Health Care Economics

Assignment 1
Assignment 1
Instructions
1. Assignment 1 should be done after you have completed Units 1, 2, 3, and
4.
2. This assignment is worth 25% of your final grade. It contains 12
questions, which have been assigned various marks. Assignment 1 has a
total of 100 marks.
3. Prepare written responses to all questions. Although your responses
should be concise, ensure that you answer all portions of each question
as completely as possible.
4. When you have completed Assignment 1, save a copy for your records,
and then send it to your tutor using the assignment link.
5. When you receive your graded assignment, carefully review the
comments your tutor or evaluator has made. This review component is
an important step in your learning process. If you have any questions or
concerns about the assignment evaluation, contact your tutor as soon as
possible

Questions
10 marks
1.
A model of the determinants of health combines three economic variables and
two economic relationships.
For instance, the three economic variables are:

the amount a patient pays for a visit to a physiotherapist

(P);

the number of times the patient visits the physiotherapist

(V); and

the length of time it takes the patient to recover from a

rotator cuff (shoulder) injury (D) (max. 365 days).

The two economic relationships are:

the number of visits (V) 18 $0.09 (P).

In other words, if the price is zero, the patient will make 18 visits in order to
receive treatment for this injury. If the price is $200, the patient will make zero
visits.

the number of days to recover (365 D).

In this case, the number of healthy days (D) in the next year will be 180 5V. If
the number of visits is zero, the patient will have 180 healthy days and it will
take 185 (365 180) days to recover from the rotator cuff injury. If the number
of visits is 18, the patient will have 270 [180 5(18)] healthy days, and the time
to recover from the injury will be 95 days (365 270).
Use the above information to determine the relationship between price and
health status in this model. In other words, solve for D and for P, and set up two
equations: one showing the value of D in terms of P; and one showing the value of
P in terms of D. Once you have determined the two equations, provide an
interpretation of each equation.
2.
Populatio
n

Physician
s

of
Canada

in
Canada

2002

31,577,000

56,080

520,800

2003

31,988,700

58,230

558,500

2004

32,509,000

59,850

570,200

2005

33,037,000

60,925

589,300

Year

5 marks

Physician
Services
(thousands)

a. Calculate the number of physicians, per thousand population in Canada,

from 2002 to 2005. What conclusions can be drawn about the physician
coverage of Canadas population?

5 marks
b. Calculate the per capita usage of physician services in Canada for each of
the above four years, and determine the annual percentage changes in per
capita usage. (Show all of your work to earn full marks.)

10 marks
3. Green Shield Insurance provides NEMO Corporation with coverage for
prescriptions, dental work, and extended health services. Each
subscriber uses $435 worth of dental services per year; $410 worth of
prescriptions per year; and $385 worth of extended health coverage
per year. Green Shield has a 25 percent copayment clause, and a
loading factor of 65 percent. NEMO will pay 50 percent of the plan
costs. What is the annual and monthly premiums charged to the
employees of NEMO corporation? (Show all of your work to earn full
marks.)
4. The services of a certified psychologist cost $110 per hour, and an extended
health plan covers 50 percent of that cost. Under the plan, the clients covered
used 625 hours of this service in a typical three-month period. To save money,
the extended health plan reduced its coverage to 40 percent of the cost. As a
result, the clients covered reduced their use of this service to 482 hours in a
typical three-month period.

4 marks
a. Calculate the total cost of providing this insured service to the plan before
and after the change in coverage. (Show all of your work to earn full marks.)

6 Marks
b. Based on the data above, calculate the elasticity of demand for the services
of a certified psychologist. (Show all of your work to earn full marks.)
Interpret the elasticity of demand, and explain the behaviour of the clients
covered based upon this interpretation.

12 marks

5. The northern community of Assiniboine Narrows has a population of 12,000.

It has one medical clinic with three doctors, each working 40 hours per week.
Each doctor sees four patients per hour. The clinic would like to hire one or two
more doctors.
The mortality rate in the community is 11 per 1,000 population. This rate will fall
to 9.5 per thousand if one doctor is added and to 9 per thousand if two doctors
are added. Each new doctor will cost the system $250,000 per year.
An alternative plan is to bring in two home care nurses. Each home care nurse
will see two patients per hour. The addition of the first nurse will reduce the
mortality rate by 0.8 per thousand, and the addition of a second nurse will reduce
the mortality rate by 0.6 per thousand. Each home care nurse will cost the system
$100,000 per year.
Use calculations to examine the alternatives available to Assiniboine Narrows.
Then, based on your calculations, make a recommendation as to the preferred
course of action. Ensure that you calculate the output and outcome of each
additional health professional.

10 marks
6. Assume a given demand curve for massage therapy services. In the context of
providing massage therapy services, list, and describe in detail, five different
variables that may cause an increase in the demand for these services.

6 marks
7. In 2006, a hospital with 135 beds had 8,795 admissions. The average length
of stay
for each patient was 4.7 days. Assuming full capacity is 100 percent, calculate the
occupancy rate of the hospital for 2006. Also, calculate the hospital capacity for
2006.

10 marks
8. Based on the information given in the Canada Health Act as well as the
information provided in your Study Guide, write a description of how
medical services are funded in Canada. Be sure to describe the
services covered under the following three areas: hospital care,
medical care, and areas not currently funded (unless one has
supplementary health insurance).

5 marks

9. Using the relationship between the price of a visit to a physiotherapist and the
quantity of visits demanded, define and distinguish among the direction,
the slope, and the position of an economic relationship.

5 marks
10. Following her knee replacement operation, Mrs. Purtik was sent to a longterm care
facility for rehab for a period of time. She now receives home care and makes
visits to a physiotherapist. How many providing agencies would be responsible
for Mrs. Purtiks treatment and care in a traditional health care system? How
many providing agencies would be involved in her case in a regionalized health
care system? Explain your answer in both cases.

6 marks
11. In the context of hospital care, define and distinguish among occupancy rate,
capacity, and utilization.

6 marks
12. Discuss the role and interrelationships between the following economic units
in the
operation of Canadas health care system: consumers, suppliers, third parties,
and regulators.