2. Equity and Need © Allen C. Goodman, 2014

3. What is equity? Horizontal equity -- Equals should be treated equally. Usually thought of with respect to taxes. Vertical equity - Unequals should be treated unequally. For example, rich should pay more than poor, but … should rich pay higher percentage than poor? General sense of equity in health care has to do with everyone getting some.

4. Access v. Utilization Possibly unique to the health field, we break these up. Do people have access to care, even if they don’t use it? –May think of it like supply. This is different from utilization, which refers to visits, days, etc. –May think of it like demand.

5. Edgeworth Box Some may have seen it – some may not. We want to look at well-being, and to define the concept of Pareto Efficiency. Start with a fixed production of Cake C and Medical Care M. Abner Belinda Medical visits, M Abner has 0 of either Belinda has 0 of either Cake, C

6. What is Pareto Efficiency? Abner Belinda Cake, C Medical visits, M CACA MAMA CBCB MBMB We have an economy in which we have Cake C and Medical visits M. Abner has the endowment C A of Cake, and M A of medical visits. Belinda has the endowment C B of Cake, and M B of medical visits.

7. What is Pareto Efficiency? Abner Belinda Cake, C Medical visits, M CACA MAMA CBCB MBMB We can look at Abner’s preferences with “blue” indifference curves. They go from “southwest” to “northeast.” We can look at Belinda’s preferences with “red” indifference curves. They go from “northeast” to “southwest.”

8. What is Pareto Efficiency? Abner Belinda Cake, C Medical visits, M CACA MAMA CBCB MBMB How does Abner value Cake relative to visits? Answer: Slope of his IC. He’d give a lot of Cake for an extra visit! He values visits a lot. How does Belinda value Cake relative to visits? Slope of her IC. She would trade a lot of visits for a little bit of Cake. She values Cake a lot.

9. What is Pareto Efficiency? Abner Belinda Cake, C Medical visits, M CACA MAMA CBCB MBMB Abner will trade Cake for visits. But since Belinda wants Cake a lot, Abner can get a better trade than otherwise. Belinda will trade visits for Cake. But since Abner wants visits a lot, Belinda can get a better trade than otherwise.

10. What is Pareto Efficiency? Abner Belinda Cake, C Medical visits, M CACA MAMA CBCB MBMB What happens? Abner is better off. So is Belinda! Can either trade and do any better? No!

11. What is Pareto Efficiency? Abner Belinda Cake, C Medical visits, M CACA MAMA CBCB MBMB What has happened? Both are better off. Suppose we had started at another endowment We won’t get to the same point, but we’ll get to another point where trading won’t help us.

12. What is Pareto Efficiency? Abner Belinda Cake, C Medical visits, M CACA MAMA CBCB MBMB Now we play “connect the dots.” We call this a “contract curve.” What does it mean? Let’s finish it up!

13. Let’s Review Pareto Efficiency? Abner Belinda Cake, C Medical visits, M We must recognize that point X is Pareto Optimal. So is point Y. X Y

14. Equity v. Efficiency What is efficiency? Discuss. What is equity? Discuss.

15. What is total equity? M/2 for both? M/2 AND C/2 for both? Does equity in goods mean equity in utility? Abner Belinda Cake, C Medical visits, M CACA MAMA CBCB MBMB Equity and Efficiency

16. Utility Possibility Frontier We can plot Abner’s utility against Belinda’s Utility. Why do we draw it this way? Abner’s Utility Belinda’s Utility X Y What if we want a perfectly egalitarian society? Does equal utility mean equal allocations?

17. Think back What did we do with QALYs? Equal inputs did NOT mean equal QALYs. Equal QALYs did not mean equal utility.

18. Let’s work backward Abner Belinda Cake, C Medical visits, M In the last panel we decided to have equal utility. There is one point where that occurs. Doesn’t necessary mean equal allocations. X Y

19. Utility Possibility Frontier What if our society says that we should provide MINIMUM utility for each? Abner’s Utility Belinda’s Utility X Y B min A min If people like Abner control things, we get point A. A If people like Belinda control things, we get point B. B This will take us back to particular points on the contract curve.