Economics and Financing
Afterwards the student is able to:
Explain the relevance of health economics
Analyze the causes and consequences of the expansion of the healthcare
sector
Explain what makes health care different and infer the implications thereof
Knowledge clips 1 – Is healthcare really
different?
Knowledge clip 1 - "Health economics and expansion of
the healthcare sector
Afterwards you are able to:
• Explain the relevance of health economics
• Analyze the causes and consequences of the expansion of the
healthcare sector
Folland, Goodman & Stano, 2017:
“Health economics studies the allocation of resources to and within the health
sector. Because this sector has become the largest sector of many countries’
economies and its share of GDP is expected to continue to grow, we should not
be surprised that health economics has emerged as a distinct specialty within
economics.”
• Health economics provides concepts and tools to understand difficult
trade-offs involved in organizing the allocation of healthcare resources,
which may help to improve health policy and health system design
Does economics apply to health care?
Yes, money and resources are scarce, so economics play an important role in
identifying where money has to be spent.
- In addition, if economics studies how scarce resources are produced and
then distributed, then clearly economics applies. Healthcare resources are
certainly scarce and there is no question that health care is produced and
distributed.
- Example: does price matter: demand response is downwards sloping
that relation also shows in mental and medical health care.
o Harder for mental care, slopes harder downward
o Higher coinsurance rate, less demand
- The demand curve does apply to health care. Much of health care is
elective and even routine. Some choice, unless in emergency cases.
- Higher prices > lower demand
,Relevance of health economics
- The economic organization of healthcare systems has a significant impact
on the efficiency and equity of healthcare allocation
o Health system reforms are often based on health economics
- Healthcare is large and expanding sector of national economies.
- Health care is not a regular (economic) commodity; it is widely considered
a right (entitlement for all, unconditional), not a privilege (entitlement for
few, conditional).
- Specific features of health care can easily result in market failure as well as
in government failure. The economic organization of healthcare systems
has a significant impact on the efficiency and equity of healthcare
allocation (the work of health economists’ effects health care).
- Health care will be considered a public good (usually 80% is payed for
publicly, to some extent is however private good to)
Expansion of the healthcare sector
- Health care is a very large percentage of a country’s economy, and this
share is also increasing over time.
- There are large differences between some countries must be to some
extent differences in financing.
- Health care in itself is not the goal, health is the goal, health care is the
means. Health care is not the only determinant of health.
- The alternative spending opportunities have to be weighted health
economics helps.
Knowledge clip 2 - "Health care: right or privilege?"
Knowledge clip 3 - "Health care's distinctive features"
,Knowledge clips 2 - Demand for healthcare
After this lecture you will be able to:
• Recognize the relationship between the demand for health and health care
• Identify and interpret basic models of health care demand
• Identify the determinants of the demand for health care
• Explain utility theory and its relevance for understanding health care
demand
• Categorize and evaluate price and income elasticities of health care
demand
Knowledge clip A - Three models of health care demand
• Demanding heath care is not for fun! It only generates utility if it
improves health or quality of life
• This implies that the demand for health care is derived from the demand
for health
• In fact, health care is only one of the inputs in an individual’s
health production function:
• Health production function = h (Health care, Schooling, Nutrition,
Prevention, Safety, …)
• Health care is not only a consumption but also an investment good; in
future health and future production
What determines our demand for health care?
Three basic models:
1.The medico-technical model:
• the doctor is in the lead, acting as a perfect agent
2. The neo-classical model:
• the patient/consumer is in the lead, having perfect
information
3. The imperfect agency model:
• demand is determined by both doctors and patients as
information is part of the transaction; patient to the doctor,
influence the decision of the doctor
, 1. The medico-technical model; professional view on medical healthcare
demand
• Consumer demand is determined by medical experts based on objective
needs
• Assumptions:
health care providers act as perfect agents on behalf of their
patients
patients have uniform preferences and fully comply with the
decisions made by their providers
providers know with certainty the results of their decisions
• Only one determinants of health care demand: need, price do not play a
role
Clear what the patient needs, determinants are completely clear
• Thus: individual demand is completely (price-)inelastic
For every price, the consumer will take the good
Not sensitive for price changes
One quantity of healthcare that is relevant, that is the judgement of
the doctor. For every price they will consume
Critique on medico-technical model
There is substantial empirical evidence that the assumptions of the medico-
technical model are violated in practice:
• Doctors are not perfect agents but also pursue their own, sometimes
conflicting, interests
• Doctors often do not know with certainty the effect of medical
treatment
• Consumers do not have uniform preferences for medical care, even if
they would be equally well-informed as their doctors
• Consumers do not fully comply with the decisions of their doctors
Afterwards the student is able to:
Explain the relevance of health economics
Analyze the causes and consequences of the expansion of the healthcare
sector
Explain what makes health care different and infer the implications thereof
Knowledge clips 1 – Is healthcare really
different?
Knowledge clip 1 - "Health economics and expansion of
the healthcare sector
Afterwards you are able to:
• Explain the relevance of health economics
• Analyze the causes and consequences of the expansion of the
healthcare sector
Folland, Goodman & Stano, 2017:
“Health economics studies the allocation of resources to and within the health
sector. Because this sector has become the largest sector of many countries’
economies and its share of GDP is expected to continue to grow, we should not
be surprised that health economics has emerged as a distinct specialty within
economics.”
• Health economics provides concepts and tools to understand difficult
trade-offs involved in organizing the allocation of healthcare resources,
which may help to improve health policy and health system design
Does economics apply to health care?
Yes, money and resources are scarce, so economics play an important role in
identifying where money has to be spent.
- In addition, if economics studies how scarce resources are produced and
then distributed, then clearly economics applies. Healthcare resources are
certainly scarce and there is no question that health care is produced and
distributed.
- Example: does price matter: demand response is downwards sloping
that relation also shows in mental and medical health care.
o Harder for mental care, slopes harder downward
o Higher coinsurance rate, less demand
- The demand curve does apply to health care. Much of health care is
elective and even routine. Some choice, unless in emergency cases.
- Higher prices > lower demand
,Relevance of health economics
- The economic organization of healthcare systems has a significant impact
on the efficiency and equity of healthcare allocation
o Health system reforms are often based on health economics
- Healthcare is large and expanding sector of national economies.
- Health care is not a regular (economic) commodity; it is widely considered
a right (entitlement for all, unconditional), not a privilege (entitlement for
few, conditional).
- Specific features of health care can easily result in market failure as well as
in government failure. The economic organization of healthcare systems
has a significant impact on the efficiency and equity of healthcare
allocation (the work of health economists’ effects health care).
- Health care will be considered a public good (usually 80% is payed for
publicly, to some extent is however private good to)
Expansion of the healthcare sector
- Health care is a very large percentage of a country’s economy, and this
share is also increasing over time.
- There are large differences between some countries must be to some
extent differences in financing.
- Health care in itself is not the goal, health is the goal, health care is the
means. Health care is not the only determinant of health.
- The alternative spending opportunities have to be weighted health
economics helps.
Knowledge clip 2 - "Health care: right or privilege?"
Knowledge clip 3 - "Health care's distinctive features"
,Knowledge clips 2 - Demand for healthcare
After this lecture you will be able to:
• Recognize the relationship between the demand for health and health care
• Identify and interpret basic models of health care demand
• Identify the determinants of the demand for health care
• Explain utility theory and its relevance for understanding health care
demand
• Categorize and evaluate price and income elasticities of health care
demand
Knowledge clip A - Three models of health care demand
• Demanding heath care is not for fun! It only generates utility if it
improves health or quality of life
• This implies that the demand for health care is derived from the demand
for health
• In fact, health care is only one of the inputs in an individual’s
health production function:
• Health production function = h (Health care, Schooling, Nutrition,
Prevention, Safety, …)
• Health care is not only a consumption but also an investment good; in
future health and future production
What determines our demand for health care?
Three basic models:
1.The medico-technical model:
• the doctor is in the lead, acting as a perfect agent
2. The neo-classical model:
• the patient/consumer is in the lead, having perfect
information
3. The imperfect agency model:
• demand is determined by both doctors and patients as
information is part of the transaction; patient to the doctor,
influence the decision of the doctor
, 1. The medico-technical model; professional view on medical healthcare
demand
• Consumer demand is determined by medical experts based on objective
needs
• Assumptions:
health care providers act as perfect agents on behalf of their
patients
patients have uniform preferences and fully comply with the
decisions made by their providers
providers know with certainty the results of their decisions
• Only one determinants of health care demand: need, price do not play a
role
Clear what the patient needs, determinants are completely clear
• Thus: individual demand is completely (price-)inelastic
For every price, the consumer will take the good
Not sensitive for price changes
One quantity of healthcare that is relevant, that is the judgement of
the doctor. For every price they will consume
Critique on medico-technical model
There is substantial empirical evidence that the assumptions of the medico-
technical model are violated in practice:
• Doctors are not perfect agents but also pursue their own, sometimes
conflicting, interests
• Doctors often do not know with certainty the effect of medical
treatment
• Consumers do not have uniform preferences for medical care, even if
they would be equally well-informed as their doctors
• Consumers do not fully comply with the decisions of their doctors
