ECO 380A Health Care Economics 
Spring 2014
Dr. Robert Jantzen
Economics Department


Where and When
Course Description
Course Objectives
Course Requirements
   Course Outline
Term Project
Contact Information
College Policy for All Courses

Where and When

In the Spring of 2014, this course meets at 11 a.m.. on Mondays & Wednesdays in Amend 107.  Classes begin 1/22/14.

Course Description

This course will apply economic analysis to the health care sector.  Burgeoning expenditures and the rapidly changing regulatory environment, emphasizing cost containment and competition, have made economic analysis particularly relevant for the study of health care issues.  Prerequisite: ECO 201. 3 credits. 

Course Objectives

After taking this course students will be able to apply economic analysis to health issues, understand the US health delivery system, analyze the dynamic changes that are occurring, and evaluate policy reform options.  Students will learn to utilize a variety of "tools" including demand analysis, economic cost accounting, cost-benefit analysis, optimal pricing and production, and market simulation. 


Paul J. Feldstein, Health Policy Issues: an Economic Perspective, 5th Edition (ISBN: 978-1-56793-418-2).  Additional web-based and xeroxed readings will also be assigned to the class at appropriate times.

Note:  the text is available directly from the publisher's website (for about $100) @

It is also available from as a rental for about $28.

Course Requirements and Grading

 Student grades in this course will reflect assessment in the following areas:

  Exam # 1           (relative weight = .3)
  Exam # 2            (relative weight = .3)
  Final Exam         (relative weight = .3)
  Term Project      (relative weight = .3)

    The final course grade will be computed by taking the weighted average of the best 3 of the above 4 grades.   Make-up exams will be available only to those students who have notified the instructor (either by email or a phone call to 637-2731) prior to the scheduled exam date.

    Academic dishonesty will be penalized heavily.  Plagiarism (the copying of text from other sources without the use of quotation marks) and/or cheating will result in a grade of F for the paper/exam involved.   In addition, students having excessive absences (4 or more) may receive the grade of FA (failed for absence).

Term Project:

     Term projects are due on the last day of class and must be submitted via email as a single file in either Word or PDF format.  The following represent the minimum requirements for a term paper:

     1.  An original, well-researched, and cogent discussion of a topic relevant to health economics.

     2.  Construction:

     a. About 8-10 typed pages of double-spaced text, written in your own words.

     b.  At least 10 cited (i.e., footnoted) reference sources, of recent vintage wherever applicable.  The citations must include author, title, source, date and page.  NOTE:  This is a minimum requirement, not a maximum.  Also, 10 footnotes from 3 books/articles does not meet the requirement.  At least 10 different books/articles must be cited.

    c.  Footnotes/endnotes at appropriate places, i.e., wherever the text refers to material not authored by the student or existing in common knowledge.  A bibliography is not necessary if complete footnotes/endnotes are used.  The copying of text from other sources, if not placed in quotes, will be considered plagiarism.

    d.  No typographical, spelling or sentence structure errors.  This requirement might seem picayune, but the consequences of such errors in this course are slight compared to those out in the "real" world (i.e., lost job or promotion).

    3.  The instructor is potentially a useful source for reference materials, suggestions, and other assistance.  Feel free to utilize him.

Contact Information

Instructor:                  Robert Jantzen, Ph.D.
Office Location:          Economics Department, Spellman Hall, 2nd floor
Voice:                        (914) 637-2731
Fax:                           (914) 633-2511
Office Hours:              M and W 1:30 - 2:30 p.m., by appointment.


Course Outline (approximate)

Chapters 1 and 2 (ch01.pptx & ch02.pptx )
The Production of Better Health
Chapter 3b  (chapter 3b.ppt )
Economic Evaluation of Health Care
Chapter 3 (chapter 3.pptx)
2/3 & 2/10
Health Care Demand
Chapters 4 and 5 (ch04.pptx & ch05.pptx )
2/18 & 2/24
Private Health Insurance
Chapters 67 & 19 (ch06.pptx, ch07.pptx & ch19.pptx )
Exam # 1
Medicare & Medicaid
 Chapters 8 and 9 (ch08.pptx & ch09.pptx)
Chapters 11, 13 & 23  (ch11.pptxch13.pptx & ch23.pptx)
Chapters 14 - 17  (ch14.pptx, ch15.pptx , ch16.pptx & ch17.pptx)
Health Care and Economic Efficiency
Chapters 18 - 22  (ch18.pptx, , ch20.pptx , ch21.pptx & ch22.pptx)
Exam # 2
Chapters 25, 26, 27 & 28  (ch25.pptx, ch26.pptx , ch27.pptx   & ch28.pptx)
4/29 & 5/5
Economics & Politics of Government Policy
Chapters 29, 30 - 34 & 36  (ch29.pptx, ch30.pptx , ch31.pptx , ch32.pptx & ch33.pptx, ch34.pptx   & ch36.pptx)
5/5Affordable Care ActAffordable Care Act
5/5Health Care in Other CountriesWorld Health Plans
Exam # 3

Review Questions

1.   What are some of the reasons for the increased demand for medical services since 1965? 

2.   How did insurance rules promote inefficiency in medical services? When did the provision of medical services becomes much more efficient?  Why so?

3.   How does a competitive market efficiently determine the types of goods and services to be produced, how much it costs to produce those goods, and who receives them? 

4.  Does health care function like an efficient competitive market?  Why or why not?

5.  Why are employers and the governemtn concerned about medical care efficiency?

6.   Health production studies analyze the impact of various activities on an individual’s or society’s health.
      A.  How how such studies conducted? 
      B.  What do such studies suggest are the most important factors that influence the health of children, the nonelderly and the elderly?  Is expanding medical care the best way to improve health?

7.    a.  Describe Cost-of-Illness Analysis.  What questions does it provide answers for?  What kinds of information do you need to conduct such an analysis?  Give an example. 
       b.  Describe Cost-Minimization Analysis.  What questions does it provide answers for? What kinds of information do you need to conduct such an analysis? Give an example. 
      c.  Describe Cost-Benefit Analysis.  What questions does it provide answers for?  What kinds of information do you need to conduct a cost/benefit study?  What are the likely problems that may be encountered?   Give an example. 
      d.  Why is the question "what is a life worth" a key question in Cost-Benefit analysis?  How does one estimate the value of a life?  Discuss.
       e.  Environmental factors are important determinants of public health.  Explain how cost-benefit analysis could be used to find the optimal level of air pollution, if the objective is to reduce loss of life due to air pollution.  What kinds of information would the study need.  What problems might your study encounter? 
       f.  Describe Cost-Effectiveness Analysis.  What questions does it provide answers for?  What kinds of information do you need to conduct such an analysis?   Give an example. 
      g.  What is Cost-Utility Analysis?  Why is it important to adjust for quality of well-being differences after medical treatments?  Describe how such adjustments are made with examples. 
      h.  Explain how cost-effectiveness (or cost-utility) analysis could be used to assess whether or not routine mammograms should be provided to women between the ages of 40 and 50, assuming that the expected benefit is a reduction in the mortality rate of women.  What problems might your study encounter? 
      i.  What's the key difference between cost-effectiveness (or cost-utility) analysis and cost-benefit analysis?  Is one easier to apply than the other?  Is one superior to the other?  How so?

8.  Assume that most health production function studies estimate the following elasticities: 

       i.  the elasticity of adult mortality with respect to medical care spending is -.1 
       ii. the elasticity of adult mortality with respect to increased safety regulation spending is -.2 
       iii.the elasticity of adult mortality with respect to increased crime control spending is -.3 

       NOTE:  these elasticities show that a 1% increase in medical care spending leads to a  .1% decrease in mortality, a 1% increase in safety spending leads to a .2% decrease  in mortality and a 1% increase in crime control spending leads to a .3% decrease in  mortality.   If the total amounts currently spent on medical care, safety compliance and crime control are $1000, $300 and $500 billions, respectively: 

        a.  find the incremental cost effectiveness ratios for increased medical care spending, safety regulation and crime control, i.e., calculate their marginal cost/marginal benefit ratios.  Interpret the ratios. 
        b.  which kind of spending is most effective in reducing mortality? 
        c.  should any of the above spending levels be increased or decreased?  Why or why not?

9.       a.  Is the demand for medical care driven by "necessity" or economic factors?  What factors influence the demand for medical care?  Discuss the evidence. 
          b.  Can demand analysis improve the utilization level of medical care?  How so? 
         d.  How do we measure the demand for medical care?  How are demand studies conducted?   What are the data requirements?  Explain fully. 
         e.  Is medical care demand like the demand for other products in that the consumer has the most influence over the decision?  Why or why not?   Policy implications for efforts to control costs? 

10.   a.  Discuss what a health care demand elasticity measure shows.  How are they computed? 
        b.  One important elasticity is the price elasticity of demand.  Compare and contrast elastic and inelastic demand.  What are the determinants of the price elasticity of demand?  How so? 
       c.   Explain the role of time costs in determining consumer demand.  How do time costs effect the price elasticity of demand? Why must time costs be accounted for when deciding questions of access for "free" public services? 
       e.  For persons who have no health insurance today, what increase in use would you expect for hospital care, physician services and dental care if Congress passes some kind of national health insurance plan covering 80 percent of all medical care costs.  Link to the available evidence concerning the relevant price elasticities. 

11.   Given the following demand elasticities: 

       hospitalization price elasticity  -.2 
       hospitalization income elasticity  +1.0 
       hospitalization travel time elasticity  -.1 
       hospitalization wait time elasticity  -.2 

    What will happen to hospital admissions if: 
     a.  if hospital prices increase by 10%? 
     b.  if a recession occurs and incomes decrease by 10%? 
     c.   if hospital closings increase the travel time to a hospital by an average 10%? 
     d.   if the amount of time spent waiting for admission decreases by 10%? 

12.     a.  Why do people want to buy insurance? 
        b.  Why do private insurers typically not insure events with either extremely low or extremely high probabilities, and those events with small costs? 
       c.  Can we measure the adequacy of health insurance coverage by the percent of medical care expenses that are covered?  If insurance policy B covers more medical care but is otherwise identical to policy A, can we say that B is a better policy? Explain. 
        d.  Compare community rating to experience rating.  Which rating system is more desirable?  Why so?  Should the government mandate that all insurers practice one or the other?  Why so? 
        e.  Discuss adverse selection.  Can a competitive insurance industry operate efficiently in the presence of adverse selection?  When and why so? 
        f.  Discuss moral hazard.  What are the implications for efficiency? 
        g.  How do insurers limit the effects of moral hazard and adverse selection? 
        h.  Discuss the tax advantages accruing to workers and employers from providing health insurance.  Should health insurance benefits be tax exempt?

13.  a.  How many people lack health insurance in the United States?  What are their characteristics? 
       b.  Why are people uninsured in the US? 

14.  Insurance companies usually would like to assess premiums on an experience-rated basis, with high cost groups paying high premiums, and low cost groups paying low premiums.  Sometimes, govt. policy has forced insurers (e.g. EmpireBlueCross/BlueShield) to utilize community rating as a rate setting device, forcing uniform premiums for all clients.  Such uniform rates are designed to insure that high cost clients will be more able to afford insurance.  Analyze the welfare aspects of this policy, i.e., is it "fair" to all parties?  What might happen if new insurance competitors enter the market and are allowed to offer policies to the existing clients of established insurers?  What would competition do to the rates paid by each group, and to the profits of the established and new insurers?  Would it make much of a difference if the new competitors were required to practice community rating also?

15.  A.  What is managed care insurance?  How does "traditional" insurance differ from managed care insurance?
       B.  How do managed care insurers reduce health care spending?
       C.   Why did managed care insurers' market share start to increase rapidly in the 1980s?
       D.  How has the growth of managed care insurance affected hospitals, insurance premiums, health care spending, technological innovation, the quality of health care and patient satisfaction?
16.  A.  Who is insured by the Medicare program?  How does it work, i.e., discuss Parts A - D.
       B.  How is the Medicare program financed?
       C.  Does the Medicare program encourage efficiency in the delivery of health care services?
       D.  Is the financing of the Medicare program equitable?
       E.  Why does the Medicare program need to be reformed?
       F.  How could the Medicare program be reformed?  Would that improve efficiency and/or equity?
       G.  Why will it be diffcult to reform Medicare to improve efficiency and equity?

17.  A.  Who is insured by the Medicaid program?   
       B.  How is the Medicaid program financed?    How much does it spend and on what?
       C.  Does the Medicaid program provide the poor with adequate access to health care services?  Why or why not?
       D.  Does the Medicaid program deliver health care services efficiently?
       E.  How could the Medicaid program be reformed to improve efficiency and access to health care for the poor?

18. A.  Discuss how does the government regulates both the demand side of health care and the supply side.
      B.According to the Public Interest View, why does the government intervene in free markets with regulations and mandates?
      C.  According to the Economic Interest View, why does the government intervene in free markets with regulations and mandates?
      D.  When is regulation likely to occur according to the Public Interest View?  When is regulation likely to occur according to the Economic Interest View?
      E.  Which viewpoint better explains the benefit and financing differences that exist between the Mediciare program and the Medicaid program?
      F.  Which viewpoint better explains the ongoing political debate surrounding the Affordable Care Act (Obamacare)?

19.A.  If a physician shortage or surplus occurs, what would be the negative consequences and for whom?
     B.  Describe and evaluate the two ways to measure whether a physician shortage or surplus exists.
     C.  Is there a shortage of physicians today?  in the future?  Why so?

20. A.  Is the American way of training physicians efficient and equitable?  Why so?
      B.  How could physician training be made more efficient and/or equitable?

21. A.  How well does the malpractice system compensate victims of medical negligence?  How well does it deter medical negligence?
      B.  Why have malpractice premiums spiked dramatically in several "crises" in the past 35 years?  
     C.  How could malpractice insurance be reformed?  What would the likely effect on medical costs, deterring negligence and victim compensation?

22. A.  Why have US prescription drugs risen so quickly?  Is that a bad thing?
      B.  Are high drug prices due to high drug manufacturing costs?
      C.  How do Rx manufacturers set their drug prices?  Who pays more and who pays less?
      D.  How do managed care insurers try to limit Rx drug costs?
      E.  Are US drug prices a lot higher than other countries'?
      F.  Should US Rx manufacturers be required to charge the same price in the US as in foreign countries?

23. A.  Discuss the key features of the Affordable Care Act.  How does it decrease the number of Americans without health insurance?  How is it financed?  Does it work efficiently and/or equitably?  
       B.  Discuss the Republican Paul Ryan's proposal to reform health insurance in America?    How does it differ from the Affordable Care act?  How would it decrease the number of Americans without health insurance?  How would it be financed?  Would it work efficiently and/or equitably?

24.  a. Discuss the similarities and differences between health insurance coverage in the US and that in Canada, Germany, France and Switzerland. How do they differ in terms of insurer, who pays for care, how MDs and hospitals operate and how many residents have insurance?  Whose system works better/worse in terms of efficiency and equity?
      b. Do the experiences of these other countries provide any insight on how the US health care system could be improved?



College Policy for all courses and students: (full explanations of policy may be found in the College Catalog)

Plagiarism:  Is the unauthorized use or close imitation of the language and thoughts of another author/person and the representation of them as one's own original work.  Iona College policy stipulates that students may be failed for the assignment or course, with no option for resubmission or re-grading of said assignment.  A second instance of plagiarism may result in dismissal from the College.

Attendance:  All students are required to attend all classes.  Iona has an attendance policy for which all students are accountable.  While class absence may be explained it is never excused.  Professors may weigh class absence in the class grade as they see fit.  Failure to attend class may result in a failure of the class for attendance(FA), when the student has missed 20% or more of the total class meetings.  The FA grade weighs as an F would in the final official transcript.

Course and Teacher Evaluation(CTE):  Iona College now uses an on-line CTE system.  This system is administered by an outside company and all of the data is collected confidentially.  No student name or information will be linked to any feedback received by the instructor.  The information collected will be compiled in aggregate form by the agency and distributed back to the Iona administration and faculty, with select information made available to students who complete the CTE.  Your feedback in this process is an essential part of improving our course offerings and instructional effectiveness.  We want and value your point of view.*
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Economics Department || Iona College