Economics of Healthcare Markets: Externalities, Market Structures, and Policy Models

Moral Hazard (Nyman Model)

Myman: insurance causes both efficient and inefficient moral hazard; behavior changes with full coverage.

Nyman Model Income Transfer

People buy insurance for an income transfer when sick; insurance creates financial access to care.

Competitive Market

Many buyers/sellers, price takers, MPB = price, price = MPC.

Monopoly

One firm, downward demand, MR < price, higher price, deadweight loss.

Oligopoly

Few dominant firms, barriers to entry, mutual interdependence.

Monopsony

One buyer; pays lower price and buys lower quantity.

HHI Definition

Sum of squared market shares; higher HHI = concentrated; lower HHI = competitive.

Negative Demand Externality

Smoking: MSB < MPB; overconsumption.

Positive Demand Externality

Rabies vaccine: MSB > MPB; underconsumption.

Negative Supply Externality

Pollution: MSC > MPC; overproduction.

Public Interest Theory

Gov't promotes general welfare, efficiency, equity, corrects externalities.

Special Interest Group Theory

Policy shaped by politicians + special interest groups; benefits narrow; costs on public.

Public Good

Nonrival consumption; hard to exclude; funded through taxation.

Williamson Merger Trade-Off

Model compares cost savings (B) vs deadweight loss (C) to judge net benefits.

Medicare Parts

A: Hospital; B: Physician; C: Advantage; D: Drugs.

MACRA

Created MIPS; replaced SGR; pay-for-performance structure.

MIPS

Quality, Cost, Improvement Activities, Promoting Interoperability.

Medicaid Expansion

Covers adults ≤138% FPL; non-expansion leaves coverage gaps.

Dominant Firm Pricing Model

Dominant firm sets price; fringe are price takers; MR = MC; larger fringe lowers price.

Supplier-Induced Demand

Providers induce extra services due to information advantage; increases use and costs.