Health Economics And Financing Pdf
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- Health Care Financing and Insurance
- Health economics and financing
- Health Economics for Developing Countries: A Survival Kit
The primary goal of the Health Economics and Financing course, developed by UNICEF in joint partnership with the London School of Tropical Medicine, is to provide participants with the knowledge, skills, and basic economic arguments that are central to discussions about health policy options and choices in developing countries. More specifically, this course aims to share knowledge and policy experience on how health systems can improve equity in the financing and delivery of health care services by exposing the participants to key theoretical and empirical knowledge in the field of health financing and equity.
Health Care Financing and Insurance
From a Public Health point of view, health economics is just one of many disciplines that may be used to analyse issues of health and health care, specifically as one of the set of analytical methods labelled Health Services Research.
But from an economics point of view, health economics is simply one of many topics to which economic principles and methods can be applied. So, in describing the principles of health economics, we are really setting out the principles of economics and how they might be interpreted in the context of health and health care. As Morris, Devlin Parkin and Spencer put it: Health economics is the application of economic theory, models and empirical techniques to the analysis of decision-making by individuals, health care providers and governments with respect to health and health care.
There are many different definitions of economics, but a definition given in a popular introductory textbook Begg, Fischer and Dornbusch, is instructive: The study of how society decides what, how and for whom to produce. In analysing these issues, health economics attempts to apply the same analytical methods that would be applied to any good or service that the economy produces.
However, it also always asks if the issues are different in health care. The definition of economics above includes the term to produce, emphasising that economics deals with both health and health care as a good or service that is manufactured, or produced. All production requires the use of resources such as raw materials and labour, and we can regard production as a process by which these resources are transformed into goods:. The inputs to this productive process are resources such as personnel often referred to as labour , equipment and buildings often referred to as capital , land and raw materials.
The output of a process using health care inputs, such as health care professionals, therapeutic materials and clinics, could be an amount of health care of a given quality that is provided, for example. How inputs are converted into outputs may be affected by other mediating factors, for example the environment in which production takes place, such as whether the clinic is publicly or privately owned.
A key observation of economics is that resources are known to be limited in quantity at a point in time, but there are no known bounds on the quantity of outputs that is desired.
This both acts as the fundamental driving force for economic activity and explains why health and health care can and should be considered like other goods. This issue, known as the problem of scarcity of resources means that choices must be made about what goods are produced, how they are to be produced and who will consume them.
Another way to view this is that we cannot have all of the goods that we want, and in choosing the goods that we will have, we have to trade off one good for another. The term economic goods is sometimes used to describe goods and services for which economic analysis is deemed to be relevant.
These are defined as goods or services that are scarce relative to our wants for them. Of course, in a national health system, it is likely that the aim is to meet needs rather than wants ; this distinction is discussed below.
But it is also the case that meeting one need may mean that another need is not met and that no-one has discovered a limit to need. To summarise: in the economy as a whole, there are not enough scarce resources to meet all of the wants that people have, so we have to choose which wants are met and which are not met; in the health care system there are not enough health care resources to meet all of the health needs that people have, so we have to choose which needs are met and which are not met.
An assertion of economics is that scarcity, and the resulting necessity to choose between different uses for productive resources, applies everywhere in an economy and cannot be avoided. This is the premise underlying a key economics concept called opportunity cost. Producing any economic good or service means that the scarce resources that are used to create it cannot be used to produce other goods or services.
If those other goods or services had been produced, they would have generated benefits to those who consumed them. The true cost of producing a good or service is therefore the benefits that are forgone by not producing other goods and services — in other words, it is the loss of the opportunity to create benefits by using resources in a different way. Because there are many possible goods and services that different combinations of resources could produce, the opportunity cost of using resources in a particular way is defined as the benefits that would have resulted from their best alternative use.
Costs in economics usually means opportunity costs. This concept is quite different to the more familiar idea of financial costs, which is the cost of goods, services and scarce resources in terms of the money that must be paid to obtain them. In practice, financial costs are very often used to measure opportunity costs, but this is not always the case. It is important to note that opportunity cost and financial costs are different ways of thinking about costs, not different elements of overall costs.
They cannot be calculated separately and added together, for example. Economics is a social science, as is emphasised in the definition of economics that refers to how society decides. Although society does make collective decisions about what, how and for whom to produce, in most modern economies this is largely done through markets, by the interaction of those who wish to buy buyers, or consumers and those who wish to sell sellers, or suppliers.
Economics analyses markets mainly through what is called price theory. A market brings together the demand for goods from consumers and the supply of those goods from suppliers. Consumers and suppliers base their buying and selling on the price that they must pay or will receive. Price therefore acts as a signal to both groups as to what they should do in the market.
Consumers will want to buy more if the price is lower, but suppliers will want to sell more if the price is higher. If prices are too high, then suppliers will not be able to sell all that they want to and may lower the price. If prices are too low, there will be consumers who cannot buy all that they want. As a result, consumers may bid more, or suppliers may see the possibility that they can raise their price but still be able to sell all that they want. Simple observable indicators like these, the presence of excess demand or supply, determine how much of a good or service is sold and the price that it is sold for.
This simple model of a market for a single good shows one way in which society decides for whom to produce. Consumers can obtain goods if they are both willing and able to pay for them; the more willing and the more able that they are, the more that they can potentially consume.
Also, a strong willingness and ability to pay is reflected in high demand even at high prices, which signals to suppliers that they should supply more. So, scarce resources are allocated to producing goods for which demand is high rather than other goods for which the willingness and ability of consumers to pay is less.
The demand for such goods is lower and their prices are lower. This, therefore, also shows how markets decide what to produce as well as for whom. If we also assume that suppliers aim to make as much income as possible from what they sell, then they will wish to keep down the costs of production by choosing the most efficient production methods. So, markets also help to determine how goods are produced as well as what and for whom.
Of course, the real economy is far more complex than this and no economist would pretend that this simple model is a precise description of reality. But the point is that markets do not result in a random allocation of scarce resources, but one that is the result of the incentives provided to economic actors, both consumers and producers, by prices.
If we are considering the market for health care, we will be interested in the demand for health care. However, in considering this demand, it is important to recognise that health care has special characteristics that may make it different from other goods. One factor is that health care is not usually demanded because it is in itself pleasurable; in fact, it may be unpleasant. Instead, it is demanded mainly to improve health.
So, even if health care is in itself unpleasant, it leads to more pleasure than would otherwise have been the case. If health care is only demanded in order to improve health, is there then a demand for health improvements?
However, its relationship with the demand for health care is not one-to-one, because although health is affected by health care, it is also affected by many other things and it also affects other aspects of welfare, not just health care.
As a good, health is even more peculiar than health care, because of its characteristics. It is less tangible than most other goods, cannot be traded and cannot be passed from one person to another, although obviously some diseases can.
In the context of ordinary goods and services, economics distinguishes between a want, which is the desire to consume something, and effective demand , which is a want backed up by the willingness and ability to pay for it. It is effective demand that is the determinant of resource allocation in a market, rather than wants.
But in the context of health care, the issue is more complicated than this, because many people believe that what matters in health care is neither wants nor demands, but needs. Health economists generally interpret a health care need as the capacity to benefit from it, thereby relating needs for health care to a need for health improvements.
Not all wants are needs and vice versa. For example, a person may want nutrition supplements, even though these will not produce any health improvements for them; or they may not want a visit to the dentist even if it would improve their oral health. The conclusion from this is that the demand for health care can be analysed as if it were any good or service, but it has peculiarities that may mean that the usual assumptions about the resource allocation effects of markets do not hold.
Moreover, it may well be that people wish resource allocation to be based on the demand for health or the need for health care, neither of which can be provided in a conventional market. The supply side of the market is analysed in economics in two separate but related ways. One is related to the resource input and goods output model outlined above, looking at how resource use, costs and outputs are related to each other within a firm. Some of the issues that this illuminates concern efficiency in production, which will be discussed below.
Others include issues such as economies of scale - for example, are there any cost savings through having larger general practices? The other way in which supply is analysed is so called market structure - how many firms are there supplying to a market and how do they behave with respect to setting prices and output and making profits?
There are two well-known theoretical extremes of market structure. Perfect competition has very many firms in the market so that none has any real economic power, none makes any profits, prices are as low as they can be and output is as high as can be. A monopoly has only one firm, which has great market power, makes as large profits as can be had and has higher prices and lower output.
Other models are somewhere in between. The behaviour of some health care organisations, such as pharmaceutical companies, providers of services like dentistry, ophthalmic services and pharmaceutical dispensing and for-profit insurance companies can relatively easily be analysed using these models. It may be more difficult for other organisations. However, they may provide relevant insights, for example regulation of the UK provider sector is increasingly guided by the use of market forces involving contestability to provide some competitive pressures for efficiency.
Economics analyses many economic activities by according to marginal principles, which is a special case of what is called incremental analysis.
Incremental analysis means that the effects of changes in the use of resources are examined according to how they differ from current use. Analysis is focussed on, for example, how much costs and benefits are increased or decreased due to a change in resource use, rather than the absolute levels of costs and benefits that exist after the change. It does not mean an unimportant change — the costs and benefits involved even in a small change in resource use could be very large.
There are two reasons for analysing incremental and marginal changes. First, looking at incremental values of economic variables often gives a better view of the issues faced in decision making. Secondly, an influential economic theory suggests that people do, at least implicitly, make decisions using marginal principles.
For example, the marginal cost of a good or service is defined as the extra cost that is incurred by producing one more unit of it. That cost could be large, even though the change in the amount of the good or service is small. As an extreme example, suppose that the service is a particular surgical operation and the surgical unit performing it has reached full capacity for its operating theatre.
Performing one extra operation would require a new theatre to be built, so its marginal cost would be very high. However, the marginal cost of the last operation performed within the existing capacity may have been quite small, simply the cost of theatre staff, disposables and subsequent care.
As this demonstrates, marginal cost may vary considerably with respect to the same size of change in the other variable, in this case one operation, depending on the absolute level of that other variable, in this case the number of operations already being performed.
A well-known example of the importance of looking at incremental costs is in assessing the impact of early discharge schemes that aim to lower hospital inpatient surgical costs by reducing length of stay. Hospitals may be able to calculate an average cost per day based on information on the average cost of an inpatient stay and length of stay. However, the costs of each inpatient day in practice differ over the time spent in hospital.
At the beginning of an inpatient stay there are high costs of surgery and perhaps of high dependency care.
Health economics and financing
Health Economics for Developing Countries: A Survival Kit
From a Public Health point of view, health economics is just one of many disciplines that may be used to analyse issues of health and health care, specifically as one of the set of analytical methods labelled Health Services Research. But from an economics point of view, health economics is simply one of many topics to which economic principles and methods can be applied. So, in describing the principles of health economics, we are really setting out the principles of economics and how they might be interpreted in the context of health and health care. As Morris, Devlin Parkin and Spencer put it: Health economics is the application of economic theory, models and empirical techniques to the analysis of decision-making by individuals, health care providers and governments with respect to health and health care. There are many different definitions of economics, but a definition given in a popular introductory textbook Begg, Fischer and Dornbusch, is instructive: The study of how society decides what, how and for whom to produce.
Documents for the Senior Policy Seminar. Barbados, October 22 - 23, Published on 19 November Modified on 05 October downloads. Published on 23 March Modified on 05 October downloads.
As a contribution to the search for suitable and sustainable solutions to finance rising medical care expenditures, the book proposes a typology of healthcare financing and insurance schemes, based on the dimensions of basic vs. Its main contributions are the development of a novel and rigorous theoretical framework analysing the economic rationales for the optimal design of healthcare financing and insurance schemes, and an empirical and institutional analysis investigating the consequences for efficiency and affordability of the complex interactions between basic and supplementary sources of financing. Skip to main content Skip to table of contents.
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