Class notes

Complete description of all lessons in the How Health Systems Work course

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Course
How health systems work (NWIFMT029)

Institution
Radboud Universiteit Nijmegen (RU)

Elaboration of all the lessons of the How Health Systems Work course, taught at Radboud University in the year by Niek Stadhouders.

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Uploaded on January 17, 2023
Number of pages 80
Written in 2022/2023
Type Class notes
Professor(s) Niek stadhouders
Contains All classes

health systems
medical biology
innovation management
dutch health system
perfect competition
health purchasing
cost containment
cost sharing

Institution
Radboud Universiteit Nijmegen (RU)
Education
Science, Management and Innovation
Course
How health systems work (NWIFMT029)

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LECTURES – HOW HEALTH SYSTEMS
WORK
INHOUDSOPGAVE

Week 1 – L1 Health care insurance ................................................................................................................... 3

Insurance gives rise to welfare but also market failures: moral hazard, adverse selection, uninsurability ........ 4
Moral hazard → cost sharing .......................................................................................................................... 4
Adverse selection → mandate/subsity ........................................................................................................... 4
Uninsurability → community rating ................................................................................................................ 5

Building a health system ..................................................................................................................................... 5
Health insurance glossary ............................................................................................................................... 6

Workgroup – insurer market, simulation game ................................................................................................ 6

Week 1 – L2 HEalth policymaking and payment for healthcare ........................................................................ 7

Differences between health policy and health economics .................................................................................. 7

Health policy and health economics in the context of (1) health systems and how it deals with (2) fiscal
challenges............................................................................................................................................................ 9

Concepts, theories and frameworks of health policy ........................................................................................ 10

Policy-oriented case study in payment .............................................................................................................. 11

Week 2 – L3 trends in health, care, and costs ................................................................................................. 13

Growth in health, healthcare, and healthcare costs ......................................................................................... 13

Determinants of healthcare cost growth .......................................................................................................... 14

Solidarity and Sustainability of healthcare ........................................................................................................ 16

Week 2 – L4 Dutch Health system .................................................................................................................. 17

Goals and functions of a health system ............................................................................................................ 17

The Dutch health system ................................................................................................................................... 18
Multiple payers in curative (genezende) healthcare .................................................................................... 19
Characteristics of the Dutch health system .................................................................................................. 20

Recent policy goals that seek to reshape the Dutch health system .................................................................. 21

Week 3 – L5 Health systems ........................................................................................................................... 21

US health system ............................................................................................................................................... 21

German health system ...................................................................................................................................... 24

UK health system ............................................................................................................................................... 26

1

, Workgroup – health systems............................................................................................................................. 28

Week 3 – L6 Cost containment policy ............................................................................................................. 29

Political economics ............................................................................................................................................ 30

Cost containment policies (CCP) ........................................................................................................................ 31
Budgeting ...................................................................................................................................................... 31
Price controls ................................................................................................................................................ 32
Volume controls ............................................................................................................................................ 33
Market-based policies ................................................................................................................................... 34

Week 4 – L7 Competition in healthcare .......................................................................................................... 35

Economic theory ................................................................................................................................................ 35
Perfect competition ...................................................................................................................................... 36
Monopoly ...................................................................................................................................................... 38
Monopoly competition ................................................................................................................................. 38
In perfect competition ...................................................................................... Error! Bookmark not defined.

Policy ................................................................................................................................................................. 40
Measuring competition – measuring market concentration ........................................................................ 40
Competition in healthcare ................................................................................ Error! Bookmark not defined.
Insurer competition and provider competition ................................................ Error! Bookmark not defined.

week 4 – L7 Analysis of concentrated markets (part 2 competition lecture)................................................... 41

Week 5 – L8 Labour markets .......................................................................................................................... 44

Macro trends ..................................................................................................................................................... 44

The demand for labour ...................................................................................................................................... 46

The supply for labour......................................................................................................................................... 46

Market power in labour markets ...................................................................................................................... 48

Challenges for the dutch labour system ............................................................................................................ 49

Week 5 – L9 Innovation and pharmaceutical companies ................................................................................ 50

Week 5 – L10 Healthcare management and innovation ................................................................................. 54

Week 6 – L11 Healthcare Purchasing in the NL ............................................................................................... 61

Week 6 – L12 increasing value in health by changing the financial incentives ................................................ 66

Week 7 – L13 Practice variation and unnecessary care ................................................................................... 69

Week 7 – L14 COVID policy ............................................................................................................................. 74

Week 7 – L15 prevention and health policy .................................................................................................... 76

2

,WEEK 1 – L1 HEALTH CARE INSURANCE

The fair insurance premium is calculated based on the risk and probability of getting ill. Deciding on the real
premium for a health insurer is a hard decision as the premium should be low enough to attract people.
However, not too low as they should make up the costs of the healthcare costs from people that get ill.

Customer side → perform cost-benefit analysis (CBA) to choose whether you will insure or not → do I pay a
little upfront, or risk paying much more later in case something happens?

This scheme depicts a decision tree. Ultimately you want the highest amount of utils (= U) which can be
calculated via the equations in the picture.

- Income minus premium: (utils from wealth at time point 1 – premium) + (utils from wealth at time
point 2 – premium)
- Income minus health costs: (utils from wealth at time point 1) + (utils derived at point 2 with the
probability of getting ill - health care costs) → probability of DO getting ill
- Income: (utils from wealth on time point 1) + (utils at point 2 with the probability of NOT getting ill →
1-p)

The decision (or amount of utility) can also be altered by

1. Time preference: do I like to have more wealth now or in the future?
a. If you want more money now, compared to the future, you are less likely to take the
insurance
b. Interest rate (rente) says something about how we value money now vs in the future. If the
interest rate of the money is high, in the future, the money will be more worthwhile and they
will be more likely to spend the money in the future due to the additional rente gained
2. Loss aversion: how much disutility does it costs to lose a small amount versus a large amount?
a. Sometimes losing 10 euro’s feels worse than gaining 20 euro’s. In that case, more utils are
devoted to losing the 10 → negative impacts are weighted heavier compared to the
happiness gains
3. Risk aversion: play on safe or roll the dice?
a. Not risk neutral → you are risk averse if you are willing to pay small amount of money to
reduce losing a lot of money. You will choose to insure at a fair premium

Risk neutral → whenever losing an euro and gaining an euro is equal in utility. You will be indifference in paying
fair premium or paying for care. Example: 10% chance of getting ill: costs are $8.000,- → 0,1 * $8.000 + 0,9 *
$0 = $800. If it doesn’t matter to you whether you will insure or not, you are indifferent and thus risk neutral

Risk aversion can be calculated

3

, U = utility
P= change of risk
H = health costs
W = wealth
E(c) = expected costs
i = insurance premium
Expected utility E(U(H)) = p*U(W-H)+(1-p)*U(W)
→ calculates the utility of no-insurance (roll the dice)

Scenarios:
In the case of staying healthy → U(W)= 10,000wealth = 9.21U
In the case of getting ill → U(W-H)=10,000-8000= 2000wealth = 7,6U
In the case of being insured → U(W-i)=10,000-800= 9,200wealth = 9.13U

Expected utility if E(U(H)) = p*U(W-H)+(1-p)*U(W) → 10% of the cases 7.6 and 90% of the cases 9.21
no-insurance E (U(H))= 0.1*7.6 + 0.9*9.21 = 9.05

U in case of insurance U(w-i) vs U in case of no insurance E(U(H))
9.13U 9.05U

→ based on the utils, you would be better off by insuring

Maximum willingness to pay for insurance can be calculated by:
MaxWTP → U(W-inew) = E(U(H)) → indifference between insurance or not
U(W-inew) = 9.05
e9.05 = 8500 = W-inew
10.000 – 8500 = 1500 euro = inew

Law of large numbers: the more insurees, the more predictable your expected costs will be as a health insurer.
Include a lot of different insurees with different risks to pool the risk to an average that is profitable → risk
pooling

INSURANCE GIVES RISE TO WELFARE BUT ALSO MARKET FAILURES: MORAL HAZARD,
ADVERSE SELECTION, UNINSURABILITY

Because we are mostly risk averse we are likely to insure for our risks which makes that the health insurance
systems work and can provide us the health we need which increases welfare. However, still some market
failures exist. Therefore a lot of policies are needed (government intervention) to create a fair market,
consequently health insurance markets are heavily regulated

MORAL HAZARD → COST SHARING

When people have an insurance, you are going to take more risks because you will get the money back if
something happens. Freeriding on other insures premiums.

Prevent by → eigenrisico/deductible, cost sharing, nudging

ADVERSE SELECTION → MANDATE/SUBSITY

4

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