Comprehensive Guide to Healthcare Economics: Moral Hazard, Insurance, and Adverse Selection

What is moral hazard in the context of insurance?

Moral hazard refers to the situation where insurance coverage leads to an increase in risky behavior, such as over-utilization of services like emergency room visits.

How does a copayment affect demand for emergency room visits?

Higher copayments generally reduce demand for emergency room visits, while lower copayments increase demand.

What is the price at which demand for ER visits drops to zero?

The price at which demand for ER visits drops to zero is $400.

What percentage of employees would use the ER if the copay were $0?

At a $0 copay, 20% of employees would use the ER.

What are the employer costs per employee at a $400 copayment?

At a $400 copayment, the employer cost is $0 per employee.

What is the employer cost per employee at a $0 copayment?

At a $0 copayment, the employer cost is $60 per employee.

What is social surplus?

Social surplus measures the net benefit to society, calculated as the area between the demand curve and the social cost of a service.

What is the social cost per ER visit in the given scenarios?

The social cost per ER visit is $300 in the first scenarios and $150 in the recalculated scenarios.

What happens to social surplus when insurance lowers out-of-pocket prices?

Lowering out-of-pocket prices through insurance can decrease social surplus by encouraging consumption of ER visits where the value is less than the cost to society.

What is the social surplus when there is no insurance and the price is $300?

The social surplus when there is no insurance and the price is $300 is $2.50 per employee.

How does a $200 copayment affect social surplus?

With a $200 copayment, the social surplus is $0 per employee.

What is the social surplus with a $100 copayment?

With a $100 copayment, the social surplus is -$7.50 per employee.

What is the expected cost in the insurance scenario provided?

The expected cost is $2,000, calculated from a 20% chance of a $10,000 cost and an 80% chance of a $0 cost.

What is the minimum insurance price an insurer would charge?

The minimum insurance price, ignoring administrative costs and profit, is the actuarially fair premium of $2,000.

What are the expected costs without insurance when breaking a hip?

The expected cost without insurance when breaking a hip is $2,000.

What is the expected cost with insurance when breaking a hip?

The expected cost with insurance when breaking a hip is the premium of $2,000.

What is the impact of insurance on social surplus when the social cost is lower than the price charged?

When the social cost is lower than the price charged, insurance can increase social surplus by correcting under-consumption caused by high prices.

How do administrative costs affect the minimum insurance price?

Administrative costs would increase the minimum insurance price above the actuarially fair premium.

What is the valuation curve based on the points (25%, $100) and (15%, $200)?

The valuation curve has a slope of -0.10 and an intercept of V = 350 - 1000Q.

What is the social surplus when the true valuation of care is higher than perceived?

Even with higher true valuation, if the social cost is high, insurance may still lead to over-consumption and reduced social surplus.

What is the total true value at Q=0.05 on the valuation curve?

The total true value at Q=0.05 on the valuation curve is $16.25.

What is the total social cost at Q=0.05?

The total social cost at Q=0.05 is $15.

What is the social surplus at Q=0.10 with a $200 copayment?

The social surplus at Q=0.10 with a $200 copayment is $0.

What is the social surplus at Q=0.15 with a $100 copayment?

The social surplus at Q=0.15 with a $100 copayment is -$3.75.

What is the expected cost of having insurance when the premium is $2,000?

$2,000

How does a risk-neutral person approach the decision to purchase insurance?

They are indifferent, as the expected costs are identical with or without insurance.

What is the behavior of a risk-averse person regarding insurance?

They prefer the certainty of a $2,000 loss to the uncertainty of a 20% chance of a $10,000 loss.

What is the new minimum price for insurance when administrative costs are added?

$2,100

What must a risk-averse person value certainty at to purchase insurance with a $2,100 premium?

At least $100.

What is the expected cost of a broken hip for an insured person under moral hazard?

$15,000

What is the new expected cost of insurance when moral hazard is considered?

$3,000

What happens when there is a 100% chance of an event occurring?

The minimum price equals the expected cost, which would be $10,000.

Why would no rational consumer purchase insurance with a 100% chance of an event?

There is no risk to transfer; paying a premium equals the certain expense.

What is adverse selection in insurance markets?

It occurs when asymmetric information leads to market failure, with insurers unable to distinguish between 'sick' and 'healthy' individuals.

What is the expected cost for a 'sick' type individual?

$8,000

What is the expected cost for a 'healthy' type individual?

$1,000

What happens when an insurer offers a single policy at the 'healthy price'?

Healthy individuals will not buy, but sick individuals will find it a bargain.

What is the average cost per enrollee when the insurer has a 50% healthy and 50% sick pool?

$4,500

What is the outcome when the insurer charges a pooled price of $4,500?

Only sick types will purchase the policy, leading to a loss for the insurer.

What is the 'sick price' in the insurance market?

$8,000

What are the pros of banning risk rating in insurance?

It promotes fairness and social solidarity by preventing discrimination based on pre-existing conditions.

What are the cons of banning risk rating in insurance?

It can lead to adverse selection and reduced access to insurance for healthy individuals.

What condition leads to complete market failure in insurance?

When the average cost of consumers willing to buy at any price exceeds that price.

What happens if sick individuals are only willing to pay up to $7,000 for insurance?

The insurer cannot break even, leading to market collapse.

What are the three main components of the 'iThrive' program?

1. Annual on-site biometric health screening, 2. Annual online health risk assessment (HRA), 3. Weekly wellness activities (e.g., chronic disease management, fitness, financial wellness).

What is the fundamental difference between the treatment group and the control group in the iThrive study?

The treatment group could participate in the iThrive program and earn financial rewards, while the control group could not participate.

How were employees assigned to the treatment and control groups in the iThrive study?

Employees were assigned using random assignment at the individual level to avoid selection bias.

How many employees completed the baseline survey to enroll in the iThrive study?

4,834 employees completed the baseline survey.

What percentage of employees in the treatment group completed the Biometric Screening and HRA?

56% of the treatment group (1,848 out of 3,300) completed the Biometric Screening and HRA.

What is meant by 'Steve's treated outcome' in the potential outcomes framework?

Steve's treated outcome is the outcome observed for him if he is offered the workplace wellness program.

What is 'Steve's untreated outcome' in the potential outcomes framework?

Steve's untreated outcome is the outcome observed for him if he is not offered the workplace wellness program.

How is the causal effect of the workplace wellness program for Steve defined?

The causal effect is defined as the difference between Steve's treated and untreated potential outcomes: Causal Effect = Y₁ᵢ - Y₀ᵢ.

If Steve is in the treatment group, which potential outcome do we observe?

We observe Steve's treated outcome (Y₁ᵢ) and do not observe his untreated outcome (Y₀ᵢ).

What does the Average Treatment Effect on the Treated (ATT) represent?

ATT represents the average causal effect of the program for individuals who chose to receive the treatment.

What is the relationship between the average treatment effect on the treated and a simple comparison of means?

A simple comparison of means equals the ATT plus a selection bias term.

What must be true for the comparison of means to equal the average treatment effect on the treated?

The selection bias term must be zero, meaning the average untreated potential outcomes for treated and untreated groups must be equal.

How did average monthly medical spending compare between treatment group employees who completed the screening and those who did not?

Employees who completed the screening had average monthly medical spending that was $115.30 lower.

Were employees who participated in the wellness program more or less likely to engage in physical activities?

Participating employees were more likely to engage in physical activities, such as running events and gym visits.

What type of employee is most likely to sign up for a wellness program?

Employees who are healthier, more physically active, and have lower baseline medical spending are most likely to sign up.

What sign would we expect the selection bias term for total medical spending to be?

We would expect the selection bias term to be negative, as participants likely have lower baseline spending.

How might the comparison of mean post-intervention medical spending differ from the causal effect of the wellness program?

The comparison of means is expected to be more negative than the true causal effect due to negative selection bias.

What do the numbers in the first row of columns 3 and 4 of Table 4 indicate?

Column 3 shows participants had $137.30 lower spending than non-participants; Column 4 shows $103.80 lower spending after adjusting for baseline characteristics.

Why might a manager be excited to implement a wellness program based on the results?

The results suggest a significant reduction in medical spending, indicating a large financial return on investment.

Why might the estimate of the wellness program's effect on medical spending not represent the true causal effect?

The estimate may not account for selection bias and other confounding factors affecting the outcomes.

Why might the estimate of the wellness program's effect on medical spending be inaccurate?

It may be contaminated by selection bias, as participants were already healthier and had lower spending before the program.

What are 'intent-to-treat' (ITT) estimates?

ITT estimates compare everyone assigned to the treatment group with everyone in the control group, regardless of actual participation.

What was the unadjusted difference in monthly medical spending between treatment and control groups?

The treatment group spent $10.80 more per month, which was not statistically significant.

How does the unadjusted difference in spending compare to average monthly spending?

The difference of $10.80 represents approximately 1.9% of the average monthly spending.

How do the experimental results differ from observational results regarding medical spending?

The experimental result showed a small, insignificant increase in spending, while the observational result indicated a significant decrease.

What does the difference in results between experimental and observational studies indicate about selection bias?

It suggests that selection bias in the observational study was large and negative, misleadingly indicating that the program saved money.

Why is the randomized experiment considered more reliable than the observational comparison?

Random assignment ensures treatment and control groups are identical before the intervention, solving the selection bias problem.

What were the main findings of the iThrive wellness program after one year?

The program had no significant impact on medical spending, employee productivity, or most health behaviors, except for slight increases in health screening and perceived management support for health.

How did the participation rate in the treatment group affect the intent-to-treat (ITT) estimate?

With only about 56% participation, the ITT estimate is diluted, reflecting the average effect across both participants and non-participants.

What is the adjusted difference in mean annual medical spending between treatment and control groups in the Song and Baicker study?

The adjusted difference is -$425.57, indicating the treatment group spent less, but it is not statistically significant.

What level of certainty is associated with the estimate of the wellness program's effect on healthcare costs?

The level of certainty is 90%, based on consistent findings from two large randomized controlled trials.

What is the best estimate for how much the wellness program will lower employee healthcare costs in the first 1-2 years?

The best estimate is $0, as both studies found no statistically significant effect on medical spending.

What potential effects could arise if everyone at a workplace is offered a wellness program?

Offering the program to everyone could create peer effects and a supportive workplace culture, potentially leading to larger program impacts.

What does the term 'Treatment on the Treated' (TOT) refer to?

TOT refers to the actual effect of the program on those who participated, as opposed to the average effect across all assigned to treatment.

What is the significance of the p-value in the context of the wellness program's effect?

A high p-value indicates that the observed difference is not statistically significant, suggesting no reliable effect.

What is the impact of selection bias on observational studies of wellness programs?

Selection bias can lead to misleading conclusions about the effectiveness of wellness programs, often overstating benefits.

How might long-term effects of wellness programs differ from short-term effects observed in studies?

Long-term effects could vary, as studies only measure impacts over 1-2 years, and different program designs may yield different results.

What is the role of randomization in experimental studies of wellness programs?

Randomization helps eliminate selection bias, allowing for a clearer attribution of outcomes to the wellness program itself.

What are the implications of the findings from the Jones et al. and Song and Baicker studies?

Both studies suggest that previous claims of significant cost savings from wellness programs may be due to selection bias rather than true effects.

What is the importance of having a wide confidence interval in statistical estimates?

A wide confidence interval indicates uncertainty about the true effect size, suggesting that the observed effect may not be reliable.

What does it mean for an effect to be statistically significant?

A statistically significant effect indicates that the observed difference is unlikely to have occurred by chance, suggesting a true effect.

Why is it important to consider both participation rates and intent-to-treat estimates?

Participation rates affect the validity of ITT estimates, as lower participation can dilute the perceived effectiveness of a program.

What kind of outcomes were measured in the studies of the wellness program?

Outcomes included medical spending, employee productivity, and health behaviors such as gym visits and health screenings.