Question

Health Economics: Please answer asap

How do you construct a decision tree and what does it mean to have an expected value and standard deviation?

•                     Describe the risk preferences

•                     What is scenario analysis and sensitivity analysis?

•                     List and explain the approaches to managing risk

•                     What is the difference among these concepts from a health economics perspective: HMO, POS, PPO, indemnity, risk pool, HSA, IPA, …

•                     What are the payment systems?

Answer 1

A decision tree is constructed with the help of various nodes and branches. Every branch will display the alternative courses of action available. In health economics, decision trees are used for evaluation of decisions, it is used when the outcomes are not known with certainity but probable values can be assigned to each outcome. They are extremely useful when an individual has alternative courses of action. The decision tree heavily relies on the expected values, the formula for expected value can be computed by multiplying the pay off of an individual with the probability of that pay off. The expected value of the costs and benefits needs to be computed. This helps us to arrive at an effective strategy that needs to be followed. Standard deviation helps understand the homogenity of the sample.

Risk preferences are useful in explaining the behaviour related to health. A study conducted to assess the risk preferences concluded that attitudes of risk vary with different contexts, but risk aversion seemed to prevail generally in all of the respondents. Those students who were pursuing degrees in health care seemed to be more risk averse

Scenario analysis provides insights about the efficiency of the technology in the best and worst case scenarios. Sensitivity analysis is perfomed by changing the assumptions based on which the analysis was made, it gives insights into the confidence level associated with the evaluation. Sensitivity analysis essentially gives information about how changes in the parameters will affect the model, it will therefore help establish the key variables.

Managing risk effectively is very important in the healthcare industry. In the case of healthcare industries, risk management can be understood in terms of magaging the safety of patients. Health care providers are adapting an approach called the Enterprise Risk Management. It includes both patient safety as well as the risk of the organization as a whole. The domains include operational, financial, strategic, patient safety, technological, legal etc.

Health maintenance organizations provide coverage for health insurance when paid in installments. The coverage however is limited to only those doctors who are under the contract with patients who opt for the coverage. A Point of Service health insurance plan provides varying benefits based on if the doctors consulted are in the network or not.A POS combines characteristics of both Health maintenance organisation and preferrred provider organisation, it costs less but savings can be made only when the doctors consulted are in the network. The difference between the both is that point of service health insurance still allows individuals to opt for doctors outside the network but they will have to pay more. Preferred Provider organization provides health care at subsidised prices. The network of doctors in PPO are more than HMO but a higher cost has to be paid for PPO. An Indemnity health insurance plan is one where the insurance company reimbureses the costs incurred during hospitalization but it is obviously subject to the maximum amount insured by the individual. Risk pooling is when protection is given to many households, that is many individuals pay premiums collectively, this helps those who are healthy to make up for those who are not healthy. Health savings account acts like a savings account for medical purposes which is exempted from taxation when making the deposit, it is available to those who are enrolled with the HDHP.

The basic payment modes:

1. Out of pocket payment

2. Individual private insurance

3. Group private insurance

The basic payment methods can be salary, fee for service and capitation.