Summary
Summary Economics and Financing of Health Care Systems (GW4567M)
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Meeting 1 - Course overview - is health care really different?Voorbereiding
Health economics and expansion of the healthcare sector
- Health economics provides concepts and tools to understand difficult trade-offs involved in
organising the allocation of healthcare resources, which may help to improve health policy
and health system design
- Does economics apply to health care? > RAND health insurance experiment proves it is
> In addition, if economics studies how scarce resources are produced and then
distributed, then clearly economics applies. Healthcare resources are certainly
scarce and there is no question that health care is produced ans distributed
(Folland et al, 2017)
- Relevance of health economics
> The economic organisation of healthcare systems has a significant impact on the
efficiency and equity of healthcare allocation
> Health care is a large and expanding sector of national economies *
> Health care is not a regular (economic) commodity; it is widely considered a right,
not a privilege **
> Specific features of health care can easily result in market failure as well as in
government failure ***
* >> Health care expenditure
Around 2009 > figure flattens for all countries (US left out)
(Health) spending is growing faster than our economies
Still, the expansion is likely to continue
* >> Reasons for expansion
-Ageing populations -Advancing medical science & technology
-Shift towards chronic diseases - Increasing welfare
-Expanding health insurance coverage - Flawed (financial) incentives
-Baumol’s ‘’cost disease’’:
Most labor-intensive services (like health care) become more expensive
Productivity cannot increase at the same pace
Increase in wages cannot be earned bak by productivity increase
Demand for healthcare is unlikely to decline
Result: Policy-makers are increasingly involved with difficult choices which is
navigating between scylla and charybdis (government vs market)
- Is health spending growth sustainable?
> Increasing health spending may significantly harm the economy
>> Taxes and/or premiums ^ → labost costs ^ → competitiveness decreasing
> Increasing public health spending may crowd out other public services
> Financial sustainability: how to ‘pay’ for spending growth?
>> E.g. higher cross-subsidies to guarantee universal access
> Economic sustainability: ensuring value for money (long term challenge)
>> Important task for health economists
1
,** Health care: right or privilege?
Privilege = defined as a special entitlement to immunity granted to a restricted group
(on conditional basis) bijv: land title
Right = inherent, irrevocable entitlement held by all citizens from the moment of birth
- WHO definition: considered it a right;
> Universal coverage is firmly based on the WHO constitution of 1948 declaring
health a fundamental human right and the right to health care is embodied in many
countries’ constitutions
- Universal coverage: three dimensions
> People should not pay too much themselves, but what is too much?
- Still not universally accepted (especially in the US)
> US Senator Tom Harkin (D-IA), 19 dec 2009 puts it clearly:
‘’What this bill does is we finally take that step. As our leader said, we take
that step from health care as a privilege to health care as an inalienable right
of every single American citizen.’’
> Glenn Beck, conservative talk - radio host, 4 jan 2010 disagrees:
‘’Rights no longer come from the creator. They come from congress. From
Washington. This is the end of the American constitution.’’
> US presidential candidate Donald Trump, 14 jan 2016,:
Healthcare as a privilege, not as a right. After election full repeal for Obama
care. Claiming Affordable Care Act (ACA)
> Biden in favour of human universal coverage; ACA
*** Health care’s distinctive features
- Health care is not a regular economic good!
> Adam Smith: Reward for physicians must be more than a regular good.
> Bernard Shaw: Health care has special features
> Kenneth Arrow: Special characteristics
- Is health care different? (Folland, Goodman, Stano, 2017) > it’s about combination
‘Health care has many distinctive features, but is not unique in any of them. What is
unique is the combination of features and even the sheer number of them’.
2
,- Distinctive features of health care
> Presence and extent of uncertainty
> Problems of information
> Presence of insurance / risk-bearing third parties
> Large role of nonprofit firms
> Restrictions on competition
> Importance of equity and solidarity
> Government subsidies and public provision
> Ethical concerns
Due to these features a free competitive market is unable
- Sources of market failure in health care
> Market failure: individuals’ pursuit of self-interest leads to outcomes that can be
improved upon from a societal point-of-view
>> Uncertainty
>> Risk-bearing third parties (moral hazard)
>> Asymmetric information (agency problems)
>> Externalities
- Non-market institutions in health care
> Professional licensure
> Non-profit organisations
> Restrictions on provider advertising
> ‘’Any-willing-provider’’ laws
> Social health insurance
> Supply regulation (e.g. of entry and capacity)
> Price regulation
> Quality regulation
> Public provision of health care (e.g. NHS) etc..
- Market failure vs government failure
> The government can try to correct market failures by public provision, redistribution,
and regulation, but …
The fact that it can intervene in the healthcare system does not always mean that it
will actually succeed in doing so!
> Sources of government failure:
>> Information problems >> Coordination problems
>> Motivation problems >> Special interest groups
- What role should markets and governments play in health care?
> Universal access: how to realise/organise solidarity?
>> Between low & high risk people?
>> Between high & low income people?
> Efficiency: how to organise an efficiënt provision and financing of health services
and systems?
How to avoid market and government failure? Navigating between scylla and charybdis!
College
- Midterm exam: topics 1-9, 30 MC - Final exam: all topics, 8 essay questions
3
, Meeting 2 - Demand for health care
Voorbereiding
Three models of health care demand
- Professional
- Economical
- Particular health care system; imperfect agency model
- What’s the relation between demand for health and health care?
> Demanding health care is not for fun! It only generates utility/value for the
consumer if it improves health or quality of life
> This implies that the demand for health care is derived from the demand for health
Only if you are sick, or it improves your health it makes sense to demand it
> In fact, health care is only one of the inputs in an individual’s health production
function:
> Health care is not only a consumption good but also an investment good
Investment in your future health and productivity
- What determines our demand for health care?
> Three basic models:
1. The medico-technical model:
The doctor is in the lead, acting as a perfect agent
2. The neo-classical model:
The patient/consumer is in the lead, having perfect information
3. The imperfect agency model:
Demand is determined by both doctors and patients as information is part of
the transaction
1. The medico-technical model
(Reflects professional view of health care demand)
> Consumer demand is determined by medical experts based on objective needs
> Assumptions:
>> Health care providers act as a perfect agents on behalf of their patients
>> Patients have uniform preferences and fully comply with the decisions
made by their providers
>> Providers know with certainty the results of their decisions
> Only one determinants of health care demand (if assumptions hold): need
> Thus: individual demand is completely (price-)inelastic
> What will the demand curve look like?
= perfectly price inelastic demand-curve
4
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