Development is the process of improving the quality of all aspects of human life. Health sector functions as a part of the whole economy. Reciprocal and synergistic interrelationship exist between health and development, however, correlations between GNP and population health are not straightforward. Often the phenomenon of “lengthening life but worsening health”, due to chronic but not fatal morbidity.
There 3 groups of problems:
Health hazards associated with development (pollution, occupational risks, side-effects of agricultural expansion, accidents, drug-abuse, depletion of ozone layer, extension of warm climatic zones)
The cost of diseases caused by industrialisation (Illnesses of poverty, environmental diseases, psycho-social diseases);
Cuts in health budgets due to macroeconomic adjustment [“Macroeconomic adjustment” usually refers to corrective measures to eliminate internal or external imbalances (government budget deficit, trade balance deficits, unsustainable international debt levels, inflation, unemployment, etc.)].
Key issues in health and development:
Vulnerable groups (the poverty is the major constrain)
Impacts of developmental policies
Excessive curative-technology orientation of healthcare
Free market from the point of view of neoclassical economics
Two main forces create a circle - demand of informed consumer which the producer supplies.
Separation of demand and supply (property rights in decision-making).
Producers’ expand production of every good and service up to the point where the costs of producing any extra good become equal to the market price for that good.
The price is a reflection at the margin of consumer valuations of the good or service demanded.
Features of healthcare:
In the consumption of health care, much of the consumer’s sovereignty is lost (different distribution of property rights in decision-making than is conventionally assumed in economic analysis)
Healthcare is a heterogeneous commodity (toothache and brain tumor are different)
Healthcare is an intermediate commodity (it is not consumed for itself). There is a difference between what is wanted (health) and what is supplied (health care).
Generally, every economy consists of
There are three basic questions:
What and how much to produce?
How to produce?
Who gets what?
[questions 1. and 2. - are related to efficiency; 3 .- is related to equity]
Efficiency is a maximum output for a given input.
Equity applies to issues of income distribution. Generally, any redistribution of welfare from the better off to the worse off is equity enhancing.
There are three mechanisms to answer these basic questions:
Free market (this solution is not necessarily equitable and possibility of market failures);
Command economy (problem with efficiency because of the incomplete information);
Regulated market (governmental intervention through taxes and quotas).
Market failure – situation when the market cannot allocate resources effectively. Three main areas:
Public Good - commodities and services that consumed collectively and cannot be denied to anybody (defence, roads).A pure «public good» is a good that has two specific attributes. It is «nonrivalrous» in consumption, meaning that its consumption by one person does not reduce its availability for consumption by another; and it is «nonexcludable» in consumption, meaning that if one person in a community consumes it, no other person in the same community can be fasibly excluded from consuming it also. The eradication of a disease vector, like tha anopheles mosquito, which transmits malaria, is a pure public good by this definition. Markets fail to produce the socially optimum amount of a public good, because each individual hopes that others will pay for it. Therefore, the government should intervene and tax everyone to finance the production of public good. Economic terminology distiguishes a «public good» from a «merit good», the latter being defined as a good that society prefers the poor to consume. For example, although food is a private, not a public, good, many societies guarantee a minimum amount of it to everyone on the grounds that it is a «basic need» or «merit good».
Externalities - by-products of the goods, not considered by producer. Another view: Externalities are a type of benefits external to the recipient (benefits to society from immunising a person). An «externality» occurs when a market transaction between two parties creates an unpriced effect on a third party. The existance of an externality causes the market to fail because it prevents the individuals involved in the transaction from incorporating all of the social costs and benefits of their transaction. Because of the market failure, the patient can consume less than the socially optimal quantity of the service in question (vaccination).
Information (non-symmetric information between producer and consumer such as health insurance). All of them are represented in healthcare.
Merit good is a good that society is concerned about its level of consumption.
Costs are the value of resources that must be withdrawn from the economy for a given program.
The interest rate (rate of discount) expresses time preference: the present value (the amount borrowed – 100$) is less than the future value (105$ = the amount borrowed 100$ + interest 5$ -> the interest rate is 5%)
The marginal concept – costs per unit of providing any commodity vary with the amount provided (changes in costs and related changes in benefits – “marginal cost” and “marginal benefits”). Additional expenditures on a health program may return lower benefits than expenditures of an equal amount. It can be measured, for example, in deaths averted, of every additional dollar spent on the program.
“Catastrophic” event is a health condition requiring large and extraordinary medical expenditures.
The tax is “progressive” if the ratio of taxes to income rises with income (the rich pay the bigger proportion of their income than the poor).
Key issues of health economics – efficiency, equity and sustainability.
Health is not a commodity, but health care is.
Societies differ in their willingness to subsidize curative health care. Some societies argue that health care is a «basic need» or «merit good», and therefore that the government should assure access to basic health care for all citizens regardless of ability to pay. Other societies are skeptical of the claim that health care is different from many other goods and services with claims to being basic needs (education, basic nutrition, housing, roads and telephone service).