Economics 308: Healthcare Economics Wesleyan University Fall 2015 Professor Damien Sheehan- Connor

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1 Economics 308: Healthcare Economics Wesleyan University Fall 2015 Professor Damien Sheehan- Connor Course Description This course covers economic theory and empirical work relevant to healthcare. In doing so, we will examine the United States healthcare system in some detail, with attention to useful international comparisons. To begin, we will address the questions: Why do people buy health insurance? Why does the government play such a large role in the health care system? Why does health care cost so much, particularly in the United States? We will then address the various players in the health care system- in particular patients, doctors, insurance companies, hospitals, pharmaceutical firms, and governments. Finally, we will discuss policy implications, with particular discussion of the Affordable Care Act, which became law in the spring of 2010, and alternative policies suggested by opponents of the act. Instructor Information Instructor: Prof. Damien Sheehan- Connor Office: PAC 322 E- mail: dsheehanconn@wesleyan.edu Phone: x2531 Office Hours: Tu 9am- 12pm and by appointment Readings Readings will be assigned for each lecture. The primary source of reading materials will be journal articles, though newspapers and other online sources will be used as well. Readings for most of the semester are provided in the attached reading list (note that the pdf version has links to most of the readings). There may be some changes made over the course of the semester based on our progress in the course, student interests, and the state of the debate. Updates to the reading list will be made via Moodle. When reading lots of journal articles, one sometimes concentrates on details and misses the big picture. This is where a textbook can be particularly useful. The highly recommended textbook for this course is: Health Economics, Fifth Edition, by Charles E. Phelps

2 Suggested readings in this text are noted in the reading list. Copies of the 3 rd and 4 th editions of this text will be on reserve at Olin Library. Class Attendance and Participation Because most of the key material for the course will be presented in lecture, class attendance is required. Class attendance and participation will account for 20% of your final course grade. Written Assignments Midterm Exam A midterm exam will be given in class on Wednesday October 21. The exam will emphasize problem solving and economic analysis. The exam will be closed book. The only items you allowed are a writing implement, calculator, and scratch paper. The midterm exam will account for 30% of your final grade. While there are no formal problem sets for this course, practice problems with answer keys will be provided to help you prepare for the examination. Response Papers A response paper is due at 10:00am the day of each lecture. These papers should address the following three points: 1) What conclusion(s) of the author(s) do you find most convincing? Why? 2) What conclusion(s) of the author(s) do you find least convincing? Why? 3) What policy implications are suggested by the readings? In formulating your answers to these questions, (1) Be sure to address any journal articles, not just supplementary readings, and (2) Be sure to analyze the pieces from an economic viewpoint, using the tools discussed in class as well as those you have learned in Economics 300 and 301. This is not an essay. Please answer each question individually and number your responses 1 through 3. These response papers are intended to be brief and should be in the range of one to two pages long. Each paper should be passed in via Moodle by 10:00am the day we discuss the relevant readings. Late papers will not be accepted and extensions will not be given. You can, however, skip any five response papers of your choice without penalty. To be clear, there are 24 classes after the introductory one and you must pass in 19 response papers to receive full credit.

3 You may discuss the readings with other students in the course in formulating your response papers, but you must write up your final answers individually, using your own words. Not all response papers will be graded. I will choose lectures at random and grade all papers passed in for that day. The grades assigned will be check- plus, check, or check- minus, which will correspond roughly to letter grades of A, B, and C. For each paper fewer than 19 passed in during the semester, a grade of F will be assigned. The (randomly chosen) graded response papers will account for 20% of your final grade. Research Paper Questions of interest to both policymakers and business leaders often take the form: What do we know about X? To consider some examples, X could be the elasticity of demand for health care, the reasons for health care cost growth, the impact of the medical malpractice system on physician decisions, or the benefits and costs of allowing pharmaceuticals to have patent protection. Many of these questions have been addressed, at least in part, by scores of academic articles. There is a great need, therefore, for individuals who can synthesize material from disparate sources into a document that describes the state of knowledge about the question at hand. Such documents are often published as review articles in journals, as white papers by businesses or think tanks, or as reports by government agencies. There will be several examples of such syntheses used in this course, for example the report written by the Congressional Budget Office (CBO) assigned for class 8. Importantly, the CBO is mandated not to argue one side or another of an issue and not to make policy advice. (This is to be contrasted with many of the reports that come out of businesses and think tanks and almost always support the particular interests of the author s organization.) The reports present a summary of what is known and make predictions about what will happen under various policy scenarios without specifically recommending any one policy. Your final paper should be modeled on a CBO report, on a topic of your choice (related to health economics, of course!). For your chosen topic, you should summarize the current state of knowledge and address the impacts of various policy options under consideration. Your sources should include research articles from economics journals, but can also include other review articles (e.g. an earlier CBO report on a similar topic). Your paper should begin with an Executive Summary of no more than one page that summarizes your findings. It should include a section labeled Introduction that presents the question being explored and why the answer is important from a policy point of view. The final section should be labeled Discussion and address the policy implications of your findings. You may divide the body of the paper into sections and

4 subsections that seem best suited to your topic. References to sources should be provided in accordance with the standards used by the American Economic Review. The relevant guidelines can be found in points IV.F and IV.K at the following link: The paper should be 10 to 15 pages long (double- spaced, 12 point font, 1.25 inch margins), excluding references, tables, and figures. While writing the paper, you may discuss your research with other students in the class, but each student s paper should be wholly original. The final paper will account for 30% of your final grade. Over the course of the semester, you will pass in three items related to this paper: By class time on October 12, you should submit (via Moodle) a one half to one full page description of your topic, explaining why it is interesting and relevant to this course. Late submission will result in a one grade reduction in your paper grade (e.g. an A- becomes a B+). Particularly poor submissions will also reduce the paper grade by one grade. By class time on November 16, you should submit (via Moodle) a 2-3 page progress report on your research to date. The progress report should (1) provide a summary of what you have learned; (2) list at least 10 total references; and (3) list at least 5 references from economics journals. (Any questions about whether a given journal qualifies as an "economics" journal can be directed to me in person or by e- mail.) Late submission will result in a one grade reduction in your paper grade (e.g. an A- becomes a B+). Particularly poor submissions will also reduce the paper grade by one grade. By December 19 at 5:00pm, you should submit (via Moodle) your final paper. Late submission will result in a one grade reduction in your paper grade (e.g. an A- becomes a B+). Submission more than 24 hours after the deadline will result in a failing grade unless previous arrangements have been made. Course Information A course webpage will be maintained at Important information will be posted here and grades will be recorded here. Course announcements with a critical time component (e.g. lecture cancellations) will be e- mailed to class members.

5 Academic Integrity It is expected that students will abide by the Wesleyan University Honor Code during this course. It is particularly important not to commit plagiarism in the response papers or research paper. Papers will be processed and checked for plagiarism using the turnitin.com service subscribed to by the University. Students suspected of violating the honor code will be referred to the Wesleyan Honor Board, as required by the Wesleyan Honor Code. Disability Resources Wesleyan University is committed to ensuring that all qualified students with disabilities are afforded an equal opportunity to participate in and benefit from its programs and services. To receive accommodations, a student must have a documented disability as defined by Section 504 of the Rehabilitation Act of 1973 and the ADA Amendments Act of 2008, and provide documentation of the disability. Since accommodations may require early planning and generally are not provided retroactively, please contact Disability Resources as soon as possible. If you believe that you need accommodations for a disability, please contact Dean Patey in Disability Resources, located in North College, Room 021, or call for an appointment to discuss your needs and the process for requesting accommodations.

6 Reading List Note: The readings for Weeks are subject to revision as the time approaches. An update syllabus will be posted on the Moodle when available. Lecture Subject / Readings 1 Course Introduction No readings Video Viewed in Class: Sick Around the World, Frontline, What is special about healthcare economics? Uncertainty and the Welfare Economics of Medical Care, Kenneth J. Arrow, The American Economic Review, Vol. 53, No. 5 (Dec., 1963), pp ; Phelps, Chapter 1: Why Health Economics? 3 Choice Under Uncertainty The Utility Analysis of Choices Involving Risk, Milton Friedman and L. J. Savage, Journal of Political Economy, Vol. 56, No. 4 (Aug., 1948), pp ; Interactive tutorial at: Phelps, Chapter 10: The Demand for Health Insurance (Particularly sections The Demand for Health Insurance and Reasons People Want Insurance 4 The Problem of Asymmetric Information The Market for "Lemons": Quality Uncertainty and the Market Mechanism, George A. Akerlof, The Quarterly Journal of Economics, Vol. 84, No. 3 (Aug., 1970), pp ; 5 Insurance Markets with Asymmetric Information: Theory Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information, Michael Rothschild and Joseph Stiglitz, The Quarterly Journal of Economics, Vol. 90, No. 4 (Nov., 1976), pp ; Phelps, Chapter 10: The Demand for Health Insurance (All useful, but particularly sections Choice of the Insurance Policy, Insurance Market Stability, and the Appendices) 6 Insurance Markets with Asymmetric Information: Evidence Did Community Rating Induce an Adverse Selection Death Spiral? Evidence from New York, Pennsylvania, and Connecticut, Thomas

7 Buchmueller and John DiNardo, The American Economic Review, Vol. 92, No. 1 (Mar., 2002), pp ; Adverse Selection in Health Insurance, David Cutler and Richard Zeckhauser, NBER Working Paper No. 6107, July 1997; Community Rating And Sustainable Individual Health Insurance Markets In New Jersey, Alan C. Monheit, Joel C. Cantor, Margaret Koller, and Kimberley S. Fox, Health Aff July :4, ; 7 Improving Insurance Markets with Asymmetric Information Risk Selection and Risk Adjustment: Improving Insurance in the Individual and Small Group Markets, Katherine Baicker and William H. Dow, Inquiry, Vol. 46, No. 2 (Summer 2009), pp ; Risk Pooling And Regulation: Policy And Reality In Today s Individual Health Insurance Market, Mark V. Pauly and Bradley Herring, Health Aff May :3, ; Phelps, Chapter 11: Health Insurance Supply and Managed Care 8 Health Care Costs Medical Care Costs: How Much Welfare Loss?, Joseph P. Newhouse, The Journal of Economic Perspectives, Vol. 6, No. 3 (Summer, 1992), pp. 3-21; Is health spending excessive? if so, what can we do about it?, Aaron, H. J., & Ginsburg, P. B. (2009). Health Affairs, 28(5), ; id=14963 Increased spending on health care: Long- term implications for the nation, Chernew, M. E., Hirth, R. A., & Cutler, D. M. (2009). Health Affairs, 28(5), Retrieved from id=14963 Growth in Health Care Costs, Peter Orszag, CBO Testimony, January 31, 2008, accessed at: 8/ healthtestimony.pdf o For class, read Box 1 on pages 8-9. This CBO report is a good model to keep in mind when writing your term paper. Phelps, Chapter 1: Why Health Economics?

8 9 The RAND Health Insurance Experiment The Economics of Moral Hazard: Comment, Mark Pauly, The American Economic Review, Vol. 58, No. 3, Part 1 (Jun., 1968), pp Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment, Willard G. Manning, Joseph P. Newhouse, Naihua Duan, Emmett B. Keeler and Arleen Leibowitz, The American Economic Review, Vol. 77, No. 3 (Jun., 1987), pp Article Stable URL: Some Interim Results from a Controlled Trial of Cost Sharing in Health Insurance, Joseph P. Newhouse, Ph.D et al., N Engl J Med 1981; 305: o Available on Moodle (Course Documents - > Readings) Does Free Care Improve Adults' Health? Results from a Randomized Controlled Trial, Robert H. Brook, M.D., Sc.D., et al, N Engl J Med 1983; 309: o Available on Moodle (Course Documents - > Readings) Phelps, Chapter 4: The Demand for Medical Care: Conceptual Framework Phelps, Chapter 5: Empirical Studies of Medical Care Demand and Applications 10 Impact of Medical Insurance on Health: Medicare "Does Medicare Save Lives?" David Card, Carlos Dobkin, and Nicole Maestas. Quarterly Journal of Economics,124(2): , (2009). Phelps: Chapter 3, The Transformation of Medical Care to Health and Chapter 12, Government Provision of Health Insurance (sections on Medicare) 11 Impact of Medical Insurance on Health: Medicaid Mortality and Access to Care among Adults after State Medicaid Expansions, Benjamin D. Sommers, M.D., Ph.D., Katherine Baicker, Ph.D., and Arnold M. Epstein, M.D., New England Journal of Medicine, July 25, The Oregon Experiment- Effects of Medicaid on Clinical Outcomes, Katherine Baicker et al., New England Journal of Medicine, May 2, Phelps: Chapter 3, The Transformation of Medical Care to Health and Chapter 12, Government Provision of Health Insurance (sections on Medicaid) 12 Fundamentals of Benefit- Cost Analysis

9 Welfare Economics and Social Choice Theory, 2nd Edition, Chapter 9: Compensation Criteria, Allan M. Feldman and Roberto Serrano, Boston, MA : Springer US, Available at: 13 Valuing Risks to Health and Life The Value of Risks to Life and Health, W. Kip Viscusi, Journal of Economic Literature, Vol. 31, No. 4 (Dec., 1993), pp Phelps: Chapter 14, Appendix: Value of Life 14 Physicians Issues in the Industrial Organization of the Market for Physician Services, Martin Gaynor, NBER Working Paper No. 4695, Issued in February Phelps, Chapter 6: The Physician and the Physician- Firm and Chapter 7: Physicians in the Marketplace 15 Regional Variation in Health Care Provision The Cost Conundrum: What a Texas town can teach us about health care, Atul Gawande, The New Yorker, June 1, wande Slowing the Growth of Health Care Costs Lessons from Regional Variation, Elliott S. Fisher, M.D., M.P.H., Julie P. Bynum, M.D., M.P.H., and Jonathan S. Skinner, Ph.D., N Engl J Med 2009; 360: Getting Past Denial The High Cost of Health Care in the United States, Jason M. Sutherland, Ph.D., Elliott S. Fisher, M.D., M.P.H., and Jonathan S. Skinner, Ph.D., N Engl J Med 2009; 361: Phelps, Chapter 3: The Transformation of Medical Care to Health (particularly sections Physician- Specific Variations and Extensive and Intensive Margin Differences: Are They Similar? ) and Chapter 5: Empirical Studies of Medical Care Demand and Applications (particularly section Why Variations in Medical Practice? ) 16 Pay for Performance Pay- for- Performance: Will the Latest Payment Trend Improve Care? Rosenthal MB, Dudley R.. JAMA. 2007;297(7): Pay- for- Performance Programs in Family Practices in the United Kingdom, Tim Doran, M.P.H., Catherine Fullwood, Ph.D., Hugh

10 Gravelle, Ph.D., David Reeves, Ph.D., Evangelos Kontopantelis, Ph.D., Urara Hiroeh, Ph.D., and Martin Roland, D.M., N Engl J Med 2006; 355: The Impact Of Pay- For- Performance On Health Care Quality In Massachusetts, , Steven D. Pearson, Eric C. Schneider, Ken P. Kleinman, Kathryn L. Coltin, and Janice A. Singer, Health Aff July : B05/30?accountid=14963 Phelps, Chapter 7: Physicians in the Market Place (particularly section The Role of Payment Schemes ) and Phelps, Chapter 15: Managing the Market: Regulation, Quality Certification, and Technical Change (particularly sections Measuring Quality and Paying for Outcomes ) 17 Hospitals: Evidence Toward a Theory of Nonprofit Institutions: An Economic Model of a Hospital, Joseph P. Newhouse, The American Economic Review, Vol. 60, No. 1 (1970), pp Hospital Ownership and Public Medical Spending, Mark G. Duggan, The Quarterly Journal of Economics, Vol. 115, No. 4 (Nov., 2000), pp Phelps, Chapter 8: The Hospital as a Supplier of Medical Care Phelps, Chapter 9: Hospitals in the Marketplace 18 Pharmaceuticals Pharmaceuticals in U.S. Health Care: Determinants of Quantity and Price, Ernst R. Berndt, The Journal of Economic Perspectives, Vol. 16, No. 4 (Autumn, 2002), pp Phelps, Chapter 15: Managing the Market: Regulation, Quality Certification, and Technical Change (particularly section Drugs and Devices: The New Wave of Medical Care ) 19 Medical Malpractice Medical Malpractice Tort Limits and Health Care Spending, Congressional Budget Office Background Paper, April / medicalmalpractice.pdf o Read pages 1-13 for sure, more if interested Is there empirical evidence for Defensive Medicine? A reassessment, Frank A Sloan and John H Shadle, Journal of Health Economics 28:2, March 2009, Pages

11 1 Phelps, Chapter 13: Medical Malpractice 20 Single Payer Systems The Single- Payer Option: A Reconsideration, Adam Oliver, Journal of Health Politics, Policy and Law August (4): Quality, Innovation, and Value for Money: NICE and the British National Health Service, Pearson SD, Rawlins MD, JAMA. 2005;294(20): Phelps, Chapter 16: Universal Insurance Issues and International Comparisons of Health Care Systems (particularly sections Aggregate International Comparisons and Increase in Costs and Health Outcomes ) 21 Health System Reform in the US 1: Massachusetts Massachusetts Health Care Reform: The View From One Year Out, Jonathan Gruber, Risk Management and Insurance Review, 2008: 11(1), What can Massachusetts teach us about national health insurance reform? Kenneth Couch, ed., Journal of Policy Analysis and Management, (1), Health System Reform in the US 2: The Affordable Care Act The President s Health Reform Proposal: Insurance and Revenue Provisions, Timothy Jost, Health Affairs Blog, February 22, presidents- health- reform- proposal- insurance- and- revenue- provisions/ The President s Health Reform Proposal: Other Provisions, Timothy Jost, Health Affairs Blog, February 22, presidents- health- reform- proposal- other- provisions/ The Health Care Reform Reconciliation Bill, Timothy Jost, Health Affairs Blog, March 19, health- care- reform- reconciliation- bill/ Projecting the Impact of the Affordable Care Act on California, Peter Long and Jonathan Gruber, Health Affairs, (1), /11?accountid=14963

12 Phelps, Chapter 16: Universal Insurance Issues and International Comparisons of Health Care Systems 23 Health System Reform in the US 3: Conservative Alternatives to the ACA Three Cheers for Individual Health Insurance, John Goodman, Health Affairs Blog, March 15, cheers- for- individual- health- insurance/ The Real Arithmetic of Health Care Reform, Douglas Holtz- Eakin, The New York Times, March 20, eakin.html How to Replace Obamacare, James Capretta and Robert Moffit, National Affairs, Spring 2012, Issue to- replace- obamacare Guaranteed Choices to Strengthen Medicare and Health Security for All, Ron Wyden and Paul Ryan, December 15, Phelps, Chapter 16: Universal Insurance Issues and International Comparisons of Health Care Systems 24 Health System Reform in the US 4: The Road so Far Stay tuned