INSTRUCTOR MANUAL
Patrick M. Bernet,
Robert J. Caswell,
Thomas E. Getzen
For
HEALTH ECONOMICS
AND FINANCING
Fifth Edition
Thomas E. Getzen
, Instructor’s Manual to accompany Health Economics and Financing, Fourth Edition
I TEACHING NOTES AND ANSWERS TO END-OF-
CHAPTER QUESTIONS
I.1 Chapter 1: Choices: Money, Medicine, and Health
I.1.A Teaching Notes
1.1 What Is Economics?
• Health care is different from any other economic good in a number of fundamental ways.
In many textbooks there is a temptation to skip the introductory chapter, or to assume that
the student can skim the chapter and move on to the real substance. Resist the temptation
in this case. Unless the student already has a background in the organization and
financing of health care, the indirect nature of health spending will be unfamiliar and the
fundamental idea of the flow of funds approach will be lost.
• The "Fundamental Theorem of Exchange", wherein transactions occur only when both
parties think they will be made better off, is an important reminder. It is worth pausing
on this in-class, as the concept is fundamental to viewing transactions discussed later in
the text. The problems on time and uncertainty (under the "Financing Health Care"
heading) make the exchange computation a bit more complex, but help make the model
more realistic.
• The “terms of trade” should also be discussed in class. Be sure to point out features
specific to health care, such as the patient granting certain decision making authority
to medical professionals. Incorporate the points about "caring" and "professionalism"
under the heading, "Can We Pay Somebody to Care?". For financial students, you
might equate a physician's professionalism with an accountant’s fiduciary
responsibility.
• The text has an excellent glossary, and those students who never seem to notice all the
work that the author has done to be helpful might be directed there for a definition of
derived demand and other concepts that appear in boldface throughout the text.
1.2. The Flow of Funds
• This section contains a summary statement that could be used very effectively to
generate class discussion; by the end of the course, students should have a much more
sophisticated understanding of the statement, but it can be used to build interest at the
outset:
• "In the absence of a direct link between the amount paid and the resources
used in treatment, “prices” become more ambiguous and less important to the
transaction than ongoing relationships of trust and professional behavior. One
of the purposes of this textbook is to explain how economic forces continue to
operate when prices do not function in a normal way and how other
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, Instructor’s Manual to accompany Health Economics and Financing, Fifth Edition
organizing principles (professionalism, licensure, regulation) serve as
replacements."
• Another useful concept to review is derived demand, which should be very intuitive
when applied to health care (very few of us demand appendectomies for the sheer
consumption pleasure of the surgery).
• Table 1.2 deals with the growth and changes in use of expenditures over time, and
provides an opportunity to point out the necessity of using constant units. The
creation of appropriate price indexes has been a continuing struggle in health care; the
beginning of the course may not be the best time to discuss this in detail, but there are
some references provided below for those who would like to pursue it at some point.
The more important task is to discuss the possible explanations for the patterns of
growth observed.
• In this context, students may be unclear about the distinction between the
intensity of services and simply the quantity of services. Making this
distinction also allows you to note that growth in expenditures is clearly not
the same thing as inflation, although the two are confused frequently in health
care (people speak of “spiraling prices” when they really mean “rising
expenditures”).
• Quantity is measured by the number of encounters (doctor visits, hospital
admissions, etc.), while intensity is measured by the amount of resources used
and number of things done during the encounter (tests, treatment procedures,
etc. Making the distinction allows discussion of who is (are) the relevant
decision maker(s) for each of the elements, and specifically to note the
multiple incentives that may be at work.
• This also can be an opportunity to discuss some of the ambiguity in health
care about what an input is and what an output is from different points of
view. You will have to decide whether the additional analytical advantage is
worth the potential confusion.
1.3 Economic Principles as Conceptual Tools
• This section introduces other basic economic tools and demonstrates how they are
applied to health care. It might be worth reminding students that economics might best
be thought of as a way of looking at the world. As mentioned above, this perspective is
particularly effective at stripping problems down to their fundamental components.
• Scarcity. It is a fundamental concept to most economics. But the perspective that time
is the ultimate limited resource is important to understanding health care.
• Opportunity Cost and Willingness to Pay are fairly standard economic concepts. Be sure
to point out some of the special exceptions. For example, in extreme pain, one aspirin
might be worth much more than when suffering minor soreness.
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, Instructor’s Manual to accompany Health Economics and Financing, Fifth Edition
• Money Flows in a Circle. The circular flow it important, since students do not often
thing about 'closing the loop'.
• Reinforce the importance of marginal decision making. IE - Where should I spend the
next dollar of healthcare funds to do the most good?
• Choice: Are Benefits Greater than Costs? One of the most important takeaways from this
chapter is that a "person’s health may be mostly determined over the long run by choice
of lifestyle and risk modification". So while most of life expectancy is the result of
behavior, most study involved the medical interventions.
• Investment. Highlights the important of investment in human capital. Compare and
contrast investment in personal health (through exercise) with medical training.
1. 4 Health Disparities
• Equity and capitalism do not always go together. It may be helpful to use insurance as
an example. If two people purchased the same health insurance policy, both have a right
to expect the same treatment for the same ailment.
• Now extending this a small step, does it seem fair to penalize a child just because they
were born into a poor family?
• At the macro level, both poverty AND high income inequality contribute to bad health. It
is worth asking the students why this might be.
• If healthcare is seen as a fundamental right, then everyone is entitled to at least some
standard level of care. If a group is not given such access, disparities exist. For example,
why do poor people die younger?
1.5 Whose Choices: Personal, Group, or Public?
• Although much health behavior might seem like a private choice, many of the
consequences are public. Aside from the obvious problems of spreading illness, there is
the more indirect 'tax on the health conscious'. Since we all contribute equally to the
health insurance pool, people who make unhealthy choices probably under-contribute,
leaving those who behave to over-pay.
• An interesting question for students: If a person chooses a poor diet (private choice),
should society decide that person deserves less case (public choice). This might seem
severe, but this is the very type of decision that determines a person's rank on transplant
lists.
1.6 Social Science and Rational Choice Theory
• The definition of “rationality” is important. Note that it does not mean people always
make the best health decisions. Rather, it means they make decisions that balance
expected outcomes and costs.
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