Summary ‘’Economics and
Financing’’
Lecture 8-13
HEPL, EU-HEM 2020/2021
,Table of Contents
Lecture 8: Production of Health and Healthcare................................................................4
Lecture 8a: Health production function..........................................................................4
Lecture 8b: Role of healthcare in improving health.......................................................4
Lecture 8c: Healthcare production function and hospital efficiency...........................5
Lecture 9: Non-profit firms in healthcare...........................................................................8
Lecture 9a: Provision.......................................................................................................8
Lecture 9b: Why are non-profit firms so popular in health care?.................................8
Lecture 9c: Do non-profit hospitals perform better than for-profit ones?.................10
Lecture 10: Private health insurance & social health insurance....................................11
Lecture 10a: The demand for insurance (part 1)..........................................................11
Lecture 10b: The demand for insurance (part 2)..........................................................11
Lecture 10c: The equivalence principle of a competitie insurance market................12
Lecture 10d: Classification of health insurance/care systems".................................12
Lecture 10e: The demand for and supply of health insurance in low-income
countries”........................................................................................................................ 13
Lecture 11: Comparative health care systems & health system reform........................16
Lecture 11a: A conceptual framework for comparing health system reforms..........16
Lecture 11b: Classification of contemporary healthcare systems.............................18
Lecture 11c: Three waves of healthcare reforms.........................................................19
Additional videos (read first)........................................................................................................ 19
Lecture........................................................................................................................................ 21
Lecture 11d: Key elements of the Dutch healthcare system.......................................22
Lecture 12: Theory and practice of regulated competition.............................................24
Lecture 12a: Equity and efficiency in the context of health policy.............................24
Lecture 12b: Free-market failures.................................................................................25
Lecture 12c: Regulated/ managed competition in healthcare.....................................26
Additional videos: (read first)....................................................................................................... 26
Lecture........................................................................................................................................ 27
Lecture 12d: Preconditions for efficiency and affordability in competitive healthcare
markets............................................................................................................................ 28
Additional videos (read first)........................................................................................................ 28
Lecture........................................................................................................................................ 30
Lecture 13: Competitive social health insurance markets..............................................32
Lecture 13a: A free unregulated health insurance market..........................................32
Lecture 13b: Explicit premium subsidies.....................................................................33
Additional videos (read first)........................................................................................................ 33
, Lecture........................................................................................................................................ 34
Lecture 13c: Implicit cross-subsidies...........................................................................36
Lecture 13d: The complexity of risk equalization in practice.....................................37
Lecture 13e: Risk equalization in the Netherlands......................................................38
Lecture 13f: Lessons after 25 years of experience with risk equalization.................39
, Lecture 8: Production of Health and Healthcare
Afterwards the student is able to:
Explain the concept of the health production function
Identify and interpret various measures of health
Reflect on changes in the marginal contribution of health care over the past centuries
Explain the concept of the healthcare production function
Explain the concepts of the cost function, technical and allocative efficiency, and
economies of scale
Reflect on the difficulties of assessing economies of scale in hospitals
Reflect on the various methods of measuring relative efficiency of health care
providers
Lecture 8a: Health production function
That A>B means that there are diminishing
marginal returns. The contribution of
healthcare for each additional health care input
is less than that of the previous input. Using
extra healthcare has less and less effect on
your health status. Too much could even harm
your health status.
What is the contribution of healthcare to the
population’s health? To answer this question,
you need to know how to measure the
population’s health and how to measure the
impact of health care on health.
So how to measure the population’s health? To measure the population’s health, you
need a measure that captures the aspects of health that are meaningful and can be
measured with accuracy. Measures that are typically used are:
Mortality/ life expectancy
Morbidity/ disability
Combination: Disability-adjusted life expectancy (DALE)
The disadvantage of mortality is that it doesn’t capture the quality of life. Therefore the WHO
developed the healthy life expectancy. The DALE is equivalent to the amount of years that
people are expected to live life in full health.
Lecture 8b: Role of healthcare in improving health
Throughout the world life expectancy at birth enormously increased from 25-40 years in
1800 to 60-80 years in 2015. Empirical evidence shows that medical interventions performed
by practitioners form a small role in the decline of populations’ mortality rates. The larger or
more significant factor might be attributed to public health measures and the spread of
knowledge concerning the source of disease.
Three main casus why mortality is declining over time are:
1. Economic growth (1750-1850) Through the economic growth came an increased
supply of food which strengthened the health of the population.
2. Implementation of public health facilities (1850-1950) This caused more and better
hygiene, e.g. clean water and sewer systems
Financing’’
Lecture 8-13
HEPL, EU-HEM 2020/2021
,Table of Contents
Lecture 8: Production of Health and Healthcare................................................................4
Lecture 8a: Health production function..........................................................................4
Lecture 8b: Role of healthcare in improving health.......................................................4
Lecture 8c: Healthcare production function and hospital efficiency...........................5
Lecture 9: Non-profit firms in healthcare...........................................................................8
Lecture 9a: Provision.......................................................................................................8
Lecture 9b: Why are non-profit firms so popular in health care?.................................8
Lecture 9c: Do non-profit hospitals perform better than for-profit ones?.................10
Lecture 10: Private health insurance & social health insurance....................................11
Lecture 10a: The demand for insurance (part 1)..........................................................11
Lecture 10b: The demand for insurance (part 2)..........................................................11
Lecture 10c: The equivalence principle of a competitie insurance market................12
Lecture 10d: Classification of health insurance/care systems".................................12
Lecture 10e: The demand for and supply of health insurance in low-income
countries”........................................................................................................................ 13
Lecture 11: Comparative health care systems & health system reform........................16
Lecture 11a: A conceptual framework for comparing health system reforms..........16
Lecture 11b: Classification of contemporary healthcare systems.............................18
Lecture 11c: Three waves of healthcare reforms.........................................................19
Additional videos (read first)........................................................................................................ 19
Lecture........................................................................................................................................ 21
Lecture 11d: Key elements of the Dutch healthcare system.......................................22
Lecture 12: Theory and practice of regulated competition.............................................24
Lecture 12a: Equity and efficiency in the context of health policy.............................24
Lecture 12b: Free-market failures.................................................................................25
Lecture 12c: Regulated/ managed competition in healthcare.....................................26
Additional videos: (read first)....................................................................................................... 26
Lecture........................................................................................................................................ 27
Lecture 12d: Preconditions for efficiency and affordability in competitive healthcare
markets............................................................................................................................ 28
Additional videos (read first)........................................................................................................ 28
Lecture........................................................................................................................................ 30
Lecture 13: Competitive social health insurance markets..............................................32
Lecture 13a: A free unregulated health insurance market..........................................32
Lecture 13b: Explicit premium subsidies.....................................................................33
Additional videos (read first)........................................................................................................ 33
, Lecture........................................................................................................................................ 34
Lecture 13c: Implicit cross-subsidies...........................................................................36
Lecture 13d: The complexity of risk equalization in practice.....................................37
Lecture 13e: Risk equalization in the Netherlands......................................................38
Lecture 13f: Lessons after 25 years of experience with risk equalization.................39
, Lecture 8: Production of Health and Healthcare
Afterwards the student is able to:
Explain the concept of the health production function
Identify and interpret various measures of health
Reflect on changes in the marginal contribution of health care over the past centuries
Explain the concept of the healthcare production function
Explain the concepts of the cost function, technical and allocative efficiency, and
economies of scale
Reflect on the difficulties of assessing economies of scale in hospitals
Reflect on the various methods of measuring relative efficiency of health care
providers
Lecture 8a: Health production function
That A>B means that there are diminishing
marginal returns. The contribution of
healthcare for each additional health care input
is less than that of the previous input. Using
extra healthcare has less and less effect on
your health status. Too much could even harm
your health status.
What is the contribution of healthcare to the
population’s health? To answer this question,
you need to know how to measure the
population’s health and how to measure the
impact of health care on health.
So how to measure the population’s health? To measure the population’s health, you
need a measure that captures the aspects of health that are meaningful and can be
measured with accuracy. Measures that are typically used are:
Mortality/ life expectancy
Morbidity/ disability
Combination: Disability-adjusted life expectancy (DALE)
The disadvantage of mortality is that it doesn’t capture the quality of life. Therefore the WHO
developed the healthy life expectancy. The DALE is equivalent to the amount of years that
people are expected to live life in full health.
Lecture 8b: Role of healthcare in improving health
Throughout the world life expectancy at birth enormously increased from 25-40 years in
1800 to 60-80 years in 2015. Empirical evidence shows that medical interventions performed
by practitioners form a small role in the decline of populations’ mortality rates. The larger or
more significant factor might be attributed to public health measures and the spread of
knowledge concerning the source of disease.
Three main casus why mortality is declining over time are:
1. Economic growth (1750-1850) Through the economic growth came an increased
supply of food which strengthened the health of the population.
2. Implementation of public health facilities (1850-1950) This caused more and better
hygiene, e.g. clean water and sewer systems
