INTRODUCTION TO HEALTH ECONOMICS
March 2007
Health Economic Course Series: 1 of 12
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Health
• A state of complete physical, mental, and social well being and not merely the absence of disease and infirmity.
(WHO, 1993)
Health
• Can be expressed in functional terms as a resource which permits people to lead an individually, socially and economically productive life.
(Addition in: health promotion glossary, WHO 1998)
Health
• Health is a resource for everyday life, NOT the objective for living.
• It is a positive concept emphasizing social and personal resources as well as physical capabilities.
Disease
• An impairment of health and well being as perceived and described from a professional perspective.
Illness
• An impairment of health and well being as perceived and described from a patient’s/client’s perspective.
Sickness
• A social category, the sick role in a particular society, the role to which individuals who are ill are expected to conform.
Disability
• A restriction or lack of ability to perform an activity within the range considered normal for a human being.
Handicap
• A disadvantage for an individual, resulting from an impairment or disability, that limits the role that is normal for that individual.
• Discuss with your neighbor:– How do you measure health (think of practical
method),– What are possibilities,– What are advantages and disadvantages of
these measurements?
Different indicators to measure health:
• Single measures:– Self assessed health status– Symptom incidence and prevalence– Disease incidence and prevalence– Disability, impairment, handicap– Morbidity, mortality
Different indicators to measure health:
• Composite measures:– Life expectancy– QUALY (Quality-adjusted life years)– DALE (Disability-adjusted life expectancy)– DALY (Disability-adjusted life years)
• Public health is one of the efforts organized by society to protect, promote, and restore the people’s health.
• It is the combination of sciences, skills, and beliefs that is directed to the maintenance and the improvement of the health of the people through collective or social actions.
(Last, 1988)
• ‘Public health is the science and art of preventing disease, prolonging life and promoting health through the organized efforts of society.’
(Acheson, 1988)
• ‘The role of public health is to contribute to the health of the public through assessment of health and health needs, policy formulation, and the assurance of the availability of services.’
(IOM, 1988)
Public health vs. Medical care
• Public health considers medical care as one of the means of protecting and improving the health of the people;
• Public health is especially concerned about the interplay between costs and financing, access, quality and equity of the care.
• No artificial separation between the two disciplines!
Public Health Professionals
• Epidemiologists• Statisticians• Nurses• Environmental health
specialists• Food and drug
inspectors• Industrial hygienists• Physicians• Toxicologists• Laboratory Technicians• Veterinarians
• Economists• Social scientists• Attorneys• Nutritionists• Health educators• Dentists• Sanitarians• Social workers• Administrators• Managers• Demographers• …
Economics
• Study of the use of scarce resources (human, financial, material)
• Health economics =– “Connection between health and the
resources which are consumed in promoting it.”
Health economics
• Concern : health – resources.• Resources not just money; but also
people, materials, and time.• Underlying problem = infinite needs (for
health, food, shelter, entertainment, etc) BUT finite (limited) resources to satisfy them.
• Therefore must choose (health economics)
Health economics is about?
• Judging the performance of health sector;
• Raising finance for health sector;
• Evaluating different health care intervention;
• Informing priority setting;
• Allocation of resources;
• Improving the performance of service providers.
Fundamental concepts
• Resources• Scarcity• Prices• Demand • Supply• Elasticity• Market• Efficiency• Equity
Fundamental Concepts I
• Resources– Input to production: human, natural, capital, time
• Scarcity– Not freely available, to obtain something of value has
to be given up.– Opportunity costs.
• Price– What has to be given up to obtain a certain quantity of
scarce resources.– Price mechanism to allocate resources between
different possible uses.
Fundamental Concepts I
• Demand– Willingness to pay and ability to pay– Relationship between price and quantity purchased or
used.
• Need– Amount required based on independent criteria
health professional judgement
• Want– Amount individuals think they need patient’s
judgement
Health care demand
• Derived from demand for health
• Income
• Education/knowledge
• Substitutes
• Complementary costs (travel, drugs)
• Technology
Determinants of demand
• Price (Law of demand = negative)
• Income
• Price of substitutes and complements
• Taste and preference
• Other influence (seasonality)
Health care demand?
Demand curve
0100020003000400050006000700080009000
20 40 60 80 100
Quantity
Price
A demand curve shows how price influences the amount people want to buy.
Supply curve
0
1000
2000
3000
4000
5000
20 40 60 80 100
Quantity
Price
• Relationship between price and quantity provided. Willingness to produce.
Determinants of Supply
• Price (positive)• Production process and technology• Price of inputs• Government policies and regulation• Expectations of future prices/demand• Market structure and competition.
Health care supply?
Price elasticity on demand (supply)
• Responsiveness of demand to price changes =
% change in quantity demanded--------------------------------------------% change in price
• Assuming other prices and income stay the same, then:
• Elastic E > 1• Inelastic E < 1
Fundamental Concepts III
Technical efficiency (how)• Output produced with minimum inputs• Maximum output produced given inputs
Allocative efficiency (what)• Selection of goods to be produced in order to
maximize total value
Cost-effectiveness efficiency• Maximum output given costs of inputs.
Fundamental Concepts IV
• Equity?– Efficiency = no one can be made better off without
making someone worse off (Pareto)– Equity = “fairness” in allocation of resources among
different individuals
• Definition of equity?– Horizontal
= equal treatment/access for equal needs– Vertical
= different circumstances, different treatment
Fundamental Concept V
Economic growth and development
Macro-economy= economic variables aggregated at country-level
National income= total value of goods and services produced in a country
(e.g. GNP, GDP, growth, GDP per capita)
Economic impact of health
Example: HIV/AIDS
Individual Demographic
Impact
Micro impact
Household labour
firms industries
government trade
Macro impact
National income
PovertyHIV/AIDS