Intro to economics, scarcity, and opportunity cost

• UBC Vancouver is situated on the traditional, ancestral, and unceded territory of the Musqueam people.

Overall Objectives

• Economics concepts include opportunity cost, and thinking at the margin, which involves considering one extra unit.
• BC healthcare funding involves how the province gets money and spends it, including the Consolidated Revenue Fund and flows to health authorities.
• Gross domestic product calculations and how GDP contextually informs health spending are key.

Objectives Part 1

• Understanding what economics is as a Science of Scarcity.
• There are 3 key concepts in economics: opportunity cost, thinking at the margin, and efficiency.

Key Concepts

• Scarcity refers to the limited resources (time, money) available, insufficient to meet everyone's needs and wants.
• Choice is required because resources are scarce which means selecting one thing instead of another, because resources have alternative uses.
• Opportunity cost is the benefit forgone when making a choice, representing the value of the next best alternative; this varies from person to person.

What Economics Is

• Economics is the 'Science of Scarcity' aimed at maximizing value from scarce resources and minimizing regret.
• It addresses the fundamental economic challenge of allocating limited resources to fulfill human desires effectively.

Myth-Busting Economics

• Resources, not money, are key; economics can exist without money, which is a means to exchange value.
• Consequences of cost are equally important, since resources can provide benefits elsewhere.
• Economists consider benefits and costs for different people, as well as opportunity costs and accountants usually only care about transactions for who they work for.
• Rationing is inevitable with scarce resources and resource allocation.

Opportunity Cost

• Time and resources are scarce and each decision one makes will exclude them from doing something else.
• The opportunity cost is what you give up with each decision
• The opportunity cost can include spending money on clothes, groceries and investments or other uses of time that may involve time with friends
• It is important to consider the trade off between two opportunities to calculate the opportunity cost.

Opportunity Cost in Healthcare

• Coronary Artery Bypass Graft costs $38,949 CDN
• Unilateral Hip Replacement costs $7,652 CDN
• Unilateral Knee Replacement costs $6,970 CDN
• Cochlear Implant costs $31,024 CDN
• These figures are from 2018

Thinking at the Margin

• This concept involves determining "how many" to maximize net benefit.
• An example would be whether a cafe owner should hire one more barista
  • If the benefit exceeds the marginal cost, then hire
  • If the benefit does not exceeds the cost, then do not

Thinking at the margin in healthcare

• The text discusses whether or not we should test for cancer
• The text discusses how many tests we should do to tests for cancer
• The cost from n tests - Cost of n-1 tests
• Incremental cost/incremental gain
• "Sounds reasonable? Let’s do it"

Objectives Part 2

• British Columbia uses scarcity, choice, and opportunity cost for the allocation of healthcare.
• BC healthcare money comes from the federal government, who allocates funds per-capita per/person
• Health spending is described in the context of gross domestic product, and includes how to calculate GDP
• Details on the money allocation BC receives and how it distributes it: population needs-based funding.

Consolidated Revenue Fund (CRF)

• The Consolidated Revenue Fund is BC's main operating account, where money is deposited as well as withdrawn to pay for public services.

Sources of Income

• BC's taxation revenue equates to 58%, which includes income tax and corporation capital.
• Federal government contributions are 17% of revenue.
• ~60% Canada Health Transfer, ~20% Canada Social Transfer.
• Fees and licenses account for 7%
• Natural resource revenue is 4%.
• Miscellaneous is 6% revenue source
• Crown Corporations have a 5% revnue source and include (BC Hydro, BC Liquor, BC Lotteries; ICBC...)
• Investment income is 2%
• The estimates are for 2024.

Federal Allocation to Provinces

• The Canada Health Transfer allocation to provinces is per capita, meaning resources are distributed on a per-person basis.
• The total in CAD is 51 billion
• The Canada population is 39.3m equating to $1300 per person

Financial Highlights

• 2023/24 actual: scarcity means only $79.6bn to spend compared to the $84.7bn spent.
• 2023/24: $14,500 is how much each person is receiving per year.
• 2023/24: $79.6bn means having to choose what gets spend on health, education, and social services.
• The opportunity cost in the 2023/24 budget of $79.6bn is $35bn (41%) spent on health.

Allocation

• There must be a choice made since resources are limited.
• When BC chooses to invest in health, it cannot invest in other areas of public service.
• The more is spent on health, the less there is for other expenses.
• There is always more scarcity so choices must be made to decide which opportunity cost must be made

Health Spending in Canada

• Canada's health spending in 2023 saw current spending exceeding constant spending
• The last 40 years shows the general trending of health expenditure increasing
• Healthcare costs are increasing in Canada and its sustainability must be questioned.
• There is a need to maintain status quo with sustainability.

Gross Domestic Product (GDP) Statistics

• One of the most commonly used measures of Canada or any country’s 'income' or 'wealth' is Gross Domestic Product
• GDP is the total market value of all finished goods and services produced by a country and is a measure of the country's economic health.
• $GDP (expenditure approach) = Consumption + Government purchases + Investment + Net exports"
• C = consumption
• G = government purchases
• I = investment
• NX = net exports
• If GDP is increasing, maybe the increases in healthcare spending can be absorbed

Definitions

• Consumption equates to what people spend in household spending on food, gas, cars, appliances, haircuts, and accountancy
• Investment relates to businesses spending on capital (assets) including new machinery and factories.
• Government purchases includes anything from desks and staplers in Ottawa to fighter jets
• "Net exports are the value of things we and others sell (exports) minus what we buy from other countries imports

Trend in Total Health Spending Compared to GDP

• Since growth has been largely in line with GDP, other than for some times of crisis

Sustainability

• Dhalla's message was reassuring and we should continue
• Care should be taken when we choose what to do
• Opportunity cost and cost-effectiveness

BC's Health Budget

• There is $35 and 5.5 million people ($6.5 a person)
• On average a hospital stay costs $8k
• BC must choose what sort of health care is needed and which will be a priority hospitals, medical staff etc.
• Every dollar spent on drugs cannot be spent on hospitals

Province Allocation into The Health System

• The Ministry of Health receives the budget which totals $35bn and then allocated to the health system. Allocations for regional services at $26.5bn, medical services plan(fee payments) $7.6bn, phamacare $1.8bn and health benefit operations $52m.
• In the 6 authorities, each is responsible for acute care, home and community care, mental health and addiction, population health and wellness, corporate costs of running health care

Population Needs-Based Funding (PNBF) in BC

• Allocation of health funds to health authorities based on estimated need includes
  • Population demographics (age, gender, socio-economic status etc)
  • Utilization (which varies by demographics and other factors)
  • Inter-regional flows (disconnect of area of residence and HA for treatment)
  • Regional cost differences (remoteness, cost of providing large, specialist services)
  • Segmentation of population needs e.g. end of life care, cancer, maternity, frail in long term care – better prediction of health care use

Resource Allocation to HA's Within BC

• Allocation based on needs, not counts of residents, would be more effective at helping those who need the extra support.

Pharmacare

• Government plans must be created but it begs the question is why they are even necessary
• A key question would be what public plans end up covering since drug prices can be incredibly steep
• 5.5m people and $1.8b= $327 per person.
• Some drugs cost cents while others cost $1m/year
• Health Canada approves about 40—70 new drugs each year but this does not mean they are covered

Assessment Considerations

• There should be knowledge of key concepts including, opportunity cost, understanding the margin
• Important to know BC funding, Consolidated Revenue Fund, flow in, flow out
• Important to know about gross domestic product and how to calculate and compare it