1.2 Introduction to rationing health care
• Obtained a thorough understanding of what rationing health care is.
Rationing = somehow limiting the amount of care provided and consumed often in order to control /
optimize healthcare expenditures.
Definition Rationing = “To limit the beneficial health care an individual desires by any means – price
or non-price, direct or indirect, explicit or implicit (Breyer, 2013).
Rationing?
• As Alan Maynard (1999) noted: rationing evokes images of war or crisis in which the limited
supply of essentials was distributed ... in relation to ownership of and willingness to trade a
‘coupon’ or certificate of ‘right’ to access the market.
Het word rationing wordt vaak gelinkt aan het negatieve woord in crisis etc.
• Obtained a thorough understanding of why rationing is necessary and inevitable.
Healthcare expenditure in the form of our total income continues to rise. Healthcare continues to
spend more and more money.
Life expectancy -> Health and life expectancy is increasing. We are getting much older and are much
healthier.
Several factors that contribute to the necessity and inevitability of rationing healthcare:
1. Limited Resources: Healthcare systems worldwide face limitations in terms of financial
resources, manpower, and medical supplies. There is a finite amount of money available for
healthcare spending, and tough decisions must be made to allocate resources efficiently.
2. Increasing Healthcare Costs: The cost of healthcare, including advancements in medical
technology and pharmaceuticals, continues to rise. As a result, healthcare systems must
make choices about which treatments and services to provide, taking into account cost-
effectiveness and the overall benefit to the population.
3. Growing Demand: The demand for healthcare services often surpasses the available
resources. Factors such as an aging population, increasing prevalence of chronic diseases, and
advancements in medical knowledge contribute to higher demand for healthcare services.
4. Ethical Considerations: Healthcare professionals and policymakers face ethical dilemmas
when deciding how to allocate limited resources. They must consider principles such as
equity, fairness, and the greatest good for the greatest number when making decisions about
resource allocation.
• Obtained insight into different rationing strategies.
Why is rationing necessary according to Economist
Economics
• Economics concerned with the efficient allocation of scarce resources over alternative uses
and the equity implications.
• Efficiency relates to maximizing of welfare (happiness)
• Equity relates to notions of fair distributions (of welfare)
• Equity and efficiency issues cannot be solved independently (Arrow, 1963)
• Both very important when it comes to health and health care
Dismal science
• Core assumptions: desires/needs are infinite, yet resources are limited
• Scarcity - never enough resources to satisfy all human wants and needs
• Available resources used to maximize outcomes/goal (e.g. happiness, welfare, health)
• Rationing is inevitable due to scarcity
,So
• There are never enough resources to fulfil all our wishes and needs
• Normally, preferences, prices and budget restrictions determine outcomes.
• Individuals maximize utility and make own choices about own consumption and take income
and prices as given.
• Utility is gained by buying and consuming goods at a price at or below what they are willing
to pay from profit-maximizing firms without market power selling at a price they are willing
to accept (equal to marginal costs).
‘Perfect market’: many buyers and many suppliers
Optimality
• Markets steer, through price mechanism, towards an equilibrium
• Equilibrium equals supply and demand
• Under a number of (strict) assumptions, such an equilibrium can be seen as optimal (i.e.
welfare maximizing, Pareto optimal)
• Individuals maximize own utility, are best judges of own welfare, have perfect knowledge
about prices and characteristics of all available goods
• Income distribution is not questioned and determines purchasing power.
Health care is different
• Many deviating characteristics cause that leaving health care provision to market forces will
not lead to optimal outcomes -> veel afwijkende kenmerken zorgen ervoor dat het overlaten
van de gezondheidszorg aan de marktwerking niet tot optimale uitkomsten zal leiden
• That implies that government intervention in the health care sector may be necessary to
attain “better” results
• This holds both for reasons of efficiency and for reasons of equity
Health care is different
Markets do not result in optimal (efficient) outcomes in health care due to specific characteristics
(See Arrow, 1963)
1. Uncertainty and consequences of insurance
2. Information asymmetry between consumers and suppliers
3. Existence of externalities (als ik een vaccinatie neem, heeft het ook effect op een ander),
als we allemaal deden wat voor ons het beste is, dan zal de uitkomst niet optimaal zijn,
dus de overheid grijpt hierbij in om dit te voorkomen.
Moreover, strong concerns for equity in relation to health can make efficient outcomes unacceptable
(i.e. inequitable).
Allocation and rationing
, • Individual markets people “ration own consumption”
• In government regulated markets without (full) price mechanisms, also decisions regarding
allocations / priority setting / rationing need to be made somehow
• I may not be able to afford a drug that costs $300,000 and would give me some additional
health, but a collectively financed system could still enable me to get it (for free or e.g. a
copayment of $3,000)
• How to we now determine which care should be available for specific groups (and when and
under which circumstances)?
Health care rationing
• Health care costs and demands increasing – pressure on budgets
• How to allocate scarce health care resources optimally?
• That means choose what to do and hence what not to do (rationing)
• Scarcity in health care denied: ‘The first lesson of economics is scarcity...’ ... “... the first
lesson of politics is to disregard the first lesson of economics...”
• All systems deal with scarcity, balancing goals of efficiency, equity, ...
• Setting priorities/rationing, implicitly or explicitly, through coverage, budgets, (co)payments,
incentives, waiting times, formal vs informal care, quality, ... => the core of this course!
Why is health care rationing such an issue?
• Health (care) is a special good
• Central to human flourishing, capabilities and utility
• Strong feelings of solidarity (esp. in Europe) regarding health
• In many countries much health care is available ‘free’
• Setting limits (esp. by others) to access/coverage seen as indefensible
• ‘If it works, we should reimburse it’...
• Rationing shows a tension around fundamental aim of many systems
• Obtained a thorough understanding of the political and societal sensitivity of rationing health
care.
Ethical position?
“There is a large group of objectors against health economics who believe it is contrary to medical
ethics. In the extreme, these people believe that it is the doctor’s duty to do everything possible for
the patient in front of him, no matter what the costs.
But in a resource-constraint system, ‘costs’ means ‘sacrifice’ (in this case the value of benefits
foregone by the person who did not get treated).
Thus, ‘no matter what the costs’ means ‘no matter what sacrifice borne by others’. This does not
sound to me like a very ethical position to be in.”
1.3 Principles and practices of rationing from an economic perspective
Definition of rationing for this course = To limit the beneficial health care an individual desires by any
means – price or non-price, direct or indirect, explicit or implicit (Breyer, 2013).
The difficulty with rationing: there is something that will improve the health of patients, the patients
want to use it. But we can not let anybody use this thing that will improve the health of patients.
Rationing and costs
Of iets te duur is heeft te maken met hoe we iets berekenen en heeft te maken met de waarde wat je
echt maakt. Ligt er altijd aan hoe je naar kosten kijkt en hoe je ze hebt berekend. Bijvoorbeeld kijken
naar kosten per QALY die het oplevert.
, Rationing heeft te maken met prioritisering. Behandelingen vergelijken en kijken welke het meeste
bijdraagd aan de doelen van gezondheidszorg. Bij prioritisering moet je een keus maken, dus vaak
tegengeluid.
• Term ‘rationing’ is mostly used when limits are decided on societal level for others
• Some definitions directly allude to costs as reason for rationing
• Asch & Ubel (1997): Not to provide some beneficial health care services, which are simply
too expensive
• Crucial question then of course is: when are services too expensive?
• Cost-containment related but focuses only on costs (rationing also on what is delivered)
• Rationing related to priority setting (suggests some ranking activity by someone – rationing
those things not prioritized...)
• Obtained a thorough understanding of how rationing mechanisms interact with the
characteristics of a health care system.
Types of rationing:
1. Price rationing vs. non price-rationing
• Price rationing common allocation principle on many
markets
• Breyer (2013) distinguishes it from non-price rationing:
In its wide sense, rationing coincides with “allocation” and refers
to any method to determine who receives what quantity of a
scarce good or service. These methods can be divided into those
that make use of the price mechanism (“price rationing”) and
those that do not (“non-price rationing”), the latter being
synonymous with rationing in its narrow sense. More specifically,
this latter concept can be defined as the allocation of limited
amounts below market price, which often means “free of charge”.
2. Primary and secondary rationing
Primary rationing = limiting (collectively financed) health care
because the services compete with other uses such as
education/infrastructure -> this is the budget with witch the
people have to work . How do we decide on the budget? It
involves determining (directly or indirectly) the budget available for health care.
Secondary rationing = Once the budget has been set, there is scarcity in the system (Note – ideally
other way around). Ideally you would want to know witch elements you want to cover in the health
care center, and then set a price (can’t happen in the real world). Then, rationing procedures need to
be in place (e.g. prioritization on waiting lists or choices regarding which interventions to fund).
Also allocating resources associated with ‘natural’ scarcity is labelled secondary rationing: e.g.
transplantable organs. This latter scarcity is not (or less) directly based on policy choices.
• Obtained a thorough understanding of the basics of implicit versus explicit rationing
3. Implicit rationing
Implicit rationing = sets limits to resources (i.e. sets the level of scarcity) but does not indicate (in
detail) how the scarce resources should be allocated -> you set the budget and the system has to
decide what to do with it. No rules about the allocation of resources. The doctors decide what
allocate services is used on individual patients
• To implicitly limit the beneficial health care an individual desires by any means
• In some ways it resembles cost-containment – we limit the resources available without
worrying about the difficult choices that follow
• Obtained a thorough understanding of what rationing health care is.
Rationing = somehow limiting the amount of care provided and consumed often in order to control /
optimize healthcare expenditures.
Definition Rationing = “To limit the beneficial health care an individual desires by any means – price
or non-price, direct or indirect, explicit or implicit (Breyer, 2013).
Rationing?
• As Alan Maynard (1999) noted: rationing evokes images of war or crisis in which the limited
supply of essentials was distributed ... in relation to ownership of and willingness to trade a
‘coupon’ or certificate of ‘right’ to access the market.
Het word rationing wordt vaak gelinkt aan het negatieve woord in crisis etc.
• Obtained a thorough understanding of why rationing is necessary and inevitable.
Healthcare expenditure in the form of our total income continues to rise. Healthcare continues to
spend more and more money.
Life expectancy -> Health and life expectancy is increasing. We are getting much older and are much
healthier.
Several factors that contribute to the necessity and inevitability of rationing healthcare:
1. Limited Resources: Healthcare systems worldwide face limitations in terms of financial
resources, manpower, and medical supplies. There is a finite amount of money available for
healthcare spending, and tough decisions must be made to allocate resources efficiently.
2. Increasing Healthcare Costs: The cost of healthcare, including advancements in medical
technology and pharmaceuticals, continues to rise. As a result, healthcare systems must
make choices about which treatments and services to provide, taking into account cost-
effectiveness and the overall benefit to the population.
3. Growing Demand: The demand for healthcare services often surpasses the available
resources. Factors such as an aging population, increasing prevalence of chronic diseases, and
advancements in medical knowledge contribute to higher demand for healthcare services.
4. Ethical Considerations: Healthcare professionals and policymakers face ethical dilemmas
when deciding how to allocate limited resources. They must consider principles such as
equity, fairness, and the greatest good for the greatest number when making decisions about
resource allocation.
• Obtained insight into different rationing strategies.
Why is rationing necessary according to Economist
Economics
• Economics concerned with the efficient allocation of scarce resources over alternative uses
and the equity implications.
• Efficiency relates to maximizing of welfare (happiness)
• Equity relates to notions of fair distributions (of welfare)
• Equity and efficiency issues cannot be solved independently (Arrow, 1963)
• Both very important when it comes to health and health care
Dismal science
• Core assumptions: desires/needs are infinite, yet resources are limited
• Scarcity - never enough resources to satisfy all human wants and needs
• Available resources used to maximize outcomes/goal (e.g. happiness, welfare, health)
• Rationing is inevitable due to scarcity
,So
• There are never enough resources to fulfil all our wishes and needs
• Normally, preferences, prices and budget restrictions determine outcomes.
• Individuals maximize utility and make own choices about own consumption and take income
and prices as given.
• Utility is gained by buying and consuming goods at a price at or below what they are willing
to pay from profit-maximizing firms without market power selling at a price they are willing
to accept (equal to marginal costs).
‘Perfect market’: many buyers and many suppliers
Optimality
• Markets steer, through price mechanism, towards an equilibrium
• Equilibrium equals supply and demand
• Under a number of (strict) assumptions, such an equilibrium can be seen as optimal (i.e.
welfare maximizing, Pareto optimal)
• Individuals maximize own utility, are best judges of own welfare, have perfect knowledge
about prices and characteristics of all available goods
• Income distribution is not questioned and determines purchasing power.
Health care is different
• Many deviating characteristics cause that leaving health care provision to market forces will
not lead to optimal outcomes -> veel afwijkende kenmerken zorgen ervoor dat het overlaten
van de gezondheidszorg aan de marktwerking niet tot optimale uitkomsten zal leiden
• That implies that government intervention in the health care sector may be necessary to
attain “better” results
• This holds both for reasons of efficiency and for reasons of equity
Health care is different
Markets do not result in optimal (efficient) outcomes in health care due to specific characteristics
(See Arrow, 1963)
1. Uncertainty and consequences of insurance
2. Information asymmetry between consumers and suppliers
3. Existence of externalities (als ik een vaccinatie neem, heeft het ook effect op een ander),
als we allemaal deden wat voor ons het beste is, dan zal de uitkomst niet optimaal zijn,
dus de overheid grijpt hierbij in om dit te voorkomen.
Moreover, strong concerns for equity in relation to health can make efficient outcomes unacceptable
(i.e. inequitable).
Allocation and rationing
, • Individual markets people “ration own consumption”
• In government regulated markets without (full) price mechanisms, also decisions regarding
allocations / priority setting / rationing need to be made somehow
• I may not be able to afford a drug that costs $300,000 and would give me some additional
health, but a collectively financed system could still enable me to get it (for free or e.g. a
copayment of $3,000)
• How to we now determine which care should be available for specific groups (and when and
under which circumstances)?
Health care rationing
• Health care costs and demands increasing – pressure on budgets
• How to allocate scarce health care resources optimally?
• That means choose what to do and hence what not to do (rationing)
• Scarcity in health care denied: ‘The first lesson of economics is scarcity...’ ... “... the first
lesson of politics is to disregard the first lesson of economics...”
• All systems deal with scarcity, balancing goals of efficiency, equity, ...
• Setting priorities/rationing, implicitly or explicitly, through coverage, budgets, (co)payments,
incentives, waiting times, formal vs informal care, quality, ... => the core of this course!
Why is health care rationing such an issue?
• Health (care) is a special good
• Central to human flourishing, capabilities and utility
• Strong feelings of solidarity (esp. in Europe) regarding health
• In many countries much health care is available ‘free’
• Setting limits (esp. by others) to access/coverage seen as indefensible
• ‘If it works, we should reimburse it’...
• Rationing shows a tension around fundamental aim of many systems
• Obtained a thorough understanding of the political and societal sensitivity of rationing health
care.
Ethical position?
“There is a large group of objectors against health economics who believe it is contrary to medical
ethics. In the extreme, these people believe that it is the doctor’s duty to do everything possible for
the patient in front of him, no matter what the costs.
But in a resource-constraint system, ‘costs’ means ‘sacrifice’ (in this case the value of benefits
foregone by the person who did not get treated).
Thus, ‘no matter what the costs’ means ‘no matter what sacrifice borne by others’. This does not
sound to me like a very ethical position to be in.”
1.3 Principles and practices of rationing from an economic perspective
Definition of rationing for this course = To limit the beneficial health care an individual desires by any
means – price or non-price, direct or indirect, explicit or implicit (Breyer, 2013).
The difficulty with rationing: there is something that will improve the health of patients, the patients
want to use it. But we can not let anybody use this thing that will improve the health of patients.
Rationing and costs
Of iets te duur is heeft te maken met hoe we iets berekenen en heeft te maken met de waarde wat je
echt maakt. Ligt er altijd aan hoe je naar kosten kijkt en hoe je ze hebt berekend. Bijvoorbeeld kijken
naar kosten per QALY die het oplevert.
, Rationing heeft te maken met prioritisering. Behandelingen vergelijken en kijken welke het meeste
bijdraagd aan de doelen van gezondheidszorg. Bij prioritisering moet je een keus maken, dus vaak
tegengeluid.
• Term ‘rationing’ is mostly used when limits are decided on societal level for others
• Some definitions directly allude to costs as reason for rationing
• Asch & Ubel (1997): Not to provide some beneficial health care services, which are simply
too expensive
• Crucial question then of course is: when are services too expensive?
• Cost-containment related but focuses only on costs (rationing also on what is delivered)
• Rationing related to priority setting (suggests some ranking activity by someone – rationing
those things not prioritized...)
• Obtained a thorough understanding of how rationing mechanisms interact with the
characteristics of a health care system.
Types of rationing:
1. Price rationing vs. non price-rationing
• Price rationing common allocation principle on many
markets
• Breyer (2013) distinguishes it from non-price rationing:
In its wide sense, rationing coincides with “allocation” and refers
to any method to determine who receives what quantity of a
scarce good or service. These methods can be divided into those
that make use of the price mechanism (“price rationing”) and
those that do not (“non-price rationing”), the latter being
synonymous with rationing in its narrow sense. More specifically,
this latter concept can be defined as the allocation of limited
amounts below market price, which often means “free of charge”.
2. Primary and secondary rationing
Primary rationing = limiting (collectively financed) health care
because the services compete with other uses such as
education/infrastructure -> this is the budget with witch the
people have to work . How do we decide on the budget? It
involves determining (directly or indirectly) the budget available for health care.
Secondary rationing = Once the budget has been set, there is scarcity in the system (Note – ideally
other way around). Ideally you would want to know witch elements you want to cover in the health
care center, and then set a price (can’t happen in the real world). Then, rationing procedures need to
be in place (e.g. prioritization on waiting lists or choices regarding which interventions to fund).
Also allocating resources associated with ‘natural’ scarcity is labelled secondary rationing: e.g.
transplantable organs. This latter scarcity is not (or less) directly based on policy choices.
• Obtained a thorough understanding of the basics of implicit versus explicit rationing
3. Implicit rationing
Implicit rationing = sets limits to resources (i.e. sets the level of scarcity) but does not indicate (in
detail) how the scarce resources should be allocated -> you set the budget and the system has to
decide what to do with it. No rules about the allocation of resources. The doctors decide what
allocate services is used on individual patients
• To implicitly limit the beneficial health care an individual desires by any means
• In some ways it resembles cost-containment – we limit the resources available without
worrying about the difficult choices that follow
