Series Editors: Nick Black and Rosalind Raine, London School of Hygiene & Tropical Medicine Around the world, recognition of the importance of public health to sustainable, safe and healthy societies is growing. The following description of the section and chapter content will give you an idea of what you will read.
Acknowledgements
Economics and
What are economics and health economics?
Overview
Learning objectives
Key terms
Economic problems
The concepts of economics
Regardless of which path we choose, the result will be greater utility for the resource owner. The path that the owner chooses must depend on which one gives him the greatest increase in utility.
Markets
On the other hand, a government can make laws that are intended to 'liberate' market forces and make markets more accessible. Almost every country in the world today has a mixed economy, a system in which both market forces and central planning play a role.
Feedback
Efficiency
So, in terms of Figure 1.5, the opportunity cost of increasing health care from 0 to 500 units is the benefit from the 600 units of other goods (food, education, transportation) that we have to do without to achieve it. 2 The opportunity cost of an increase in health care by 500 units from point A is Figure 1.6 The production possibilities frontier for the economy.
Categorizing economics
Microeconomics and macroeconomics
Positive and normative economics
This is understandable when you consider that: economists are eager to influence policy;. policy recommendations are normative and are underpinned by value judgments; and. value judgments vary between individuals. On this basis, one must expect great disagreement among economists, reflecting disagreement in the wider world.
Can economics be applied to health?
It is reassuring that surveys, such as those conducted by Alston et al. 1993) or Fuller and Geide-Stevenson (2003) seem to confirm that there is more agreement among economists on positive issues than there is on normative issues. Economists are slow to reach a consensus on particular ideas because, due to the nature of the subjects being studied, it is either impossible or difficult to conduct experiments that can monitor changes in the variables of interest and at the same time all other potential influence. factors constant.
Schools of thought in health economics
More about the structure of this book
Summary
Further reading
The methods of economics
Economic analysis
Most economic theories cannot be tested under experimental conditions, so we must rely on observations of economic transactions as they occur in the real world.
Modelling economic relationships
The scenario
The slope of a straight line
For a straight line graph, the slope is always the same along the entire length of the line. This is also true for multivariable relationships of the form Y = a + bX + cZ + dW.
The slope of a curved line
This implies that the slope of output to nurses decreases as the number of nurses increases. In these examples, N gives the slope of a straight line connecting two points on the curve.
Marginal analysis
Marginal analysis is the study of the consequences of small changes in a variable or variables. Although the slope of the total product function is not exactly the same as the marginal product (since the former is strictly measured as ∆N → 0, while the latter is measured for ∆N = 1), the two are usually so similar that for practical purposes they are considered the same.
Increments and margins
You can see that for every 2 units the price decreases, the quantity demanded increases by 1 unit. Another option is a slope of quantity demanded relative to price of −0.5, because for every unit increase in price, quantity demanded falls by half a unit.
Supply and demandSECTION 2
A simple model of demand
The demand function
If the price of a good changes but everything else remains the same, a movement along the demand curve occurs. The negative slope of the demand curve reveals that a decrease in the price of a good or service increases the quantity demanded – the law of demand.
Demand and individual behaviour
Marginal utility is the change in total utility resulting from a one-unit increase in the amount of a good consumed. This graph tells us that as Lisa watches more movies, the marginal utility that Lisa gets from watching movies decreases.
Consumer surplus
We use so much water that the marginal utility – the benefit we get from one more glass of water – is reduced to a tiny value. That is, the marginal utility of a good divided by the price of the good is equal for all goods.
Consumer surplus – an example
Another way of thinking about the paradox of value is through the concept of consumer surplus. 1 The loss of consumer surplus associated with the change of location (Figure 3.4) is indicated by the shaded area in Figure 3.12.
The demand for health care
In Chapter 7, you'll look at some more complex demand models, before looking at the supply of health care and how prices are set in markets. The ability of health systems to be equitable is inevitably constrained by the need to finance health services and achieve efficiency.
Supply and price determination
The supply function
This means that dentists will be prepared to provide more checks per price level, so the supply curve shifts to the right (from S1 to S2 in Figure 4.11). This means that dentists can perform fewer dental checks per price level, so the supply curve shifts to the left (from S1 to S3 in figure 4.11).
The determination of price
Gradually, the fee will return to the equilibrium fee, because only then will dentists sell the amount of services they want and earn enough. Some consumers will offer the dentist a bribe in addition to the fee so that they can be seen quickly.
Markets for health care
On the other hand, the effect of an increase in supply will be a decrease in the equilibrium price (dental costs) and therefore also the effect of a decrease in demand. The overall result can be an increase, a decrease, or no change in the amount traded.
Regulating markets
However, health care producers worldwide include government agencies and nonprofit organizations as well as for-profit firms. Although these characteristics complicate the provision of health care, many of the implications of the basic model still remain.
Price regulation
You can see from the diagram that a price floor above the market equilibrium creates excess supply – far more people are prepared to work as dental receptionists than dentists are prepared to hire. If the minimum wage effectively increases the costs of dental services, then you would expect fewer services to be provided and the level of dental fees to increase.
Taxes and subsidies
For example, Figure 4.16 shows a Figure 4.15 Effect of a subsidy on the market for dental health examinations. Alternatively, if demand is much less responsive to price (ie the demand curve is relatively steep) as in Figure 4.17, then the number of dental examinations does not increase much even though price falls significantly.
Elasticity of demand
The responsiveness of demand
Thus, the price elasticity of demand, which is the percentage change in quantity demanded (5 percent) divided by the percentage change in price (10 percent), is 0.5. If the percentage change in quantity demanded is equal to the percentage change in price, the elasticity of demand is 1 and demand is unit elastic.
Some other elasticities
You learned what price elasticity of demand means and how to calculate it. You also learned about the relationship between elasticity and total revenue and the factors that affect the elasticity of demand—proximity of substitutes, the proportion of income spent on the good, and the time elapsed since the price change.
Applying elasticity of
Levying taxes to promote health
The series was converted to real terms using the implied price deflator derived from the series of total consumer expenditure, and to a figure per adult using the mid-year estimate of the UK population aged 15 and over. 1 Borren and Sutton estimate a cigarette demand function for each of the five social classes in the UK.
There is little evidence of significant differences in the extent to which different social classes respond to changes in cigarette prices. This conclusion contradicts the results of Townsend's earlier study referenced in the paper.
Weighing it all up
Policymakers in countries with a large tobacco industry may feel that these costs outweigh the health benefits (although excess workers may be able to be retrained and redeployed to other industries). This could mean that they will place a greater burden on the health service and pensions over the course of their lives.
Health service user charges
However, at the time of their study, evidence of the regressive nature of the load was not yet available.
Risk, uncertainty and modelling demand
Living in an uncertain world
1 Risk-averse people are likely to buy insurance because insurance reduces the risks they face. If a person pays a health insurance premium, then when they are sick, they will not have to pay the cost of health care.
The agency relationship
Although patient utility characterizes the physician utility function, it is only one of several influences. It is unlikely that the physician's utility maximization will occur at the same point as when the patients' utility is maximized.
Health production
According to the model, subsidizing health inputs for the poor would be another effective way of reducing health inequality. The contradiction may not be so great if we remember that the agency model concerns only health care, while the production model deals with all kinds of health inputs.
Production and costs in the short and long run
Production in the short run
4 The short-run average cost curve is U-shaped (initially falling then gradually leveling off before starting to rise). Eventually the increase in variable cost exceeds the decrease in average fixed cost and at this point the average cost curve begins to rise.
Production in the long run
In the short run, this is due to increasing returns to factor (due to increased specialization) and the spread of fixed costs. In the long run, this is because of increasing returns to scale (due to increased specialization) and because input prices can fall as output rises.
Costs: the broader service perspective
Diagnosing economies of scale
Comparing these marginal cost estimates with average cost estimates from the same data set allows the diagnosis of economies or diseconomies of scale. If you've worked in a hospital, you've probably already experienced or tried some of these measures.
Economies of scale: a case study
When the provider's units are producing below the efficient production volume, then there is a potential cost savings from the merger. When the provider's units produce more than the volume that is efficient, then decentralizing production can save costs.
Do hospital mergers achieve greater efficiency?
A review of the international literature found that merged US hospital systems did not have lower costs than others. However, these figures may not be achieved in the short term: due to the increased size and complexity of the organization, structures cannot simply be halved.
Markets and efficiency
Price taker A supplier who cannot influence the price of the goods or services he supplies.
Highly competitive markets
The buyers are also fully informed that the quality of the good does not vary between suppliers. Unless they are extremely specialized, there may be many providers, but consumers may not be fully informed about the quality of the service.
Efficiency and competitive markets
However, it is important to recognize the harm that an overzealous pursuit of allocative efficiency can cause. 1 Allocative efficiency describes a situation where resources are allocated and goods are distributed in a way that maximizes social welfare.
Competitive markets in health care
In the next chapter, you assess the seriousness of market failures in healthcare. Now in the last activity of this chapter you see an alternative view of the healthcare market.
Market failure
Public good A good or service that can be consumed simultaneously by everyone and from which no one can be excluded.
Market failure and the economic theory of government
Public goods
Monopoly power
Since there is a patent for this technology and there are large economies of scale, the result will be that the (single) company holding the patent will provide all the services. Assuming no externalities, then MC = Marginal Social Cost (MSC) and MB.
Externalities
Therefore, there is an overall loss to society – the deadweight loss – a measure of loss in allocative efficiency. If the costs were borne by the power plant, it would produce less pollution.
Asymmetry of information
These costs are not borne by the power plant, but by the nearby community. But before that, you will learn more about marketing errors that happen in the field of healthcare.
Market failure in health care
A policy with relatively high deductibles and low premiums will be attractive for low risks but not for high risks. A policy with relatively low deductibles and high premiums will be attractive to high risks but not to low risks.
Health insurance market failures
Such a system was the basis of health reforms that were proposed by President Clinton but rejected by the US Congress in the early 1990s. The idea of mandatory insurance is viewed critically in the US, where freedom of choice is seen as a high ideal. .
Health care externalities
Health care market failures
This would mean that the doctors had control over both production and price on the health market. You have read about the various types of inefficiencies that occur in the healthcare market.
Equity
Ideas about fairness
Utilitarianism is a principle that states that we should strive to achieve "the greatest happiness for the greatest number." Recognizing income transfer costs leads to the so-called "great trade-off" - the trade-off between efficiency and fairness.
Equity and health care
4 In the US there seems to be a strong connection with equality of opportunity (equality of process). That is, it is not possible to maximize health and equalize access to health care.
Arguments against government intervention
This means that due to an information asymmetry between the general public and civil servants, the latter will not always do as the former would like. First, some civil servants try to expand their department because it increases their power and prestige.
The case for government provision
3 You must assume that politicians and civil servants act in their own interests in the same way that patients and doctors are supposed to act in their own interests. 4 In terms of service delivery, it may be difficult to replace the coordinating powers of market forces with a large number of independent decisions made by a group of civil servants.
Health financingSECTION 4
The changing world of health care finance
Out-of-pocket and third-party payment
Unofficial fees: In addition to official fees, unofficial payments to health workers are common in many countries. In a number of countries in Central and Eastern Europe, doctors expected informal payments as a supplement to their income.
The evolution of health service finance
Surcharges and user fees: Where third-party payment dominates, cost-sharing in the form of surcharges plays an important role. In some Asian countries, additional payments to staff to access hospital care are common.
From private to social health insurance
For example, expensive therapies are unlikely to be paid for out of pocket, as people would have to spend a large portion of their income or wealth on health care. In the nineteenth century, private insurance was developed throughout Europe and spread to the Americas.
Achieving universal health care coverage
Meanwhile, social (or compulsory) insurance for industrial workers was introduced in Germany in 1883, building on existing voluntary precedents. Social security systems based on paid wages steadily developed in Europe, and later in Latin America and Asia.
Two models of health care finance for achieving universal coverage
This activity gives you an opportunity to identify the current basis of the health financing system in your country. 1 Health financing systems in most countries can be traced back to one of the many financing vehicles that had evolved by the end of the nineteenth century.
Developing methods to pay providers
Think about the employment status of health care providers and methods of paying them. You should be aware that many of the current ways of paying providers reflect political conflicts of the past.
The changing world of health services finance
Probably the most radical changes in recent times have taken place in the former Soviet Union and Eastern Europe. These changes include the introduction of surcharges and a change in the way providers are paid.
Increasing health care costs
Radical changes have also taken place in some low-income countries, where greater use of community funding and patient charges has been sought. The term "Community funding" does not refer to a specific funding mechanism; it is related to the way fundraising is organized by local communities.
Demographic factors
A large number of former communist countries underwent a change from state-funded services to social insurance.
Economic factors
Health technology advances
Disease patterns
Political factors
Some popular fallacies of the current debate
In high-income countries, the increasingly high cost of dying appears to be a more important factor than the steadily increasing proportion of the elderly. For example, lifetime health care costs are lower among smokers than among nonsmokers, suggesting that early death from smoking prevents additional costs of treating other diseases (Barendregt et al. 1997).
The public–private distinction
There is] a stronger argument for government intervention in financing rather than providing health care. In many low-income countries, governments have historically played the major role in providing health care.
Private health insurance
Private insurance in context
1 The premium P would be: P = p × c + a where p is the probability of the insured event, c is the cost of covering the loss, and a is the administrative cost. The greater the number of pooled events, the less likely unexpected costs per case will occur.
The significance of private insurance
However, they are likely to suffer from many of the challenges faced by cost sharing. What percentage of the population in your country is covered by private insurance and who is likely to subscribe.
Regulation of private insurance markets
In most countries, private insurance is a secondary source of financing, covering e.g. 13 per cent of the population in the UK in 2002 (Laing and Buisson 2003) and less than 2 per cent in most low-income countries. In these countries, it attracts only the affluent members of the population, as enrollment is based on ability to pay, thus contributing little to total health expenditure despite the growth of the private sector and increased competition between insurance agencies (Hsiao 1995).
Managed care
With this activity, you can apply your knowledge of private insurance to analyze patterns of private and public spending in the US. In general, private insurance has inherent limitations in providing coverage for high-risk individuals and the poor.
Social health insurance
Principles of social insurance
Coverage: social insurance can cover either part of the population (Latin America) or the entire population (Canada). Subsidies: governments can subsidize social insurance funds to keep contributions affordable for the poor.
Payroll deduction
4 What are the possible effects on equality if social security is introduced only for a part of the population. If the discount rate is already high (that is, the percentage of total wage costs received in mandatory deductions is high), then it is not advisable to use this source for additional deductions.
