Economics and Global Health: The Basics


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  • Hello. My name is Kevin Chan, and I’m an Assistant Professor of Pediatrics and a Fellow at the Munk Centre for Global Studies at the University of Toronto and a Pediatric Emergency Physician at the Hospital for Sick Children. In this tutorial, I’ll provide an overview of some of the basic concepts of health economics in the context of global health.
  • My focus today will be on explaining why health and the economy are important to each other including the bi-directional nature of wealth and health, and to underscore why health is different from other goods and services.

    I will also explain some challenges that governments face when trying to finance health care priorities, the different ways to finance health care and conclude with possible challenges to health care financing in the future.
  • There are large discrepancies in the investment in health around the world. As this graph shows, the United States leads in the percentage share of GDP spent on health, averaging as high as $6719 per capita, while there are many countries in Africa and Asia, where spending is < $1 per day.
    These wide variations in health expenditure belie a significant gross inequality in health care in the world.
    Yet, there are many countries, such as Cuba with relatively low GDP, who have excellent health outcomes.
  • We face a number of challenges to health care financing in the future including Epidemiological transition
    Aging Populations
    Population Growth
     I will explain each of these issues.
  • As the population become wealthier and older, there is a shift from infectious diseases to diseases of the old, such as heart attacks, strokes, and cancer. This has a major impact on the skills and resources required to meet the population’s health needs.
    We can attempt to address these by increasing population and community oriented interventions
    We can also target high risk groups with specific intervention; and
    We can also coordinate interventions between the health sector and other sectors, such as education, agriculture, and finance to improve population health
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  • If you’re interested in more information, a couple of website to check include WHO’s information on health financing and the World Economic Forum’s work on health.
  • Economics and Global Health: The Basics

    1. 1. Return to tutorialsReturn to tutorials Economics and Global Health: The Basics Kevin Chan, MD, MPH, FRCPC, FAAP Assistant Professor of Pediatrics and Fellow, Munk Centre for Global Studies, University of Toronto and Pediatric Emergency Physician, Hospital for Sick Children November 2010 Figure 1 Prepared in collaboration with the Global Health Education Consortium.
    2. 2. Return to tutorials Overview • Explain why health is important and different than other goods and services in terms of economics • Discuss challenges in financing health care priorities and how it can be done • Identify future challenges to health care financing Figure 2
    3. 3. Return to tutorials Economics and Global Health • As countries become richer, health care rises • Global health economy is growing faster than the global GDP • In 2007, US $5.3 trillion dollars worldwide with 59 million health care workers according to the WHO % of GDP Year 8.2% 8.7% 9.2% 2000 2007 2015 Source: World Health Organization, World Health Statistics 2009 Figure 3
    4. 4. Return to tutorials Health and Wealth: A Bi-Directional Relationship Strong Economic Performance Higher Individual Incomes Purchasing of health promoting goods and services Improved Health Good health Human Capital Increases Individual Productivity Increases Overall Economic Growth Rate Increases Economics to Health Health to Economics Figure 4 Source: Pritchett, L and Summers, L. , Wealthier is Healthier, Journal of Human Resources, March 1996.
    5. 5. Return to tutorials HIV/AIDS: How Health May Affect Wealth • Decreases investment in human capital • Downward “death spiral” • Affects economic and intellectual elites – Health workers infected in similar proportions to rest of population • Impacts demographic dividend • Affects working age individuals • Destroys social network, thus slowing down growth Figure 5
    6. 6. Return to tutorials Drivers of Supply vs. Drivers of Demand Drivers of Supply • Health Care Providers • In-patient Beds • Equipment (CTs, MRIs, dialyses, etc.) • New Technologies Drivers of Demand • Population Demographics • Age Structure • Total Population • Health Status • Health Behavior • Education Figure 6
    7. 7. Return to tutorials What Makes Health Different From Other Goods and Services? 4 Key Differences: • Government is involved • Uncertainty around patient’s health and what providers will do • Asymmetric knowledge between various groups • Externalities Figure 7
    8. 8. Return to tutorials Government Intervention – Funds and pays for certain health care services – Creates guidelines for private and public health sectors – Measures competency and qualifications of providers – Encourages investment in prevention – Drives economic behaviors amongst providers - setting prices, specifying practice locations – Helps finance education (e.g., student scholarships) – Conducts and sponsors research (e.g., NIH, Canadian Institute of Health Research) Figure 8 Government has a special role as steward of the health sector … • Examples of Government Intervention • Political Structure Will Play a Role • Supply and Demand • Balancing Resources and Finances
    9. 9. Return to tutorials Uncertainty • Patient Level – Patients often enter the health system uncertain about their current state of health • Provider Level – Chosen interventions used for a specific illness can vary widely depending on the provider and their preferences Figure 9
    10. 10. Return to tutorials Asymmetric Knowledge • Patient – Health Care Worker Relationship – Knowledge around treatment decisions • Provider-Supplier Relationship – Knowledge about real cost of supplies • Consumer – Insurer Relationship – Moral hazard – Adverse selection Figure 10
    11. 11. Return to tutorials Externalities • The costs and benefits which arise from an individual’s action has an effect on other people • Positive Externalities – Impose benefits on others • Negative Externalities – Impose costs on others Source: Pan American Health Organization, WHO, Figure 11
    12. 12. Return to tutorials Financing Health Care Source: WHO World Health Statistics 2010, Figure 12 Composition of World Health Expenditures (World Spent US $5.3 Trillion on Health in 2007) • General Tax Collection — Government expenditure • Social Insurance — Compulsory — Inclusion of targeted individuals — Targeted to health • Private Insurance — Voluntary — Advantage in technological advancement — Change of high administrative costs • Out-of-Pocket — Direct payment • Other — Aid from other countries or charitable organizations Government Expenditure 35% Out-of-Pocket 18% Other 4% Private Insurance 18% Social Insurance 25%
    13. 13. Return to tutorials Key Factors to Finance Health Care Available Financial Resources Stage of Economic Development Administrative Capacity Political Will Figure 13
    14. 14. Return to tutorials Economics and Global Health: Wide Variation in Investments in Health Figure 14 The boundaries and names shown and the designations used on this map do not imply the expression of any opinion whatsoever on the part of the WHO concerning the legal status of any country, territory, city or area of its authorities, or concerning the delimitation of its frontiers or boundaries. Dotted lines on maps represent approximate border lines for which there may not yet be full agreement. Data Source National Health Accounts series, WHO Map Production: Public Health Information and Geographic Information Systems WHO Health Spending Around the World, 2006 From the World Health Organization < 3 3.1 - 5 5.1 - 8 8.1 - 10 10.1 - 13 > 13 Data not available Share of Gross Domestic Product, %)
    15. 15. Return to tutorials Challenges in the Future • Epidemiological Transition: – From more communicable diseases to non- communicable disease • Aging Population: – Higher medical costs and resources – Need for more long-term care services and facilities • Population Growth: – 75 million people added every year (mostly in the poorest countries) Figure 15
    16. 16. Return to tutorials 50% 16% 15% 7% 40% 73% 75% 87% 9% 11% 10% 6% 0% 20% 40% 60% 80% 100% Low Income Lower-Middle Income Upper-Middle Income High Income Epidemiological Transition • Movement from communicable (infectious disease) to non- communicable disease (chronic illness, cancer) • Affects needed skills and resources • Increase population and community-oriented interventions • Target high-risk groups • Coordinate interventions with other sectors Source: Mathers et al., 2003, as cited in Suhrcke, 2006 Figure 16 Communicable, Maternal, Perinatal, and Nutritional Conditions Chronic or Noncommunicable Diseases Injuries Worldwide Share of Deaths by Causes and World Bank Income Category (2002)
    17. 17. Return to tutorials Aging Population Source: UN-DESA: World Population Prospects, 2004, as cited in NIH: Why Aging Matters, 2007 Young Children and Older People as a Percentage of Global Population • Aging populations reduces revenues • Increases demand for long-term care services • Greater need for prevention and primary care Figure 17
    18. 18. Return to tutorials Population Growth • The world is growing at a rate of 80 million people/year – ~99% growth in low and middle income countries • Other global challenges (i.e. climate change) also affect health • Adds pressure on resources, including health care resources Source: United Nations Department of Economic and Social Affairs/Population Division, World Population to 2300 Figure 18 Estimated World Population, 1950-2000, and Projections 2000-2050 High Medium Low Population(Billions)
    19. 19. Return to tutorials Additional Resources • WHO’s information on Health Financing: • World Economic Forum’s work on health: • Kaiser Family Foundation’s Global Health Gateway: • United States Agency for International Development (USAID): • United States President’s Emergency Plan for AIDS Relief – Global Health Initiative (PEPFAR): Figure 19 This tutorial was prepared in collaboration with the Global Health Education Consortium. For more information about the organization, visit: