International econometric comparisons Only 1 study found national income elasticity < 1  Suggests healthcare is a luxury good Cross-section Time-series Panel data

Healthcare spending correlates with GDP Figure borrowed from John Appleby

Spending increases over time Over time, healthcare spending (% GDP) has increased as real GDP increased Figure borrowed from John Appleby

Methodogical problems Healthcare spending not quantities –Spending may reflect prices or wages PPP vs exchange rates Other causal relationships –Increased health expenditure => improved health status => higher income –Both expenditure and income may correlate with something else e.g. education Other factors may still be important Need for a multilevel analysis

Yet at different levels… A national luxury yet an individual necessity?

3.Is health care different?  Can we apply the same principles to standard textbook commodities to health care?  Elasticity of demand  Ferrari 350 metallic red vs. Relieving that Toothache  Keep that in mind

Health care  Yes – in ways that generate market failure which are important for formulating public policy  Derived demand  Externalities  Informational asymmetries  Uncertainty – both for need for and the effectiveness

Elasticity of Demand and Health Promotion Can be useful for a range of policy decisions in health care and health promotion E.g. use of taxes to raise the price of cigarettes and discourage smoking Outcomes – will require large tax increases -increase in revenue -reduce smoking in relatively young smokers -regressive taxation for the poor Low elasticity of demand - Essential goods or an addiction High taxes on health-damaging goods Subsidies to encourage healthy lifestyles

Income Elasticity of Demand A good is said to be elastic if the proportion of income spent on it rises with income. Income elasticity: Positive: if income rises more is bought normal goods Negative: reverse inferior goods But you do not indulge yourself with an extra tooth ache relief; sure another midnight blue Ferrari will do

Elasticity and Prices of Health Care Charging for health services - if demand is inelastic such charges will be to raise revenue with little effect on use. -if more elastic then charges may deter people from using effective and useful care Health care is more complicated Fees to deter people from making unnecessary use of services Deterrent effect of charges makes no difference

Demand for Health care Income elastic Luxury item but not unnecessary Richer countries spend more on health care Those on low incomes are often those with the greatest needs Elasticity at different price levels + for different groups need to be understood Defining health care as a luxury good is simplistic

Health care vs. Ferrari 350 Standard textbook commodity vs. healthcare Equity Production efficiency Efficient use of resources Diversity Equipment, expensive consumables, care and human skills Highly automated + craftsmanship Provided in different settings

Cost of health care The opportunity cost – input & best alternative use of resources Price distorted Complicated issues with patented devices & drugs Rationalisation & priority setting Balancing equity & efficiency Need and capacity to benefit Reclassifying health care