INTRODUCTION TO HEALTH ECONOMICS

March 2007

Health Economic Course Series: 1 of 12

http://diankusuma.wordpress.com

1. What health is.

2. What public health is.

3. What health economics is.

Table of Contents

What is health?

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.

Impairment

• Any loss of physical, physiological or anatomical function or structure.

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)

What is Public Health?

Public healthCommunity medicine

Public hygieneSocial medicine

Sanitary medicine

definitions…

• 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• …

What is health economics?

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

Thank you