Health Economics
HEALTH ECONOMICS
Topics related to various aspects of health economics include the meaning and measurement of health status, the production of health and health care, the demand for health and health services, health economic evaluation, health insurance, the analysis of health care markets, health care financing, and hospital economics.
Introduction
Health care is something which touches all of our lives. Everybody visits the doctor and many of us have been treated in an hospital, health care centers and other health facilities. The future of the Philippine Health Care System consistently surfaces as one of the most important issues which people believe is facing the Philippines today.
Yet health care seems to be in almost permanent crisis - there are shortages of hospital beds and patients are left to lie in corridors while politicians argue endlessly over whether more or less is being spent on the Health. Why is it that health care is such a controversial area? Why is there never enough money to give us the level of health care we want?
To answer these questions we need to introduce and apply a range of economic concepts.
If you visit your doctor (general practitioner, GP) you will go to the clinic (land and capital), have your appointment verified by the receptionist (labour), be examined by the doctor (enterprise and labour) who might use a stethoscope (capital) to listen to your chest before prescribing a course of antibiotics (land, labour, capital and enterprise) to treat your chest infection.
Lecture I
Health Economics: Basic Concepts
Economics: Broad Definition
* How people organize to meet their material needs
Economics: Narrower Definition
* How society
o allocates resources and
o distributes goods and services
An economic system
* turns resources into goods and services — allocation
* and gives them out to people to use — distribution
Goods and services
* useful things
* Goods:
o tangible
o usually physical objects
* Services:
o intangible
o what a person does for you
Resources
* Things that can be used to make other things. Inputs into production.
* Resources can be
o tangible, like a lump of coal, or
o intangible,
+ like an hour of your labor
+ or some knowledge you have
Resource types
* Labor
o human time and effort
* Natural resources
o things found in nature in raw form
* Capital
o things people make to help make other things
Capital
* Capital is anything that people produce that is then used to make other things.
* This is different from the business usage, where capital refers to money.
Capital
* In economics, capital can be
o equipment,
o machines,
o buildings,
o intermediate goods, like steel beams used later to build a building,
o knowledge, developed through experience or education,
o human physical ability developed through exercise.
The relationship between the economics and the business usage of "capital"
* To start an enterprise, you first need to have equipment, buildings, etc., before you can sell anything and bring money in.
* You need to have "capital" (business usage) up front
to pay for your capital (economics usage).
Investment
* Economics usage: Investment = Adding to capital.
* Compare business: spending money in return for claim on future income.
* Generally, investment in the economics sense requires investment in the business sense.
Investment examples
* Building a building
* Installing a machine
* You are investing in our educational capital by enrolling in this course.
Health can be regarded as capital
* Capital is whatever people make to help them make other things.
* Having health helps a person make things, so health is capital.
Health care — a consumption good and an investment good
Health care is purchased to enhance health.
1. Health enhances our enjoyment of life.
2. Health care is a consumption good. Health enhances labor productivity.
An investment is any action that increases capital, including human capital.
Health care is an investment good, too.
Health Care, Resources, and Production
* Health care uses resources, as all goods and services do.
* Health care also adds to resources, to the extent that it adds to human capital.
* The total supply of resources that society has puts a limit on what that society can do.
o given the technology and the efficiency of the system
* Health care affects, positively and negatively, the total capacity of the economic system to satisfy human wants.
This is our segue to discussing the central issue of economics: "The Economic Problem"
The Economic Problem
* Resources are scarce, relative to human wants for goods and services.
* Therefore, decisions must be made on how to
o allocate resources and
o distribute finished goods and services.
The Economic Problem in two words:
* Scarcity
* Choice
Allocation and Distribution
* Allocation
o decide which resources are used
o in what ways
o to produce which goods and services.
* Distribution
o decide which goods and services go to which people — who gets what
o also, which jobs go to which people — who does what
Economics helps us make allocation and distribution decisions better.
* Individual decisions — what's best in my situation?
o Picking the best investment, for example
* Social decisions — what institutions best encourage good decisions?
o Competition vs. regulation, for example
Table of terms for the goals of economics
In the U.S. health care system, scarcity is manifested as
* Limited access to health care for many people
* The health care system swallows up a large portion of national resources, limiting how much of other good things we can have.
* 14% of U.S. gross domestic product goes to health spending, the highest percentage of any country
* Canada is a distant second, at 10%.
* What do we get, that other countries don't, for the extra we spend?
High expenditure would not be bad, were it not for the suspicion that
* We're paying too much for the health care we get.
* We're not getting the best mix of goods and services that
* we could for the resources we put in. Some people get more than they need, while others get less.
Let's go over each of these points in turn:
- We're paying too much for what we get
* an issue of allocation between the health care system and the rest of the economy
- We're not getting the best mix of goods and services that we could for the resources we put in.
* an issue of allocation within the health care system
- Some people get more than they need, while others get less
* an issue of distributional equity
Problems with how we solve the Economic Problem
* We overcompensate some providers, and underpay others
* Our administrative costs exceed any other country's
* Yet our system invites fraud and abuse
* We over treat some while excluding others
Summary: Main concepts
* Economics is about how people decide
o what to make
o how to make it
o who gets it
* Resources
o labor, capital, natural resources
* Goods and services
* An economic system
* The economic problem
o scarcity and choice
o allocation and distribution
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