Healthcare Economics (Spring 2026)
Course Summary
This course applies microeconomic theory to analyze healthcare markets, examining why healthcare deviates from standard economic models and how policy interventions attempt to address market failures. Students will develop frameworks for understanding the unique features of health insurance and provider markets, analyze the economic causes of health disparities, and evaluate major US health policies including Medicare, Medicaid, and the Affordable Care Act.
- Prerequisites: Intermediate Microeconomics
- Readings: Henderson, Health Economics and Policy, 8th edition; and more readings on journal articles and policy briefs will be provided on Canvas.
- Mode of Instruction: In-person lectures. Regular attendance is expected.
Assignments and Grading
- Participation — 20%
- Data Analysis Project on “Opioid Crisis Through the Lens of Health Disparities” - 10%
- Other Group Work Activities — 20%
- Midterm — 25%
- Final — 25%
Missed exams are unexcused (score of zero). Plus/minus grading will be applied.
Grading Scale:
A: 94–100; A-: 90–93.9
B+: 88–89.9; B: 83–87.9; B-: 80–82.9
C+: 78–79.9; C: 73–77.9; C-: 70–72.9
D+: 68–69.9; D: 63–67.9; D-: 60–63.9
F: < 60
Participation
Attending class and reading class materials in advance to the class are necessary. Full 20% credit earned via one of the following three pathways (choose by Midterm 1, may switch once before the Final exam):
- Path A – Reverse + Regular OHs: One 20-min reverse OH (you pick time & place), plus two regular OH visits.
- Path B – In-class Surveys: Complete 18 surveys.
- Path C – Peer Teaching: Two mini peer-teaching sessions (5–7 min) with Canvas outline.
Group Activities and Laboratory Projects
- Groups of four for activities/projects.
- Pre-exam reviews and problem set reviews are student-led.
- Group membership flexible with consent.
- Reflection notes and assignments tied to weekly concepts.
Exams
- Classes before exams are review sessions, often student-led.
- Midterm: March 8
- Final Exam: May 12
Weekly Schedule with Topics
Weekly Schedule with Topics
| Week | Topic | Questions You’ll Answer | Reflection Notes (RN) / Group Activity (G) / Problem Set (PS) |
|---|---|---|---|
| 1 | The US Healthcare System • System overview and institutional features • International comparisons • Healthcare spending trends • Henderson Ch.3 | • Why does the US spend more on healthcare than other developed countries? • What unique institutional features distinguish the US system? • Is higher spending associated with better health outcomes? | (RN) Healthcare experience reflection |
| 2–3 | Microeconomic Review & Health Economics Overview • Consumer theory • Production functions • Market failures in healthcare • Henderson Ch.1–2 | • What market failures are most prevalent in healthcare? • Why might healthcare not follow the “law of demand”? | (PS) Problem Set 1 (G) Student-led review |
| 4 | Demand for Health and Healthcare • Grossman model • Investment vs. consumption • Depreciation and aging • Henderson Ch.4 + Grossman (1972) | • Can health be both a consumption and investment good? • Why do wealthier individuals live longer in the Grossman model? • Why does health depreciate faster with age? • How does education increase the productivity of health investments? | (G) Health investment by people of different ages |
| 5 | Demand for Health Insurance • Expected utility • Risk aversion • Optimal insurance contracts • Henderson Ch.6 | • Why do risk-averse individuals buy actuarially unfair insurance? • What determines optimal cost-sharing? • Why might someone rationally choose to be uninsured? | (PS) Problem Set 2 (G) Student-led review |
| 6 | Insurance Markets and Information Problems • Moral hazard • Adverse selection • RAND HIE • Henderson Ch. 6–7 + Cutler & Zeckhauser | • How can adverse selection lead to market unraveling? • What did RAND HIE teach about price elasticity of demand? • Can moral hazard ever improve welfare? | |
| 7 | Review & Midterm | (G) Student-led review | |
| 8 | Provider Behavior & Payment Systems • FFS vs. capitation vs. salary • Pay-for-performance • Henderson Ch. 9 + McGuire (2000) | • How do different payment mechanisms affect physician behavior? • Why are physicians imperfect agents for patients? | (G) Design the optimal P4P system |
| 9 | Hospital Markets and Competition • Competition models • Quality competition • Mergers & market power • Henderson Ch.10 | • Does hospital competition reduce prices or increase quality? • Why might mergers increase costs without more market power? • How does the Medical Arms Race explain technology adoption? • What’s different when prices are regulated? | |
| 10–11 | Health Insurance Market Simulation Game • Adverse selection in practice | (G) Health Insurance Simulation Game | |
| 12 | Health Disparities & Social Determinants • Income-health gradient • Education and health • Racial disparities • Neighborhood effects • Henderson Ch.13 + Case & Deaton (2015) | • Why does the health-income gradient exist? • Is the education-health relationship causal? • What explains racial disparities beyond income? • How do neighborhoods create health inequality traps? | (PS) Data Workshop: “Opioid Crisis Through the Lens of Health Disparities” |
| — | No Class (Spring Break) | ||
| 13 | Government Insurance Programs • Medicare (Parts A, B, C, D) • Medicaid financing • Incidence & crowd-out • ACA reforms • Henderson Ch.14–16 | • What are Medicare’s multiple parts for? • How does federal-state financing create moral hazard in Medicaid? • Who benefits economically from Medicare subsidies? • Did the ACA bend the cost curve? | |
| 14 | Current Policy Debates • Drug pricing reform • Value-based care • Post-pandemic changes | • Would drug price controls reduce innovation? • How would a public option affect private insurance markets? • Can value-based care fix FFS incentives? • Does telehealth complement or substitute in-person care? • What are the long-term implications of expanded telehealth? | |
| 15 | Review & Final Exam | (G) Student-led review |
If you find any of the exercises above useful and decide to use it in your teaching, we would greatly appreciate an acknowledgment.
Conduct, Integrity, Accessibility
- Devices: Only for class purposes; prohibited during exams.
- Academic Integrity: Collaboration allowed on problem sets (with attribution, incl. AI/chatbots). Exams are closed-book. University integrity policies apply.
- Accessibility: Contact instructor or Student Disability Services for accommodations.
- Grade Appeals: Written appeal within 24h of return; entire assignment may be regraded.