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Summary Advanced Health Economics
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Summary of all the Lectures of the course Advanced Health Economics.
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Summary of the lectures advanced health economicsLECTURE 2: Health care expenditure
When we look at health care expenditure as a percentage of GDP US is on top. So, it’s not
that they spend the highest share because they are the wealthiest country, it is because of
their system.
Netherlands second→ the economy is shrinking while health care expenditure is remaining
the same, the share spend on HC (the share of GDP) will rise rather rapidly.
Is healthcare expenditure a threat?
- No, because health is the most important good of all.
- Yes, budget competes with:
o Private expenditure
o Public expenditure: Defense & Education
- It increases labor costs and thus weakens our economy
- Premiums are mostly solidarity which might get less support. As the expenditure
goes up, people start to realize that they spend high amounts of money every year
and they don’t get anything in return, so solidarity might get a hit.
GDP grew 35% since 1997, but household did not end up having 35% extra income.
- 7,5% did end up in the pockets of the capital. Because there was 27,8% growth in
household income including education and HC.
- Excluding education and HC, the actual income, did not grow from 2001 until 2015.
The actual purchasing power didn’t increase. (from 1997 an increase of 16%).
The difference between the 116 and 127,8 is that all the purchasing power, the extra wealth
as a society that we’ve gathered has gone to education and HC. The reason why the
purchasing power in Netherland households hasn’t risen between 2001 and 2015, is
because of expenditure rise in healthcare mostly. However, we saw an increase in
purchasing power before 2001, but not thereafter. (we do believe that increasing
expenditure in HC is the major cause in rising of populist in the Netherlands like FvD).
When trading of budgets, where would I spend my money on? Like where do I get the most
value on, with:
- Economist use marginal utility/happiness (utility for the last euro spend)
- Evidence shows extra investment in HC is cost effective. So a euro spend on HC
usually provides more than a euro spend elsewhere.
- But is this the way to evaluate marginal utility? with marginal we mean: if we spend
an extra euro (so that is the marginal euro) in health, would that extra euro would
spend wisely? The assumption is that all the euro’s spend before the extra euro was
spend wisely.
- But, we spend a lot of euros in HC that don’t result in any utility. The bigger issue is,
that if we spend money in HC than it means our taxes will go up and as a
consequence, labors will ask for higher wage So.
If HC Exp goes up then Premiums will go up and if Premiums is up, labor cost will go up. As
a consequence the Collective (forced payments) will go up.
, • Can these payments be made private? So if we have a solution to not make
these payments collective, so that people can make decisions that they want
to spend their money on HC. Why would we worried about that?
• Yes, it can be private but: When you let people decide on how much they
spend on HC, it will reduce the solidarity in the system. They will make a
trade off. As a consequence, few people will spend it out on solidarity
motivation and that won’t work. So, we either pay collectively and sustain a
good level of solidarity or you pay privately and it becomes very much
whether you will be able to pay the premium or not and whether your risk is
high or low.
Slide 12: HC costs continuously grew on a much higher rate than the % of median income
growth. Throughout the year there is a negative correlation (not causation) between them,
because employers don’t really care whether they spend on wages or benefits, they look at
it as total labor related costs.
So, the graphs shows: if HC expenditure rises faster and therefor the costs of health
insurance to the employer rises faster, then we expect the income to rise less.
Slide 15: 15.4% spend no money on HC. Premiums are mostly solidarity which might get less
support. As the expenditure rises, people start to realize that they spend high amounts of
money every year and they don’t get anything in return, so solidarity might get less support.
People begin to argue that solidarity should not be forced on them.
Health care contribution to economy:
Don’t know precisely, but
- Working people are the healthy people (healthy worker effect)
- Health care mostly prolongs life but has less effect on years in good health
• Health care premiums up
• Pension premiums up
How much money do we spend relative to the money we have, so what we could spend in
total. As GDP grows, we end up paying more for HC in absolute term.
Slide 19: as your income increases, suggests that you spend more on HC.
If the HC system fails, typically women end up looking after the vulnerable within a family
and sacrificing their own personal goals and perhaps careers.
Why is the HC system in USA is so expensive is because of the high prices and you don’t get
necessarily more HC.
Multiply US consumption levels times Canada prices. You would see that US expenditure
halves. The prices on average are twice as high in Canada. This explains most of the
differences in expenditure between Canada and US.
Why are prices different?
Are we getting value out money?
,We had a lot of people dying early in life (1870:40y, 2019:81y), that’s what we got rid of.
Causes for life expectancy, where did people die from:
- Accidents
- Three major chronic diseases: heart disease, cancer, stroke.
- Eleven major infectious diseases.
The three major chronic diseases become more important over time. Those are all diseases
from which you die at a higher age. And as a consequence, life expectancy grew.
Infectious diseases were the most important, when we got rid of those, life expectancy
started to rise. But, at the point that most vaccines came about, we already dealt with the
majority of the infections and mortality as a society. Society was able trying to prevent
infection. Perhaps it’s other factor than quality of HC that life expectancy grew so much.
McKeown made this point: Life-expectancy due to:
• McKeown (1870-1950): increasing standards of living instead of because of quality
HC.
• Historians say: public policy (clean water, improved sanitation)
• 1950 onwards: Physicians say: improved health care/drugs. But Economists said: not
so fast… Rand Health Insurance Experiment and Oregon Medicaid health Experiment.
Both show very little effect of more or less HC in terms of the life expectancy and
quality of life.
Dartmouth atlas: there is a downwards slope, which says that the average quality of care is
negatively related to the amount of dollars spend. So, as you spend more, you get lower
levels of quality. So, spending more on HC doesn’t necessarily mean higher quality of life in
rich countries.
With pneumonia it’s more about attention instead of intervention like congestive heart
failure (with fancy machines for diagnostics). Therefore, richer hospitals have some higher
quality of care with CHF. While mortality was higher in richer hospitals for pneumonia.
What drives expenditure change?
- Ageing (not really)
- Technology
- But the majority of the actual rise in HC expenditure wasn’t demographic, it wasn’t
because of the aging population. It was because of technology is changing HC, being
able to provide more HC to a larger group to have more treatments, more
diagnostics etc.
- Also Baumol’s disease. Curable?
Slide 32: predicted growth
- pink→ if the health care remained the same, in 2040 we would spend the same
amount of euros.
- Dark purple→ ageing
- Yellow→ we expect HC expenditure to rise due to other developments like new
technologies or Baumols disease.
The majority of the rise is due to factors we wish to control as the society. Health care
expenditure is something we can expect.
, What can we do to flatten the curve→
- Reduce volume: You can reduce quantity, like reducing the demand.
o Reduce coverage/increase copayment (then they will be cost aware)
- Reduce price (try to maximize prices, trough for example price caps)
- Increase efficiency: Market incentives, managed competition
Onderin uitgelegd per onderdeel.
Reduce coverage / increase copayment:
- Could reduce demand due to reduction moral hazard (it means that if you get
everything paid for, so if HC is insured, you might request more HC than you would if
you had to pay for it. Or you might request more expensive HC than you would.
Because you are asking for more HC than if you would have to pay, you might
actually ask for HC that isn’t as valuable, that might not be worth the euro’s that it
costs to produce. And therefore it is important to let people think about the HC
consumption they have.
- However: Critique Nyman
o Would increase inequity in access
o Extend of effect could be different in the Netherlands
Increasing efficiency: so we want a system where the euro’s spend, are automatically spend
better. With payment reforms or Accountable Care Organizations (ACO) (ACO is like an
integration of insurance company and HC providers). But this theory may not work in
practice. Because these very large and powerful organizations are also monopolies or if they
are not then oligopolies. There is not enough competition of enough players to have a really
efficient market outcome. So if there is a monopoly and people can’t go outside, they might
not necessary provide the best deal for the people who want to be insured.
- Evidence based: Learning from comparing health care systems who have done
better, like Cuba, Singapore and Israel. But, our HC organization is based on private
institutes/organizations (they don’t want to be in a governance system).
Where does this leave us?
• Yes, health care expenditure may hurt employment and purchasing power
• Yes, the same health care value may be delivered for (a lot) less
• No, we don’t know how to get there exactly, but budgets have proven value
Stakes and stakeholders in NL
Whose interest to keep expenditure growth down?
1. Providers interest groups
2. Professionals
3. Patient interest groups
4. Insurance interest groups
5. Insurance companies
6. Department of Health
7. Department of Finance
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