1. Health and Human Sciences 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

2. 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?

3. 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

4. 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

5. 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

6. 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

7. 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

8. Health and Human Sciences The effects of tobacco taxes Would raising tobacco taxes –reduce smoking? –reduce expenditure on tobacco? –affect poor and rich equally?

9. Health and Human Sciences Price-elasticity of demand A rise in price tends to reduce consumption Price-elasticity of demand = % change in quantity ___________________ % change in price

10. Health and Human Sciences 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

11. 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

12. 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

13. Health and Human Sciences 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

14. 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

15. Health and Human Sciences 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

16. Health and Human Sciences