insurance, 204
The Agency Relationship, 206
Consumer Information, Prices, and Quality, 208
Conclusions, 211
Summary, 212
Discussion Questions, 213
Exercises, 213
11. The Organization of Health Insurance Markets, 215
Loading Costs and the Behavior of Insurance Firms, 215
Employer Provision of Health Insurance: Who Pays?, 218
Employer-Based Health Insurance and Labor Supply, 224
The Market for Insurance, 226
The Uninsured: An Analytical Framework, 229
Insurance, Technological Change, and Higher Costs, 234
Evidence on Insurance, Technological Change, and Inflation, 236
Conclusions, 237
Summary, 238
Discussion Questions, 238
Exercises, 239
12. Managed Care, 241
What Is the Organizational Structure?, 243
What Are the Economic Characteristics?, 243
The Emergence of Managed Care Plans, 245
Development and Growth of Managed Care: Why Did It Take So Long?, 249
Modeling Managed Care, 251
How Does Managed Care Differ?—Empirical Results, 256
Growth in Spending, 259
Competitive Effects, 262
Conclusions, 266
Summary, 267
Discussion Questions, 268
Exercises, 268
13. Nonprofit Firms, 270
An Introduction to Nonprofits, 270
Why Nonprofits Exist and Why They Are Prevalent in Health Care, 271
Models of Nonprofit Hospital Behavior, 278
The Relative Efficiency of Nonprofits Versus For-Profits, 288
Conclusions, 291
Summary, 292
Discussion Questions, 293
Exercises, 293
IV. Key Players in the Health Care Sector, 294
14. Hospitals and Long-Term Care, 294
Background and Overview of Hospitals, 294
Hospital Utilization and Costs, 298
Nursing Homes, 303
Hospice, Home Health, and Informal Care, 309
Conclusions, 310
Summary, 310
Discussion Questions, 311
Exercises, 311
15. The Physician’s Practice, 313
A Benchmark Model of the Physician’s Practice, 313
Supplier-Induced Demand (SID), 316
Small Area Variations (SAV), 321
Other Physician Issues and Policy Puzzles, 326
Conclusions, 328
Summary, 328
Discussion Questions, 329
Exercises, 330
16. Health Care Labor Markets and Professional Training, 331
The Demand for and Supply of Health Care Labor, 331
Factor Productivity and Substitution Among Factors, 336
Health Manpower Availability and the Meaning of Shortages, 338
Medical Education Issues and the Question of Control, 344
Licensure and Monopoly Rents, 349
Other Physician Labor Issues, 353
Conclusions, 354
Summary, 355
Discussion Questions, 355
Exercises, 356
17. The Pharmaceutical Industry, 358
Structure and Regulation, 360
The Production of Health and Substitutability, 363
Drug Pricing and Profits, 368
R&D and Innovation, 372
Cost Containment, 375
Conclusions, 379
Summary, 380
Discussion Questions, 380
Exercises, 381
V. Social Insurance, 383
18. Equity, Efficiency, and Need, 383
Efficiency and Competitive Markets, 384
Deviations from the Competitive Model in the Health Care Sector, 389
Promoting Competition in the Health Care Sector, 391
An Economic Efficiency Rationale for Health Care Programs Based on Externalities, 392
Need and Need-Based Distributions, 394
Horizontal Equity and Need, 399
Theories of Social Justice, 401
Conclusions, 404
Summary, 405
Discussion Questions, 405
Exercises, 406
19. Government Intervention in Health Care Markets, 407
Economic Rationale for Government Intervention, 407
Forms of Government Intervention, 412
Government Involvement in Health Care Markets, 415
Government Failure, 420
Competitive Strategies, 423
Conclusions, 428
Summary, 428
Discussion Questions, 429
Exercises, 429
20. Government Regulation: Principal Regulatory Mechanisms, 430
Do the Laws of Supply and Demand Apply?, 430
Objectives of Regulation, 431
Regulation of the Hospital Sector, 433
Prospective Payment, 438
The Theory of Yardstick Competition and DRGs, 440
Prospective Payment: Recent Evidence, 448
Regulation of Physician Payment, 449
Antitrust, 451
Conclusions, 457
Summary, 458
Discussion Questions, 458
Exercises, 459
21. Social Insurance, 461
Social Insurance Policies and Social Programs, 461
Historical Roots of Social Insurance, 463
Medicare and Medicaid in the United States, 465
Public Insurance and Health, 474
The Effects of Medicare and Medicaid, 477
Criticisms of the U.S. Health Care System, 486
Conclusions, 487
Summary, 488
Discussion Questions, 488
Exercises, 489
22. Comparative Health Care Systems and Health System Reform, 491
Contemporary Health Care Systems, 491
National Health Programs: United Kingdom and Germany, 492
The Canadian Health Care System, 502
Different Systems: The Public’s Evaluation, 508
Differences in Health Care Spending Across Countries, 510
National Health Insurance, 514
Ensuring Access to Care, 516
Conclusions, 521
Summary, 521
Discussion Questions, 522
Exercises, 523
VI. Special Topics, 525
23. The Health Economics of Bads, 525
An Introduction to Bads, 526
Models of Addiction, 527
Rationales for Public Intervention, 530
Advertising Restrictions on Cigarettes and Alcohol, 531
Excise Taxes and Consumption of Cigarettes and Alcohol, 535
Conclusions, 539
Summary, 539
Discussion Questions, 539
Exercises, 540
24. Epidemiology and Economics: HIV/AIDS in Africa, 541
Concepts from Epidemiology, 541
Economic Epidemiology, 543
Case Study: HIV/AIDS in Africa, 548
Conclusions, 555
Summary, 556
Discussion Questions, 556
Exercises, 556
Glossary, 557
References, 565
Name Index, I-1-1
Subject Index, I-2-1

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