Health Sciences 3840B Lecture Notes - Lecture 10: Allocative Efficiency, Market Failure
30 May 2018
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Premiums separate from other revenue
Individuals can pay premiums to employers
They can also pay premiums directly to a private insurer
Point of this slide: think about diff public and private sources, which individuals are paying for which and how much
What is tax revenue made up of? Income, consumption, corporate? When you have funding coming from taxes who is actually payin g?
Provincial revenue
Household income tax is largest
Second to that is sales tax
Can see other sources of taxes as well though
All of this tax revenue is collected, a portion goes to health care –anyone who pays any of these taxes is contributing but the main sources are income and sales tax
Allocative efficiency –always based on individual utility or individual preference
Extra-welfarism –a way of evaluating a patient, outside of this concept of welfare, not entirely based on individual utility
We shouldn’t be thinking about how to distribute resources according to just what individuals want and are able to afford
What are some diff policy solutions for this critique? But extra-welfarism is a diff normative framework to think about the problem
Rather than trying to max the total utility we should think about a criteria that is based on health improvement
Individuals have diff expected benefits or expected costs but also diff risk preferences
People who are more risk averse want more coverage and are willing to pay more even if they have the same expected health cos ts as people who are risk loving
More efficient for private insurance
Private insurance with cost sharing can be more efficient
Assuming that individual’s WTP and demand is the appropriate measure of social value
If you think there is market failure and we should be thinking about health needs more than just WTP, the public system is mo re efficient
- In terms of extra-welfarist criteria
If you don’t see wait times it can also mean that you didn’t get need expressed as demand
In the US there are no published wait lists but it doesn’t meant that needs are met – they don’t demand it. People not going to the doctor because they don’t have
access to health care?
Is this efficient?
Extra-welfarist framework –this is a source of inefficiency, if we think that the important thing that is allocated is utilization of health care servic es
False, because although they pay a greater proportion of their income they receive more services True: This is true even if t he poor are (on average) of the same
health status of the wealthy. As a portion of income, 50$ decreases as income increases. (not about the receiving of the serv ices, just how it is financed)
False? False (or Uncertain & explain): This would only be true if private spending fully displaces public spending. This will not be true if private/public spending is on
complimentary goods/services, ex. prescription drugs (private spending) and doctor’s appointment to get the prescription (pub lic spending).
False, it is expected to have a negative effect on equity in the public system. It increases inequity in the system because t hose who have less income don’t have
access to the same services ) False (or Uncertain & explain): if the services are compliments to those publicly funded, then individuals holding private insurance are
expected to utilize more public health care. And since holding private insurance is correlated with income, this means that t hose of higher income would tend to use
more public health care.
False, it depends on the normative framework and what you are measuring. d) False: All individuals are forced to consume the same amount of public insurance,
even if they have different risk preferences. As well, there are welfare costs associated with taxation. While overall one ma y argue that public is preferred to private,
this is not the case in every dimension.
Lec 10 Health Care Finance
May 6, 2018
3:57 PM
Health Economics Page 1
Document Summary
They can also pay premiums directly to a private insurer. Point of this slide: think about diff public and private sources, which individuals are paying for which and how much. Can see other sources of taxes as well though. All of this tax revenue is collected, a portion goes to health care anyone who pays any of these taxes is contributing but the main sources are income and sales tax. Allocative efficiency always based on individual utility or individual preference. Extra-welfarism a way of evaluating a patient, outside of this concept of welfare, not entirely based on individual utility. We should(cid:374)"t (cid:271)e thi(cid:374)ki(cid:374)g a(cid:271)out ho(cid:449) to distri(cid:271)ute resour(cid:272)es a(cid:272)(cid:272)ordi(cid:374)g to just (cid:449)hat i(cid:374)di(cid:448)iduals (cid:449)a(cid:374)t a(cid:374)d are a(cid:271)le to afford. But extra-welfarism is a diff normative framework to think about the problem. Rather than trying to max the total utility we should think about a criteria that is based on health improvement.
