Imperfect Information in Health Care Markets

News

  • The optional exam inspection will take place on June 5, 10:30-11:30 in SSC 4.210. Please, register between April 26 and May 10 via email to oess at wiso.uni-koeln.de (including student number, name and date of your exam).
  • There will be no exercise session on Jan 22.
  • Some notes on how to solve the case studies are added below.
  • Due to likely disruptions of public transport, the sessions in the week Jan 8- will be broadcasted on zoom. Please note that (i) internet is rather unstable and occasionally even defect and (ii) microphone quality is bad in lecture room settings. Therefore, please attend on campus if you can.
  • The lecture on October 11 was given online. You can download the recording.
  • Exam dates are Feb 14, 14:00 (100 HS II, 100/U1/HSII) and March 20, 9:00 (HS XXIII, 101/EG/17). Registration is open on KLIPS. We will try to grade the exams of the first date before the registration deadline of the second but we cannot guarantee that we will manage (we managed in previous years).
  • Note that there will be an exercise session on October 9 even though this is before the first lecture. This exercise session is dedicated to repeating some mathematical concepts used in this course.

Prerequisites and background

Several students asked for references for the prerequisites in terms of mathematics, statistics and microeconomics. For all of these areas there are literally hundreds of books titled "(Intermediate/Introductory) Microeconomics" or "Mathematics/Statistics for Business/Economics" and all of them cover more or less the same material. For concreteness, I name "Intermediate Microeconomis" ("Grundzüge der Mikroökonomik") by Hal Varian where chapters 1-6 are assumed to be known and chapter 12 is what we covered in the second lecture. Chapters 14-16 might be interesting background reading as well. For mathematics, "Essential Mathematics for Economic Analysis" by Sysdsæter, Hammond, Strøm and Carvajal may be useful. German speaking students may also be interested in Peter Dörsam's book "Mathematik anschaulich dargestellt für Studierende der Wirtschaftswissenschaften". I am not familiar with statistics books but everything targeted at first semester business/economics students should be fine. Essentially, you have to know what a distribution is, how to compute an expected value and a variance, what a hypothesis test is and how an OLS regression works. While it skips some of the basic statistics the first 2 chapters in "Mastering Metrics: The path from cause to effect" by Angrist and Pischke might be used as an application oriented introduction to empirical work. Throughout the course we assume that your high school math knowledge is working and we have no time to repeat this material, e.g. make sure you can solve linear and quadratic equations, take derivatives and know their interpretation and integrate simple functions before week 1 of the semester.

If you want to take a less broad approach in catching up, the internet offers a variety of materials and formats (lecture notes, video tutorials on major online video platforms, interactive websites) that can be found with the usual search engines. For example, Wikipedia provides short definitions and explanations on all above mentioned topics (and often links to more in depth material).

Course materials

Please note that I do not use ILIAS because (i) I did not agree with certain usage conditions concerning tracking and data utilization and (ii) I believe that the material I create should be publicly available as it is essentially funded by public money. The material below is likely to get updated over the course of the term.

Lecture slides and exercises are posted/updated here over the course of the term. You can find the source code creating the slides as Emacs org-mode files (".org") here.

Course setup

In this course, we will analyze the consequences of information problems in health care markets and look for possible solutions to those problems on a theoretical basis. The theoretical analysis is at times supplemented with empirical evidence.

Students learn economic methods to analyze health care markets theoretically and also gain some insight in how to design empirical tests of the predictions of the theoretical models.

The course consists of a lecture and an exercise session. Models, their solutions and implications as well as empirical evidence are presented in the lecture. In the exercise classes, solution to exercises are discussed. Students are expected to work on the exercises beforehand. Exercises consist mainly of calculation exercises using (variations of) models introduced in class but also discussion questions on specific applications.

The exam will – in style – be similar to the questions of the exercise classes. It is, for the time being, planned as a written exam.

Lecture times:

  • lecture: Wednesday, 10:00-11:30 in 100/EG/HSXII
  • exercise classes: Monday, 14:00-15:30 100/EG/HSXII

Textbooks

The course is not based on a single textbook. The majority of topics is covered in (Zweifel, Breyer, and Kifmann (2009)) (library link to ebook). (Morrisey (2008)) (link to ebook) covers also many of the discussed topics but has an (almost entirely) empirical approach. Detailed references are given in the schedule below.

Detailed schedule

This is a plan and as every good plan it may be adjusted if necessary.

Intro (2 lectures)

  • Choice, preferences, utilities, welfare, models
    • mathematical prerequisites: functions, expected value of a discrete random variable, summation sign
    • economic prerequisites: preferences, utility maximization, Pareto efficiency, welfare
    • choice, preferences, utility
    • choice under uncertainty and expected utility
    • welfare
    • models
    • reading:
  • Insurance demand
    • mathematical prerequisites: inverse functions, derivatives, monotonicity as well as concavity and convexity
    • certainty equivalent and risk premium
    • drivers of insurance demand
    • (coverage choice and state dependent utility)
    • reading: (ch. Morrisey (2008), 3)
    • supplementary reading: (ch. Eisenführ and Weber (2013), 9)

Selection (5)

Moral hazard (3)

  • The question of moral hazard and empirical evidence
    • mathematical prerequisites: significance in statistical tests (e.g. t-test)
    • slope of demand
    • RAND and arc elasticity of demand
    • Oregon
    • welfare
    • ex ante moral hazard
    • reading: (sections Einav and Finkelstein (2018), 1,2 and 3.1)
  • Treatment choice and the donut hole
    • mathematical prerequisites: (continuous) distributions (density, distribution function)
    • simple model of treatment choice
    • donut hole
    • out of sample predictions
    • utilization management and gatekeeping
    • reading: (Einav and Finkelstein (2018), 3.2 -end)
  • Case study: moral hazard in NL
    • diff-in-diff estimate for arc elasticity of demand

Physician-patient interaction (4)

Bibliography

Behrend, C., F. Buchner, M. Happich, R. Holle, P. Reitmeir, and J. Wasem. (2007): “Risk-adjusted capitation payments: how well do principal inpatient diagnosis-based models work in the german situation? results from a large data set,” European journal of health economics, 8, 31–39.
Boone, J., and C. Schottmüller. (2017): “Health insurance without single crossing: why healthy people have high coverage,” Economic journal, 127, 84–105.
Doherty, N. A., and P. D. Thistle. (1996): “Adverse selection with endogenous information in insurance markets,” Journal of public economics, 63, 83–102.
Dulleck, U., and R. Kerschbamer. (2006): “On doctors, mechanics, and computer specialists: The economics of credence goods,” Journal of economic literature, 44, 5–42.
Einav, L., and A. Finkelstein. (2011): “Selection in insurance markets: Theory and empirics in pictures,” Journal of economic perspectives, 25, 115–38.
---. (2018): “Moral hazard in health insurance: What we know and how we know it,” Journal of the european economic association, 16, 957–82.
Eisenführ, F., and M. Weber. (2013): Rationales Entscheiden, Springer-Verlag.
Fang, H., M. P. Keane, and D. Silverman. (2008): “Sources of advantageous selection: Evidence from the medigap insurance market,” Journal of political economy, 116, 303–50.
Finkelstein, A., and K. McGarry. (2006): “Multiple dimensions of private information: evidence from the long-term care insurance market,” American economic review, 96, 938–58.
Fuchs, V. R. (1978): “The Supply of Surgeons and the Demand for Operations,”National Bureau of Economic Research Cambridge, Mass., USA.
Gruber, J., and M. Owings. (1996): “Physician incentives and Cesarean delivery,” Rand journal of economics, 27, 99–123.
Hemenway, D. (1990): “Propitious selection,” Quarterly journal of economics, 105, 1063–69.
Krasnik, A., P. P. Groenewegen, P. A. Pedersen, P. von Scholten, G. Mooney, A. Gottschau, H. A. Flierman, and M. T. Damsgaard. (1990): “Changing remuneration systems: effects on activity in general practice.,” British medical journal, 300, 1698–1701.
Lagerlöf, J. N., and C. Schottmüller. (2018): “Monopoly insurance and endogenous information,” International economic review, 59, 233–55.
McGuire, T. G. (2000): “Physician Agency,” in Handbook of health economics, ed. by Culyer, A. J. and J. P. Newhouse. Elsevier, 461–536.
Morrisey, M. A. (2008): Health Insurance, Health Administration Press Chicago.
Rothschild, M., and J. Stiglitz. (1976): “Equilibrium in competitive insurance markets: An essay on the economics of imperfect information,” Quarterly journal of economics, 90, 629–49.
Schottmüller, C. (2013): “Cost incentives for doctors: A double-edged sword,” European economic review, 61, 43–58.
Ven, W. P. van de, and R. P. Ellis. (2000): “Risk Adjustment in Competitive Health Plan Markets,” in Handbook of health economics, ed. by Culyer, A. J. and J. P. Newhouse. . Handbook of health economicsElsevier, 755 – 845.
Zweifel, P., F. Breyer, and M. Kifmann. (2009): Health Economics, Springer Science & Business Media.
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