Should the individual consumers’ demand curve for health care and the horizontal summation of such curves into the market demand for health care be viewed as reliable guides to the social value of health care.

ECON 100/FALL 2005 REINHARDT HOMEWORK ASSIGNMENT NO. 4 THE CONCEPTS OF “EFFICIENCY” AND “ECONOMIC WELFARE” IN THE CONTEXT OF HEALTH CARE PREAMBLE In this homework assignment, you are invited to think whether the individual consumers’ demand curve for health care and the horizontal summation of such curves into the market demand for health care ought to be viewed as reliable guides to the social value of health care.Document Preview:

ECON 100/FALL 2005 REINHARDT HOMEWORK ASSIGNMENT NO. 4 THE CONCEPTS OF “EFFICIENCY” AND “ECONOMIC WELFARE” IN THE CONTEXT OF HEALTH CARE PREAMBLE In this homework assignment, you are invited to think whether the individual consumers’ demand curve for health care and the horizontal summation of such curves into the market demand for health care ought to be viewed as reliable guides to the social value of health care. You will do this with the help of a somewhat stylized model, designed to bring out the issues clearly, but based on current health policy in the real world. To describe that world to you, we begin with a somewhat lengthy description of the policy issues at hand. Thereafter we present the model and the questions based thereon. So, bear with us on the length of the assignment. THE POLICY CONTEXT Although, unlike all other industrialized nations, the United States does not have a universal health insurance system providing coverage to every resident and, in fact, leaves some 45 million mainly low-income Americans without health insurance at any one time, the country does have two large, government-run health insurance programs: (1) the federal Medicare program for Americans aged 65 or older and (2) the federal-state Medicaid program, mainly for children and their mothers in very low-income families, the blind, the disabled and pauperized elderly Americans who are also entitled to Medicare (which does not cover many services needed by the elderly). Jointly, these two government programs account for about 40% of the $1.8 trillion or so the nation now spends on health care. We note in passing that this large overall level of national health spending is, in fact, unrivaled in the world, as is clear from the following two graphs, based on comparable data assembled by the Organization for Economic Cooperation and Economic Development (OECD). HEALTH SPENDING AS % OF GDP SELECTED OECD COUNTRIES, 2003 (IN…

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