Economics and Health: a taster

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Economics and Health a taster

• Masters in Public Health
• Key reference
• McPake B., Kumaranayake, L. Normand, C (2002)
  Health Economics an international perspective
  London Routledge

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Discussion Questions

• Health is a fundamental human right so all health
  needs should be met irrespective of cost.
• People should be free to smoke, drink alcohol,
  eat what they like, participate in dangerous
  sports etc. because its their choices and their
  lives.
• A persons age should not be a factor in
  determining whether he/she receives heart
  surgery.
• A health care organisation has enough resources
  to give a 5 year-old child a potentially
  life-saving operation or to provide a 75 year-old
  woman with a much-needed hip replacement. How
  would you decide which to treat? What further
  information might you need?

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Lecture outline

• What is economics?
• Key concepts and definitions
• Positive and normative economics
• Are tobacco taxes good for your health?
• External costs and benefits public goods
• Economic evaulation

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What is economics?

• Economics concerns the allocation of scarce
  resources among competing demands
• If resources are insufficient to meet all
  demands, they are scarce
• hence
• all resource uses have an opportunity cost
• health and health care demands appear to be
  infinite
• resources available for health care are finite

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Key concepts and definitions (1)

• opportunity cost the value of the next best
  alternative use of resources
• resources labour, land, water, raw materials,
  production equipment
• demand how much of a good/service an individual
  is prepared to buy given prices and income
• aggregate demand the sum of individual demands

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Key concepts and definitions (2)

• efficient production maximise output for given
  inputs
• efficient consumption maximise economic
  well-being (utility) given prices and income
• efficient allocation of resources no-ones
  utility can be increased without decreasing
  someone elses
• many different efficient allocation of resources
  are possible, each resulting in a different
  distribution of individual utilities
• resource allocation can be by the market or
  planned

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Positive and normative economics

• Positive economics describes and explains how
  choices are made
• Normative economics is concerned with judging
  which choices should be made given certain
  objectives
• Fairness or equity are difficult concepts but a
  more equitable distribution of health (or health
  care) is often a policy objective
• A policy which increases total health may
  increase health inequalities there is a
  trade-off between equity and efficiency

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The effects of tobacco taxes

• Would raising tobacco taxes
• reduce smoking?
• reduce expenditure on tobacco?
• affect poor and rich equally?

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Price-elasticity of demand

• A rise in price tends to reduce consumption

• Price-elasticity of demand
• change in quantity
• ___________________
• change in price

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• cigarette prices rise 10
• cigarette consumption falls 5
• what is the price elasticity of demand for
  cigarettes?
• -5/10 -0.5
• effect of the price rise is that people smoke
  less but spend more on tobacco so will have less
  to spend on healthy activities
• and the poor tend to smoke more/spend more on
  tobacco than the rich

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Externalities and public goods

• Many health interventions and health-related
  consumption have external costs and/or benefits
  to those not receiving the treatment or engaging
  in the behaviour
• vaccination reduces the chance of the
  unvaccinated being infected
• smoking affects nearby non smokers
• The benefit of eliminating infectious diseases
  is a public good.
• the benefit I get from it does not reduce anyone
  elses
• cant exclude those who didnt pay for it from
  enjoying the benefits

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Externalities a reason for state intervention

• external (social) costs/benefits not reflected
  in market prices (which result from consumers/
  producers maximising their individual
  utilities/profits)
• to deal with externalities, government can
• tax/subsidise
• regulate/legislate

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Equity considerations

• state provision of health care can be justified
  on efficiency grounds
• equity could be achieved by income redistribution
  i.e. ensuring all have enough money to buy the
  health care they need
• but
• externalities and other forms of market failure
  (e.g. imperfect information) are efficiency
  arguments for state involvement in health care

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Why conduct economic evaluation?

• To make the best use of limited resources
• To choose between competing demands on limited
  resources
• In a systematic and transparent way
• economic evaluation is a form of cost-benefit
  analysis
• measuring costs and benefits in health care is
  challenging

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The spectrum of economic evaluation techniques

• cost-benefit analysis costs benefits assessed
  in money terms (can determine whether benefits
  exceed costs)
• cost-utility analysis costs in money, benefits
  in an index such as QALYs (quality-adjusted life
  year)
• cost-minimisation analysis outcome is same for
  all options, so question is just which is least
  cost

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