Transcript Masters of Public Health

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
Health and
Human Sciences
Discussion Questions
1. Health is a fundamental human right so all health needs should
be met irrespective of cost.
2. People should be free to smoke, drink alcohol, eat what they
like, participate in dangerous sports etc. because it’s their
choices and their lives.
3. A person’s age should not be a factor in determining whether
he/she receives heart surgery.
4. 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?
Health and
Human Sciences
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
Health and
Human Sciences
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
Health and
Human Sciences
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
Health and
Human Sciences
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-one’s utility can be
increased without decreasing someone else’s
• 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
Health and
Human Sciences
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
Health and
Human Sciences
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 else’s
– can’t exclude those who didn’t pay for it from enjoying the
benefits
Health and
Human Sciences
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
Health and
Human Sciences
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
Health and
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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
Health and
Human Sciences
Health and
Human Sciences