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Summary all lectures - Health Economics and Financing
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Summary of all lectures of the course Health Economics and Financing, including graphs and tables.
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Summary lectures – Health Care Economics and FinancingLecture 1 – Introduction
Health economics: applies economic theory, models and empirical techniques in the analysis of
decisions of individuals, healthcare providers and government with respect to health and healthcare.
Theory of competitive markets: demand and supply → market equilibrium.
- Firms are fixed and exogenously given technologies that allow them to convert inputs
- Inputs: land, labor, capital, raw materials.
- “Competitive” producers take both input and output prices as given, and choose a
production plan (a technologically feasible set of inputs and outputs) to maximize profits.
Consumer choice theory: demand behavior. How to maximize utility?
Producer theory: supply behavior. The study of production/economic process of converting inputs
into outputs. Uses resources to create good/service that is suitable for use, gift-giving in a gift
economy, or exchange in a market economy.
Social choice theory: theoretical framework for analysis of combining individual opinions,
preferences, interests, or welfares to reach a collective decision or social welfare in some sense.
HE helps health care professionals/decision-makers/government to make choices on:
- The health of population given constrained health-producing resources
- Production of healthcare (doctors/specialists/nurses)
- Distribution of health care across population
- Spending on health care
Health economic problem → unlimited healthcare wants with rapid growth in expenditure, but
insufficient health sector resources (budget). → trade-off
Healthcare: The prevention, treatment, and management of illness and the preservation of mental
and physical well-being through the services offered by the medical and allied health professions.
Why is healthcare different than other sector?
• Doctors behave differently to firms.
• Doctors can charge different prices to different people.
• There is restricted entry to the industry.
• Advertising and overt competition are virtually absent.
• Motivation is clinical need, not profit; goals other than profit maximization dominate.
• Government involvement in finance and provision of healthcare is common, due to inherent
uncertainty about the incidence of illness and about the effect of healthcare on illness.
,Williams’ plumbing diagram:
Equity: fairness in the sharing of healthcare resources between people
Efficiency: level of performance that uses the lowest amount of inputs to create the greatest amount
of outputs.
Effectiveness: degree to which something is successful in producing a desired result
Ethics: dealing with what is good and bad and with moral duty and obligation.
Marginal analysis: examination of the additional benefits of an activity compared to the additional
costs incurred by that same activity. → maximize profits.
Production function shows maximum output you can get from any quantities of inputs. Description
of the current best technology for making a good.
The production function for health insurance claims in a health insurance company can be written
like this:
Q(claims) = f(office space, accountants, computers, furniture, supervisors, office supplies, etc.)
Marginal product = Q / L (change in quantity / change in input)
, The Law of Diminishing Returns says that the total product curve eventually gets flatter as the
amount of the variable input increases.
As the amount of an input increases, all other inputs being held constant, the marginal product of the
input will eventually decline.
Consumer choice theory: underpins the demand for goods and services.
- It explains why consumers behave or react in certain ways to changes in various factors in
order to maximize their utility.
- The demand for any good or service, including healthcare, as the quantity that consumers
are both willing and able to buy.
- Consumers are assumed to be rational – they have complete preferences, their preferences
are transitive, and their wants are non-satiable.
Convexity of preferences: consumption of combination of goods is preferred over the consumption
of single goods
Preferences:
Completeness: for all possible bundle of goods there is a preference order
Reflexivity: bundle of good is at least as good as itself such that the individual is indifferent
Transitivity: where A is preferred to B and B preferred to C, it (should) follow that A is preferred to C
Indifference curve: depicts the way the consumption of different bundles of goods/services affects
utility.
- The slope of an indifference curve is the marginal rate of substitution. With utility
unchanged, this is the amount of one good that must be sacrificed if consumption of another
good is increased.
- In a two-good space, indifference curves are convex.
Budget constraint: limited resources and prices of various goods/services constraint decisions of
consumers in the pursuit of utility maximization.
Utility maximization: when consumer chooses a bundle of goods where the ratio of the goods prices
(slope of budget line) is equal to the ratio of marginal utilities (slope of indifference curve).
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