Chapter 9 Notes

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IDSB04 Chapter 11 – Health Economic and the Economics of Health
A key concern is the allocation and spending of resources in order to achieve particular
health related goals and objectives.
In health economics, its not just simply minimizing costs, but obtaining the greatest value
from an efficient use of resources
Many health economists regard health in terms of medical treatment and individual
preventative measures while others understand health investments at the societal level
apropos the underlying determinants of health, including education, safe housing, and
*World bank and other proponents of orthodox (neoclassical) health economics target
low cost intervention for developing countries- - advice is based on evidence of health
improvements that are usually measured by short-term drops in specific disease rates
-allocation decisions must prioritize resources and interventions that have the greatest
impact at the lowest cost b/c health resources are scarce
*Proponents of health & social justice approaches stress the importance of
comprehensive means of improving health that integrate primary health care-oriented
universal health systems w/ social & political investment & redistribution on a broader
Economic approaches to public health and medical spending.
Many orthodox health economists continue to portray and favor health system
organization as individual consumer choices
How (health care) markets work (and their limits)
Neoclassical economic theory holds that the price of a good or service is determined by
demand for that good/service and well as its supply
Scarcity of an item + level of competition = determines price
Two assumptions
oAll players participate voluntarily and can choose to leave
oAll players (suppliers and purchasers) have equal access to information regarding
price, demand, and availability
Health care markets are different from other markets
oSuppliers (doctors/physicians) create their own demand in a limitless fashion.
oIn economic terms, ‘producer sovereignty’ overshadows ‘consumer sovereignty’
oConflict of interest between producer and consumer making for a complicated and
imperfect relationship
**Table 11-2
Typical Market assumptions Using health care services
buyers use personal resources to purchase
goods & services
in many societies, govt, employers or
privately run insurance companies purchase
health care services with consumers paying
indirectly through taxes, premiums, and/or
buyers and sellers have equal access to info
from which to make rational decisions
asymmetric info btw providers, and
consumers. Pateints are often unaware of
which health good/ser is needed, or which is
most effective or cost effective.
Patients may not always disclose vital health
info to providers.
Why do health care markets differ from other markets
Consumers cannot control when/how they spend money on care
Money spent or allocated by the physician may be third-party money from an insurance
company or a government program
oThey may in factprovide maximum level of services because they don’t have
financial considerations because someone else pays for their costsmoral hazard
Varying amounts of money charged for health services may go to purposes having no
health benefit.
Money is not the only consideration when analyzing health markets
oIt may be far better not to need health services than to need them
oThe special nature of health care also derives from human vulnerability at times
of illness, pain, or impeding death
Health services reflect the characteristics and values of the societies of which they are a
oHealth resources are shaped by political and cultural factors than by ‘rational
allocation based on consumer decision
Health System Financing
*Three main means of financing health care
1. Revenues fathered by national/local governments through taxation
2. Tax based or salary deducted contributions to public insurance systems
3. Private payment to private insurance schemes or out of pocket expenditure at the
point of health care provision
Health system financing yield different levels of progressivity (fairness):
1. Financing through taxation is most fair
2. Depending on how contributions rates are established, mandatory health services
may be regressive
3. Private voluntary health insurance is more regressive then mandatory health
insurance since ‘risk’ is at the individual rather than the community level
The Health insurance model
Insurance plans holds the promise that funding for health care will be available when it is
needed by the individual
Many pay premiums into a common pool, from which any one individual may withdraw
funds when needed; this is known as risk pooling
Private insurers may select who they will provide coverage for, or may decide to delay or
reduce benefits paid. This is known as risk selection
oPremiums or benefits may be adjusted based on age, family size, etc
US and Canadian health Financing Model Compared
Single payer public system (Canada) vs multi payer private –public insurance system
Frequent claims that single payer system was more costly (not true)
Multi payer system distributed services according to ability to pay.
User Fees and Out of Pocket Spending
WB recommends that any decisions to implement user fees take the local context into
account and that services be provided free of charge when:
oBenefits are widely diffused (e.g. sanitation, pest control)
oThe cost of services is minimal
oServices are disproportionately used by the poor, unlikely to be delivered
adequately without user fees, and unlikely to be overused (e.g. low cost primary
health care, antenatal care, immunization low-cost treatment for priority disease)
*user fees resulted in significant barriers to care:
-ppl were far less willing or able to pay for care
-few countries actually implemented protective or exemption policies for low-
income groups
-increase inequality in access to care
-negative impact on adherence to treatment for chronic or long term health
conditions (cancer, HIV)
-40- 50% decrease in health services utilization