Basics health economics

Health Economics: An Overview

Abdur Razzaque Sarker MHE(Health Economics) MSS (Economics)

PhD Fellow, Stathclyde University, UKAssistant Scientist and Health Eonomist

Health Economics and Financing Research Groupicddr,b

Email: arazzaque@icddrb.org razzaque.sarker@gmail.com

• What is Health Economics?• Health Economics study areas• Focus on some important issues

By the end of this module you will be able to:

razzaque.sarker@gmail.com

ECONOMICS is the study of how individuals and societies choose to allocate scarce productive resources among competing alternative uses and subsequently to distribute the 'products' from these uses among the members of a society.

What is Economics?

Science about how best limited resources (optimal) can be utilized to satisfy (unlimited) need of health on the basis of individuals’ or society’s own choice.

What is Health Economics?

Health Economics, therefore, is the study of how scarce productive resources (health care and health) are allocated among alternative uses for the care of sickness and the promotion, maintenance and improvement of health.

What is Health Economics?

Why Health Economics? Health economics is concerned with the formal analysis

of costs, benefits, management and consequences of health and health care

Interested in understanding demand and supply of health and health care, as well as issues of equity and efficiency.

To understanding where funding does and should come from.

Country GDP per capita (Int$ 2005)

Life expectancy at birth

Health expenditure

As percentage of GDP

Per capita (Int$ 2005)

Nepal 1050.6 67.1 5.8 69.4Bangladesh 1286.0 66.6 3.4 47.7Pakistan 2369.0 66.9 2.6 62.7Vietnam 2682.0 74.6 7.2 210.7India 2993.3 64.1 4.2 131.7

Economic level, life expectancy and health expenditure

Selected Asian Countries

Selected North American and European Countries

Country GDP per capita (Int$ 2005)

Life expectancy at birth

Health expenditure

As percentage of GDP Per capita (Int$ 2005)

USA 41,735 78.7 16.2 7410.0Italy 26,526 81.4 9.5 3027.0U.K. 31,985 80.1 9.3 3399.0Sweden 32,183 81.4 9.9 3690.0

F. Health economic evaluations E. Market analysis

B. Determinants of health

A. Value of health

C. Demand for health care

D. Supply of health care

G. Health care organisation and financing

H. System level evaluation

Source: Culyer och Newhouse, 2000, Lindgren, 1993.

Study Areas in Health Economics

A. Value of health

How health can be measured?

Examples: Quality adjusted life years Disability adjusted life years

Full health

QALY weight

Sickness absence days

SexMen Women

18-24 yr

25-34 yr

35-44 yr

45-54 yr

55-64 yr

18-24 år

25-34 yr

35-44 yr

45-54 yr

55-64 yr

0 0.9112 0.9082 0.8950 0.9012 0.9267 0.8646 0.8903 0.8835 0.8711 0.8628

0-7 days

0.8941 0.8900 0.8776 0.8721 0.9027 0.8572 0.8764 0.8707 0.8482 0.8461

8-30 days

0.8458 0.8282 0.7990 0.7892 0.8503 0.8139 0.8203 0.8236 0.7898 0.7866

31-90 days

0.7354 0.7046 0.7221 0.7431 0.7525 0.6701 0.7153 0.7064 0.7128 0.7172

90-365 days

0.8283 0.5131 0.5710 0.6391 0.6998 0.6974 0.6184 0.6520 0.6064 0.6086

B. Determinants of health

Some examples:

• Age• Gender• Social status• Education• Family condition• Environment• Social policy

C. Demand for health care

Demand function for doctor’s visit= ƒ (price per visit, coinsurance rate, price of other goods, income, time price, health status, Age, education, …..)

Other goods

Number of visits

Income Health condition Time-price Insurance

Demand curve

Healthy

Vf Vs V0 V1

Factors that influence demand for health care

Time-price

Cost Yr 2005 Yr 2006-----------------------------------------------------------------------------One hour 10 $ 10 $Visit fee 25 $ 30 $Travel 5 $ 5 $-----------------------------------------------------------------------------Total costs 40 $ 45 $Total nr visits 7 6-----------------------------------------------------------------------------

Total price elastricity = % change in nr visits/ % change in total price = - 1,5

Visit fee elasticity = % change in nr visits/ % change in visit fee = - 1,0

Difference between Grossman’s and traditional approach to demand For health

1. It is not medical care per se that consumer wants, but rather health. Medical care demand is a derived demand for an input to produce health ( the demand for healthcare is derived from the demand of health)

2. The consumer does not merely purchase health passively from the market. Instead, the consumer produces it, spending time on health-improving efforts in addition to purchasing medical inputs.

3. Health lasts for more than one period. It does not depreciate instantly, and thus can be treated like the capital good that it is.

4. Health can be treated both as consumption and investment good.

Health care or health

Initial health status

Investment in health

Depreciation of health

Uncertainty

Health capital

Regression model for demand for health

Health = Constant + initial health status + investment in health + depreciation of health + uncertainty + error

Health = Constant + (father’s occupational status + etnicity)+ (education + physical excercise in leisure time) + age + indivdual’s occupational status + error

D. Supply of health care

All that influence the production of health services that makes health better.

Some examples: Private/public health care Labour market for health professionals Waiting period Establishment of health centres Law (equity in health care)

E. Market analysis

Production and consumption of health care in a non-regulated market.

F. Health Economic evaluation

Cost of illness studies Cost-effectiveness analysis Cost-benefit analysis Cost-utility analysis

Decision rules for effective resource allocation

Data Envelopment Analys (DEA)

Input-output in a hospital Input variables

Number of doctors Number of other health personnels Number of beds

Output variables Number of surgery Number of out-patients Number of in-patients

In-patients

Out-patients

E = EffectiveE´= Not effective Effectivitety measurement = OE´/OE

Health care triangle

Citizen ProviderDelivery

Third-party insureror purchaser

Funding

Source: Reinhardt, 1990

G. Health care organisation and financing

Financing equation

TF + SI + UC + PI = P X Q= W X Z

• TF = Sum of taxation• SI = Social insurance contributions• UC = Out of pocket and user charges• PI = Insurance premium (voluntary or private)• P = Price of the service• Q = Quantity of the service• W = Quantity and mix of inputs• Z = Price of inputs

25razzaque.sarker@gmail.com

H. System level evaluation

For example:Health expenditure =ƒ (factors that influence demand, factors that influence supply)

Some common terms use in Health Economics

Perspective Point of view from which the costs and effective (or benefit) are recorded and assessed.

Perspectives

The societal perspective is the broadest possible perspective,

because it includes all costs (no matter who incurs them) and all

consequences (both good and bad), regardless of who experiences

If several perspectives are included in the analysis, the results

must be presented separately for each study perspective.

Equality Vs Equity

Equity concepts Market mechanism is considered fair/Nozick. Maximising greatest happiness for greatest numbers, but ignores

distributional aspects /Utilitarianism. Goods are distributed so that the position of the least well off in society

is maximized/ Rawls Equal shares of a distribution of a commodity which means equality in

health and health care/ Egalitarianism

Equity in health care

Principle of being fair to all, with reference to a defined and recognized set of values.

Horizontal equityThe principle that says that those who are in identical or similar circumstances should be treated equally

Vertical equity The principle that says that those who are in different circumstances should be treated differently Population s that are equally ill ought to be treated same; those that are sickest ought to get more.

Equity in health care

Efficiency……!!!!!!!!!

Elements of Efficiency

Do not waste resources

Produce each output at least cost

Produce the types and amounts of output that people

value most

These are the three main elements of efficiency

value most

Production

Efficient Resource Allocation

Consumption

Produce the types and amounts of output that people value most

Production

Efficient Resource Allocation

Consumption

value most

Technical Efficiency Cost-effective efficiency Allocative Efficiency

Technical efficiency requires that for any given amount of output, the amount of inputs used to produce it is minimized (e.g. hospital…??)

It requires that, in addition to technical efficiency being attained, inputs be combined so as to minimize the cost of any given output Resources be used to produce the types and amounts of outputs which best satisfy people

Allocative Efficiency

Example…!! If mothers of young children want counseling services for behavioral problems instead of frequent well-child check-ups, then allocative efficiency might be improved by changing the mix of primary care services even if the well child examinations were being provided cost effectively

If producers are supplying too much or too little of any good or service relative to consumers' wishes it leads to allocative inefficieny

Doing the right things Doing things right

value most

Technical Efficiency Cost-effective efficiency Allocative Efficiency

Efficiency means both 'doing things right' (technical efficiency and cost-effectiveness), and 'doing the right things' (allocative efficiency) Pareto Efficiency..?????

http://www.healtheconomics.com/http://www.healtheconomics.org/http://www.oecd.orghttp://www.healtheconomics.com/Database.cfmhttp://www.worldbank.org/

Important websites

Health Economics Journals Journal of Health Economics Health Economics Journal of Health Economics Journal of Health Care Finance Health Care Financing Review Health Policy and Planning American Journal of Public Health

And many journals in the area of Public Health

THANK YOU

Basics health economics

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