HEALTH ECONOMICS

Having defined and studied the concepts of economics and health, we again look at the definition of Health Economics. Mills and Gilson of the London School of Hygiene and Tropical Medicine give a deeper definition: Health Economics can be defined broadly as the application of the theories, concepts and techniques of economics to the health care Sector.

 Kenneth Arrow, a Nobel Laureate for Economics once stipulated that a separate discipline of economics should be devoted to the health care sector. Arrow believed that the health sector behaves peculiarly different from the economic sectors and that a careful application of economic concepts and methodology should be accorded to it. This gave birth to the new discipline of Health Economics in the 1980s.

Health and Economics is thus now concerned with such matter as: The allocation of resources between various healthpromoting activities; Quantity of resources used in healthcare delivery to improve health; Organization and funding of health organizations; Efficiency of the allocation and the use of resources for health; and Assessment of the effects of preventive, Curative, and rehabilitative health services on Individuals and society.

The DISCIPLINE OF HEALTH ECONOMICS

Framework of Health Economics

(Center of Health Economics, The University Of York)

B
WHAT IS HEALTH? WHAT IS ITS VALUE Perceived attributes of health, health indices, value of life

A
WHAT INFLUENCES HEALTH Occupational hazard, Education and income

E
MICROECONOMIC EVALUATION Cost Minimization Cost Effectiveness Cost Benefit/Utlility analysis

C
DEMAND FOR HEALTH CARE Influence of A and B on Healthcare Seeking Behavior

F
MARKET EQUILIBRIUM Money Prices Time Prices Equilibrating mechanisms

D
SUPPPLY OF HEALTH CARE Costs of production Alternative Production Techniques Input Substitution

H
PLANNING, BUDGETING AND MONITORING MEACHANISMS Evaluation of Effectiveness

G
EVALUATION AT WHOLE SYSTEM LEVEL Equity and Allocative Efficiency Criteria

The discipline of Health Economics, being a relatively recent development can be summarized by the illustration preceding framework. In a broad sense, it seeks to maximize the output out of the given inputs of activities or alternative programs which seek to produce better health. It also seeks to ensure that each and every resource used for the production of health gives the most impact on the production of better health.

Based on the framework, we see that Health Economics studies the factors that influence health (A). These factors that influence are the proximate and underlying sociocultural and demographic factors that directly or indirectly affect health outcomes

In (B) we try to understand the attributes of health. More importantly and central to the objective of maximizing the impacts of health intervention, health economist also try to measure the value of health. It is most important to remember that health should be measured and valued.

The demand for health (C) should be very clearly understood. It is important to understand how the factors in (A) and (B) affect peoples health seeking behavior. It is important to understand the factors influencing the demand for healthcare. It is important to understand not only how these factors affect the current demand but also how will it change in the future.

Balancing the demand for healthcare with the supply of healthcare (D) is very important. In the succeeding lessons we will understand how the forces of supply and demand interact and influence the prices of health goods and commodities (F). Remember that when healthcare goods and services are being supplied without aligning these to what is demanded, these healthcare goods and services are wasted. On the other hand, problems also occur when healthcare is being demanded but not adequately supplied.

Microeconomic evaluation (E) allows us to evaluate and choose between different or alternative health interventions, approaches or programs. It is the systematic and objective way of different alternatives in producing better health It seeks to measure costs of healthcare alternative intervention and compare them to the health outcomes such alternatives deliver.

The different economic evaluation techniques are the following: cost minimization, cost-effectiveness analyses, cost benefit analyses and cost utility analyses.

Planning, budgeting, and monitoring (H) are health administration functions which try to ensure that the chosen programs or alternatives (E) are implemented effectively and efficiently.

Finally, general evaluations (G) are done to assess the equities of programs (i.e., everyone gets equal capability of accessing health care) and efficiencies relating to such different programs.

SUPPLY AND DEMAND and HEALTH

You can even make a parrot into a learned economistall it must learn are the two words: supply and demand. This statement by an unknown author characterizes the central role of the concepts of supply and demand in understanding basic economic principles. It does not tell us that the concepts of supply and demand are very simple that even a parrot can understand it. It implies that they are crucial to the understanding of Economics. Thus, mastery of these concepts is Required for us to appreciate economics.

Consider the following questions: Why do umbrellas become relatively expensive during July, August, and September? Why do halo-halo stores sprout during summer? Why did oil prices increase during the Persian Gulf War in 1991? Why is there a pressure to increase the salaries of nurses in the Philippines when a lot of Filipino nurses are being recruited abroad? Why are firecrackers very expensive days before New Years eve and almost given away after new year? All these questions can be easily answered by the concepts Of supply and demand.

The Theory of Supply and Demand

Have you ever wondered how businesses price their products? What do you think will happen if Caltex decides to sell their unleaded gasoline at 50% lower per liter or at least 25% higher? Are businesses really the ones who control the prices of their products? Or do they price their products according to they think their buyers will buy them?

The Theory of Supply and Demand

Every purchase made on a certain commodity maybe looked upon as a peso vote. Meaning a choice (vote) has been made on the specific product and money (Peso) was exchanged for the specific good or service. Thus the term peso vote was coined. Peso votes then create a market mechanism wherein buyers of commodities and the suppliers (or producers) of such commodities, dynamically and constantly interact.

The Theory of Supply and Demand This relationship between buyers who demand, and the producers who create a supply of goods, is called supply and demand dynamics. The Law of Supply and Demand show how peso votes decide the prices and quantities of goods.

Markets: Interaction Between Supply and Demand

Demand emanates from consumers. Consumers demand . to be able to satisfy their needs, and more importantly, wants.
Needs are the things that individuals must have to be

able to survive ( basic/physiologic needs or to be in the state of physical, social, and mental equilibrium. Needs are best described by the sociologist /psychologist Abraham Maslow, in his Hierarchy of Needs

Markets: Interaction Between Supply and Demand

Markets: Interaction Between Supply and Demand

. Wants , from an economic or business perspective, are

a specific manifestation of a need. It can be in fact be derived from a need. Therefore, they are specific preference or a choice to be able to satisfy a need. For example, hunger creates the need for the food and water which are basic needs. But when an individual decides to get a burger from McDonalds, it becomes WANT- a specific manifestation of a basic need (food).

Markets: Interaction Between Supply and Demand

. Demand is the decision to satisfy a want or need plus the capability of accessing and paying such. An individual who decides to get a new car but cannot afford to buy it is not creating a demand for the car. To demand it, the consumer must be willing to buy and be capable of paying for it.

Markets: Interaction Between Supply and Demand

. Supply emanates from the producers and sellers. Producers and sellers form the other side of the demand-supply interaction. Remember that producers and sellers (businesses) produce and sell to make profits. They prefer a scenario where they can sell their products at higher prices- simply because it will give them higher profits.

Markets: Interaction Between Supply and Demand

Markets are produced when demand forces from . consumers and producers and sellers interact with one another.
Consumers Satisfy: Needs Wants Demand Preference: Low Prices Markets Producers and Sellers

Profits
Supply Preference: High Prices

Markets: Interaction Between Supply and Demand

. The demand schedule represents the relationship between the price of a certain product and the quantity that consumers want to buy of such product. The supply schedule, on the other hand, shows the relationship of the price of a certain good and the quantity producers will be willing to produce and sell.

Markets: Interaction Between Supply and Demand

. Ceteris paribus is a term that means all other things are being held equal. In showing the relationship of the price and the quantity of goods demanded ( demand schedule) all other factors that may affect the relationship do not change, or are held constant. Thus it isolates the relationship of the price and quantity demanded. The same is true for the supply schedule.