Understanding Health Economics

What is Health Economics?

• The discipline applies microeconomic tools to health issues and seeks a deeper grasp of health care's economic facets.
• The goal is to foster better insights into the economic dimensions of health care issues, enabling the creation of effective health policies.
• Encompasses various concepts, theories, and topics.
• Specifically, it covers studies related to healthcare resource supply/demand and their effect on populations.
• It is defined by determining and allocating health care resources effectively.

Health Care Resources

• This includes medical supplies include pharmaceutical goods, latex rubber gloves, and bed linens.
• Personnel involves physicians and lab assistants.
• Capital inputs involve nursing homes, hospitals and diagnostic and therapeutic equipment.

Scarcity and Trade-offs

• Trade-offs are unavoidable due to limited resources and limitless wants.
• Society confronts key decisions about consumption, production, and distribution arising from scarcity.

The Four Basic Questions

• What mix of nonmedical and medical goods should be produced in the macroeconomy?
• What mix of medical goods and services should be produced in the health economy?
• What specific health care resources should be used to produce the chosen medical goods and services?
• Who should receive the medical goods and services that are produced?
• Allocative efficiency addresses the first two questions by optimizing resource allocation for consumption.
• Production efficiency, in turn, answers the third question by optimizing the mix of inputs for maximum output.

Production Possibilities Curve (PPC)

• It showcases production and allocative efficiency using the PPC to model combinations of two goods/services, given resources, technology, and institutional setups.
• A point outside the PPC represents that the point is not attainable, but can be achieved by improvement of resources etc.
• A point on the PPC demonstrates efficiency, the efficiency because units of one good must be given up to receive more of the other.
• A point within the PPC indicates the presence of resources that are not being fully utilized.
• Increasing medical resources to a point "C" indicates the the medical resources are fully utilized.
• Moving from point C to D indicates that one unit of nursing home services would mean giving up, (Mc - MD)units of maternity care services.
• This additionally shows that the reallocation of medical inputs must be done, from the maternity care, to the nursing home.
• An opportunity costs exists within each change of point, with for gone units.
• Opportunity cost defines "value of the next best alternative that is given up"
• The bow shape of the PPC is due to the law of increasing opportunity costs.
• At point F, there is an underutilization of resources.
• Point G means attainability in the future of medical care improves.
• Production efficiency is seen when the health economy functions on any given point on the PPC.
• Allocative efficiency is seen when society selects their most ideal point shown on the PPC.

Distribution Question

• The fourth question addresses distributive justice or equity in service allocation.
• Two distribution methods exist and those are pure market and a perfect egalitarian system.

Pure Market System

• Goods and services are distributed based on ability to pay. People are encouraged to work in order to pay for goods and services.
• Price serves as the rationing mechanism.
• Efficient resources are allocated because the economy is operating on the PPC.
• Disparities in income may bar some from accessing the needed goods and services.
• Many view Pure market systems as inherently unfair.

Perfect Egalitarian System

• A central committee ensure than everyone has equal access to all goods.
• A major issue is that there is little desire to work and save due to guaranteed provisions. Therefore the economy may operate inside the PPC

Mixed Systems

• Most countries employ combined market-central distribution with variations based on country.
• In the United States, both markets and government distributes goods, the latter via programs like SNAP, TANF, and Medicaid.

Implications of the Four Questions

• Scarcity of resources necessitates difficult choices about production and consumption.
• Trade-offs like giving up things in order to improve others are inevitable, which are sensitive.
• Achieving equity is a desirable but will require redistribution of income.
• Redistribution may lead to less efficiency, especially due to "production inside the PPC"

Health Economy

• Health economy encompasses activities regarding a populations health, production, consumption, and distribution.
• Performance metrics involve prices, accessibility, and quality of health-related services.

Medical Care Costs

• These define the aggregated costs while using various resources in health care.
• The U.S. Centers for Medicare/Medicaid Services (CMS) collects/reports relevant data.
• As of 2010, the breakdown is:
• Hospital Services stood at 31%.
• Physicians Services was 20%.
• Prescription Drugs was 10%.
• Nursing Homes was 6%.
• Home Health Care was 3%.
• Public Health was 3%.
• Dental services was 4%.
• Investments was 6%.
• Program administration was 7%.
• Other make up 8%.

Medical Funds Sources

• 53% of the national health funds came from the private sector.
• Private insurance has grown with expanded out-of-pocket payments.
• Government funds spend through Medicare and Medicaid accounts for less than half of medical spending made in the U.S.

Factors that CMS excludes:

• Public employee benefits.
• Federal Employee Health Benefits Program.
• Employee health benefits programs created on a State level.

Amounts Spent on Medical Care

• Costs associated with health care are very high, and steadily being increased.
• 2.6trillionwasspentintheU.S.orabout2.6 trillion was spent in the U.S. or about 2.6trillionwasspentintheU.S.orabout8,400 per person.
• In 1960, 26.9billionwasspent,orabout26.9 billion was spent, or about 26.9billionwasspent,orabout141 per person.
• The health care PPC has shifted due to:
• Increased medical costs.
• Lower the amount other goods produced

Medical Care Access

• Health insurance provides access to high-cost treatments for a small premium.
• There is an increase of health care being provided across the year.

Medical Care Quality

• One way to measure said quality, is through the Infant mortality Rate (IMR).
• IMR is the number of children below one year of age that died as a percentage of all live births in that same year.

System Structure & Performance

• Design of various organization in terms of size and scope.
• It encompasses market ventures and government involvement.
• Along with financing and reimbursement mechanisms.
• It helps create basic incentives in a well being economy. It impacts behavior for people, organizations, and government.

Patient Protection and Affordable Care Act of 2010

• It is supposed to monumentally change methods for health care in the USA.
• As of now, it is not know whether the U.S. Supreme Court will uphold it.