INTRODUCTION TO HEALTH ECONOMICS March 2007 Health Economic Course Series: 1 of 12

1.What health is. 2.What public health is. 3.What health economics is. Table of Contents

What is health?

Health A state of complete physical, mental, and social well being and not merely the absence of disease and infirmity. (WHO, 1993)

Health Can be expressed in functional terms as a resource which permits people to lead an individually, socially and economically productive life. (Addition in: health promotion glossary, WHO 1998)

Health Health is a resource for everyday life, NOT the objective for living. It is a positive concept emphasizing social and personal resources as well as physical capabilities.

Disease An impairment of health and well being as perceived and described from a professional perspective.

Illness An impairment of health and well being as perceived and described from a patient’s/client’s perspective.

Sickness A social category, the sick role in a particular society, the role to which individuals who are ill are expected to conform.

Impairment Any loss of physical, physiological or anatomical function or structure.

Disability A restriction or lack of ability to perform an activity within the range considered normal for a human being.

Handicap A disadvantage for an individual, resulting from an impairment or disability, that limits the role that is normal for that individual.

Discuss with your neighbor: –How do you measure health (think of practical method), –What are possibilities, –What are advantages and disadvantages of these measurements?

Different indicators to measure health: Single measures: –Self assessed health status –Symptom incidence and prevalence –Disease incidence and prevalence –Disability, impairment, handicap –Morbidity, mortality

Different indicators to measure health: Composite measures: –Life expectancy –QUALY (Quality-adjusted life years) –DALE (Disability-adjusted life expectancy) –DALY (Disability-adjusted life years)

What is Public Health?

Public health Community medicine Public hygiene Social medicine Sanitary medicine definitions…

Public health is one of the efforts organized by society to protect, promote, and restore the people’s health. It is the combination of sciences, skills, and beliefs that is directed to the maintenance and the improvement of the health of the people through collective or social actions. (Last, 1988)

‘Public health is the science and art of preventing disease, prolonging life and promoting health through the organized efforts of society.’ (Acheson, 1988) ‘The role of public health is to contribute to the health of the public through assessment of health and health needs, policy formulation, and the assurance of the availability of services.’ (IOM, 1988)

Public health vs. Medical care Public health considers medical care as one of the means of protecting and improving the health of the people; Public health is especially concerned about the interplay between costs and financing, access, quality and equity of the care. No artificial separation between the two disciplines!

Public Health Professionals Epidemiologists Statisticians Nurses Environmental health specialists Food and drug inspectors Industrial hygienists Physicians Toxicologists Laboratory Technicians Veterinarians Economists Social scientists Attorneys Nutritionists Health educators Dentists Sanitarians Social workers Administrators Managers Demographers …

What is health economics?

Economics Study of the use of scarce resources (human, financial, material) Health economics = –“Connection between health and the resources which are consumed in promoting it.”

Health economics Concern : health – resources. Resources  not just money; but also people, materials, and time. Underlying problem = infinite needs (for health, food, shelter, entertainment, etc) BUT finite (limited) resources to satisfy them. Therefore  must choose (health economics)

Health economics is about? Judging the performance of health sector; Raising finance for health sector; Evaluating different health care intervention; Informing priority setting; Allocation of resources; Improving the performance of service providers.

Fundamental concepts Resources Scarcity Prices Demand Supply Elasticity Market Efficiency Equity

Fundamental Concepts I Resources –Input to production: human, natural, capital, time Scarcity –Not freely available, to obtain something of value has to be given up. –Opportunity costs. Price –What has to be given up to obtain a certain quantity of scarce resources. –Price mechanism to allocate resources between different possible uses.

Fundamental Concepts I Demand –Willingness to pay and ability to pay –Relationship between price and quantity purchased or used. Need –Amount required based on independent criteria  health professional judgement Want –Amount individuals think they need  patient’s judgement

Health care demand Derived from demand for health Income Education/knowledge Substitutes Complementary costs (travel, drugs) Technology

Determinants of demand Price (Law of demand = negative) Income Price of substitutes and complements Taste and preference Other influence (seasonality) Health care demand?

Demand curve A demand curve shows how price influences the amount people want to buy.

Supply curve Relationship between price and quantity provided. Willingness to produce.

Determinants of Supply Price (positive) Production process and technology Price of inputs Government policies and regulation Expectations of future prices/demand Market structure and competition. Health care supply?

Price elasticity on demand (supply) Responsiveness of demand to price changes = % change in quantity demanded % change in price Assuming other prices and income stay the same, then: Elastic E > 1 Inelastic E < 1

Fundamental Concepts III Technical efficiency (how) Output produced with minimum inputs Maximum output produced given inputs Allocative efficiency (what) Selection of goods to be produced in order to maximize total value Cost-effectiveness efficiency Maximum output given costs of inputs.

Fundamental Concepts IV Equity? –Efficiency = no one can be made better off without making someone worse off (Pareto) –Equity = “fairness” in allocation of resources among different individuals Definition of equity? –Horizontal = equal treatment/access for equal needs –Vertical = different circumstances, different treatment

Fundamental Concept V Economic growth and development Macro-economy = economic variables aggregated at country-level National income = total value of goods and services produced in a country (e.g. GNP, GDP, growth, GDP per capita) Economic impact of health

Example: HIV/AIDS Individual Demographic Impact Micro impact Household labour firms industries government trade Macro impact National income Poverty HIV/AIDS

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