Societal implications of health economics
Week 1 – lecture 1
Definition of health (WHO, 1948): ‘Health is a state of complete physical,
mental and social well-being and not merely the absence of disease or
infirmity’.
What is health:
- Life-expectancy: limited picture of disease burden
o A lot of chronic diseases reduces quality of life without
reducing life-span
o Healthy life-expectancy the number of years an
individual is expected to live without a disability
Perspectives of health:
- The definition of the WHO implies we are always sick
o Many conditions may reduce our quality of life, yet we can still
handle these
- New definitions: ‘ the ability to adapt and self manage in the face of
social, physical and emotional challenges (Huber et al. 2011)
Health capabilities: confidence and ability to be effective in achieving
optimal health (Prah Ruger, 2010):
- Biologic and genetic disposition
- Intermediate and the broad social, and economic environment
- Access to the public health and healthcare systems
- Objective health policy = to enable individuals to gain confidence
and ability in achieving optimal health
Diminishing marginal utility
- Marginal utility = The marginal utility of health represents how much
additional well-being a person gains from a small improvement in
their health
o The better a person's health already is, the less additional
benefit they derive from further improvements.
o Example: A severely ill individual derives much more utility
from a slight improvement in health compared to someone
who is already nearly fully healthy.
- Insurance assures that an individual always receives health utility
becomes certain
o Individuals prefer the certain outcome created by the
insurance thus risk averse (concave utility function)
o
- Expected utility in the case of an health shock: E(U)
o
o P = the chance that an health shock occurs
Grafieken slides nogmaals goed bekijken!!
,Asymmetric information
- The insurance firm cannot identify the state of (potential) customers
(healthy or sick)
- The premium is set at the share of healthy individuals
o Attractive for unhealthy individuals and unattractive for
healthy
o Adverse selection = only unhealthy individuals will be wanting
to buy insurance
Leading to the insurance death spiral = breakdown of
the insurance market
Therefore, justification for government intervention in
healthcare
The role of the state in health
- Nozick’s anarchy hypothetical scenario of how states come into
existence
- Three principles in the minimalist state
1. Justice in acquisition (= how to acquire property or
resources in a fair way)
2. Justice in transaction (= fairness of exchanges or transfers
between individuals)
3. Rectification (= correcting past injustices or violations of the
previous two principles)
- Rawls argues that the role of the state is to assure two principles of
justice:
1. Each person is to have an equal right to the most extensive
total system of equal basic liberties compatible with a similar
system of liberty for all (= equal access to basis liberties such
as freedom of speech and the right to vote)
2. Social and economic inequalities are to be arranged so that
they are both:
a) to the greatest benefit of the least advantaged,
consistent with the just savings principle (= any
economic disparity must be justified by the fact that it
improves the condition of the poorest or most
disadvantaged individuals)
b) attached to officed and positions open to all under
conditions of fair equality of opportunity (= everyone
should have an equal chance to access key social
positions or jobs)
- Intervention in healthcare
o Nozick’s view: rectify the difference in health over which the
individual had no say
o Rawl’s view: minimize social inequalities by supplying
healthcare for those who cannot afford it
- Emotivist argument (MacIntyre) = If you feel that the state has a
role in health, you will find a reason for it regardless of the moral
philosophical position you are arguing from
, - What can the state do?
o Reduce market failure induced by risk aversion and
asymmetric information by setting a double mandate
Everyone has to have an insurance
Each insurance has to accept everyone
Week 1 – lecture 1
Definition of health (WHO, 1948): ‘Health is a state of complete physical,
mental and social well-being and not merely the absence of disease or
infirmity’.
What is health:
- Life-expectancy: limited picture of disease burden
o A lot of chronic diseases reduces quality of life without
reducing life-span
o Healthy life-expectancy the number of years an
individual is expected to live without a disability
Perspectives of health:
- The definition of the WHO implies we are always sick
o Many conditions may reduce our quality of life, yet we can still
handle these
- New definitions: ‘ the ability to adapt and self manage in the face of
social, physical and emotional challenges (Huber et al. 2011)
Health capabilities: confidence and ability to be effective in achieving
optimal health (Prah Ruger, 2010):
- Biologic and genetic disposition
- Intermediate and the broad social, and economic environment
- Access to the public health and healthcare systems
- Objective health policy = to enable individuals to gain confidence
and ability in achieving optimal health
Diminishing marginal utility
- Marginal utility = The marginal utility of health represents how much
additional well-being a person gains from a small improvement in
their health
o The better a person's health already is, the less additional
benefit they derive from further improvements.
o Example: A severely ill individual derives much more utility
from a slight improvement in health compared to someone
who is already nearly fully healthy.
- Insurance assures that an individual always receives health utility
becomes certain
o Individuals prefer the certain outcome created by the
insurance thus risk averse (concave utility function)
o
- Expected utility in the case of an health shock: E(U)
o
o P = the chance that an health shock occurs
Grafieken slides nogmaals goed bekijken!!
,Asymmetric information
- The insurance firm cannot identify the state of (potential) customers
(healthy or sick)
- The premium is set at the share of healthy individuals
o Attractive for unhealthy individuals and unattractive for
healthy
o Adverse selection = only unhealthy individuals will be wanting
to buy insurance
Leading to the insurance death spiral = breakdown of
the insurance market
Therefore, justification for government intervention in
healthcare
The role of the state in health
- Nozick’s anarchy hypothetical scenario of how states come into
existence
- Three principles in the minimalist state
1. Justice in acquisition (= how to acquire property or
resources in a fair way)
2. Justice in transaction (= fairness of exchanges or transfers
between individuals)
3. Rectification (= correcting past injustices or violations of the
previous two principles)
- Rawls argues that the role of the state is to assure two principles of
justice:
1. Each person is to have an equal right to the most extensive
total system of equal basic liberties compatible with a similar
system of liberty for all (= equal access to basis liberties such
as freedom of speech and the right to vote)
2. Social and economic inequalities are to be arranged so that
they are both:
a) to the greatest benefit of the least advantaged,
consistent with the just savings principle (= any
economic disparity must be justified by the fact that it
improves the condition of the poorest or most
disadvantaged individuals)
b) attached to officed and positions open to all under
conditions of fair equality of opportunity (= everyone
should have an equal chance to access key social
positions or jobs)
- Intervention in healthcare
o Nozick’s view: rectify the difference in health over which the
individual had no say
o Rawl’s view: minimize social inequalities by supplying
healthcare for those who cannot afford it
- Emotivist argument (MacIntyre) = If you feel that the state has a
role in health, you will find a reason for it regardless of the moral
philosophical position you are arguing from
, - What can the state do?
o Reduce market failure induced by risk aversion and
asymmetric information by setting a double mandate
Everyone has to have an insurance
Each insurance has to accept everyone
