Summary Health Care Economics & Financing
Lecture 1 Intro
Health economics: applies economic theory, models and empirical techniques in the analysis of
decisions of individuals, healthcare providers and government with respect to health and healthcare.
HE helps health care professionals/decision-makers/government to make choices on:
- The health of population given constrained health-producing resources
- Production of healthcare (doctors/specialists/nurses)
- Distribution of health care across population
- Spending on health care
The health economic problem unlimited healthcare wants with rapid growth in expenditure, but
insufficient health sector resources (budget). choosing between ‘wants’ we can afford giver our
resource budget
The problem is scarcity competitive market mechanisms set a benchmark for the efficient
allocation of resources however, healthcare is different which causes market failure, government
interventions can improve this
Health definition = a state of complete physical, mental, and societal well-being and not merely the
absence of disease or infirmity.
Why is healthcare different than other sector?
Doctors behave differently to firms and their advise should be without self interest
There is restricted entry to the industry.
There is no advertising or competition
Consumers can’t test the product before consuming it and it is difficult for them to obtain
information about what care is appropriate for their condition
Motivation is clinical need, not profit; goals other than profit maximization dominate.
In healthcare there are numerous sources of market failure, e.g. asymmetry of information
and externalities
There is a strong case for government intervention in the face of market failure
Health vs healthcare:
- Healthcare can be traded on the market and health cannot
- We demand healthcare to improve our health
- Health is not easily measurable
Welfarism belief/principle that social welfare depends (positively) only on individual
welfare/utility levels. The ultimate aim is to improve welfare/utility.
Utility function U = U(x1, x2, x3, …, xn) with x as something that effects your utility/welfare (for
example your health)
1
,The utility curve shows the effect of health on the utility. The healthier you get the more utility
you have, but the slope becomes less steep.
Marginal utility:
- Shows the effect on the utility with a small increase in health
- Is equal to the slope of the total utility curve
Total product curve for health care the more health care you receive, the smaller the impact tends
to be on your health:
Marginal product:
- Marginal product (MP) of an input = the change in output per unit change in input
- MP = the slope of the total product curve, dQ/dL (d(input)/d(output))
- Marginal product is a measure of ‘increased productivity’
2
, Low marginal product gives a flat curve, high marginal product gives a very steep curve
Flat-of-the-curve (Enthoven) point when extra health care consumed does not lead to substantial
health gains (point C on the curve)
Productivity possibility curve shows: given a limited set of resources, which combinations of
products/services are possible? A until E are combinations, B&C are not possible
Opportunity costs = the benefits that are forsaken/lost when choosing another option
Health economic themes:
- Effectiveness: whether or not health care “works” (doeltreffend)
- Efficiency: allocation of scarce resources that maximised the achievement of aims
(doelmatig)
- Equity: fairness in the distribution and finance of health and healthcare between people
(rechtvaardig)
3
, Difference between equity and equality Equality means everyone has access to the same amount
of resources, while equity means that people who need more resources, should receive more
resources.
Extra from the summery of the book
• An economic good is any good or service that is scarce relative to our wants for it. Health
care is an economic good.
• Most health care systems are a complex mix of private and public sector activities.
Government involvement in the finance and provision of health care is common. An
important reason for this is the inherent uncertainty surrounding health and health care.
• Economists often distinguish between positive and normative economics. Positive economics
is concerned with investigating the relationship between economic variables. Normative
economics is concerned with the desirability of alternative economic outcomes. Health
economics has both positive and normative aspects.
• In economics, it is conventional to judge the use of resources using the criteria of efficiency
and equity. Efficiency can be simply defined as the allocation of scarce resources that
maximises the achievement of aims. Equity is fairness in the distribution and finance of
health and health care between people.
• In health economics, we also have to take account of effectiveness and ethics. Effectiveness
concerns whether or not health care ‘works’; ethics essentially concerns strong value
judgements widely held in health care.
4
Lecture 1 Intro
Health economics: applies economic theory, models and empirical techniques in the analysis of
decisions of individuals, healthcare providers and government with respect to health and healthcare.
HE helps health care professionals/decision-makers/government to make choices on:
- The health of population given constrained health-producing resources
- Production of healthcare (doctors/specialists/nurses)
- Distribution of health care across population
- Spending on health care
The health economic problem unlimited healthcare wants with rapid growth in expenditure, but
insufficient health sector resources (budget). choosing between ‘wants’ we can afford giver our
resource budget
The problem is scarcity competitive market mechanisms set a benchmark for the efficient
allocation of resources however, healthcare is different which causes market failure, government
interventions can improve this
Health definition = a state of complete physical, mental, and societal well-being and not merely the
absence of disease or infirmity.
Why is healthcare different than other sector?
Doctors behave differently to firms and their advise should be without self interest
There is restricted entry to the industry.
There is no advertising or competition
Consumers can’t test the product before consuming it and it is difficult for them to obtain
information about what care is appropriate for their condition
Motivation is clinical need, not profit; goals other than profit maximization dominate.
In healthcare there are numerous sources of market failure, e.g. asymmetry of information
and externalities
There is a strong case for government intervention in the face of market failure
Health vs healthcare:
- Healthcare can be traded on the market and health cannot
- We demand healthcare to improve our health
- Health is not easily measurable
Welfarism belief/principle that social welfare depends (positively) only on individual
welfare/utility levels. The ultimate aim is to improve welfare/utility.
Utility function U = U(x1, x2, x3, …, xn) with x as something that effects your utility/welfare (for
example your health)
1
,The utility curve shows the effect of health on the utility. The healthier you get the more utility
you have, but the slope becomes less steep.
Marginal utility:
- Shows the effect on the utility with a small increase in health
- Is equal to the slope of the total utility curve
Total product curve for health care the more health care you receive, the smaller the impact tends
to be on your health:
Marginal product:
- Marginal product (MP) of an input = the change in output per unit change in input
- MP = the slope of the total product curve, dQ/dL (d(input)/d(output))
- Marginal product is a measure of ‘increased productivity’
2
, Low marginal product gives a flat curve, high marginal product gives a very steep curve
Flat-of-the-curve (Enthoven) point when extra health care consumed does not lead to substantial
health gains (point C on the curve)
Productivity possibility curve shows: given a limited set of resources, which combinations of
products/services are possible? A until E are combinations, B&C are not possible
Opportunity costs = the benefits that are forsaken/lost when choosing another option
Health economic themes:
- Effectiveness: whether or not health care “works” (doeltreffend)
- Efficiency: allocation of scarce resources that maximised the achievement of aims
(doelmatig)
- Equity: fairness in the distribution and finance of health and healthcare between people
(rechtvaardig)
3
, Difference between equity and equality Equality means everyone has access to the same amount
of resources, while equity means that people who need more resources, should receive more
resources.
Extra from the summery of the book
• An economic good is any good or service that is scarce relative to our wants for it. Health
care is an economic good.
• Most health care systems are a complex mix of private and public sector activities.
Government involvement in the finance and provision of health care is common. An
important reason for this is the inherent uncertainty surrounding health and health care.
• Economists often distinguish between positive and normative economics. Positive economics
is concerned with investigating the relationship between economic variables. Normative
economics is concerned with the desirability of alternative economic outcomes. Health
economics has both positive and normative aspects.
• In economics, it is conventional to judge the use of resources using the criteria of efficiency
and equity. Efficiency can be simply defined as the allocation of scarce resources that
maximises the achievement of aims. Equity is fairness in the distribution and finance of
health and health care between people.
• In health economics, we also have to take account of effectiveness and ethics. Effectiveness
concerns whether or not health care ‘works’; ethics essentially concerns strong value
judgements widely held in health care.
4
