Health economics

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MINISTRY OF FINANCE
UNIVERCITY OF FINANCE AND MARKETING
The Essay of Macroeconomics
Topic: Health Economics
Teacher:
Nguyễn Duy Minh
Performed by:
Vương Thư Nhi
Student code: 1421001712
Class: 14DTM1
Partical Class: 1421101003247

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PREFACE
Everyone is affected by health and personal health care services in important ways. As an
academic field of inquiry, health economics was not researched before 1945, and relatively
little after that date until the 1960s. During the early 1960s, two Nobel laureates published
papers that had an important impact on the development of health economics as a field. They
are Kenneth Arrow and Gary Becker. Since the early 1960s, health economics has enjoyed
several decades of remarkable growth, and the future of this field looks extremely bright as
well.
In this essay, I will write about some aspects of Health Economics.

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I. OVERVIEW
1. What is Health Economics?
Economics is science of scarcity. It analyses how choice are structured and prioritised to
maximise costs. Being a branch of economics, health economics relates to efficiency,
effectiveness, value and behavior in the production and consumption of health and
healthcare.
The aim of the health economics is to maximise the benefit to the population of patients
while minimising the cost. The reason to achieve this aim is the opposite between
unlimited demands of human and limited resources.
Figure 1
The scope of health economics dividing the discipline into eight distinct topic1
.
Source: http://en.wikipedia.org/wiki/Health_economics
2. Some features of health economics
 The role of doctors
The special feature of doctor in this field is that they are not only suppliers but also users.
They provide directly for patients and decide the service that the patient need from the
other suppliers such as hospitals and pharmaceutical suppliers. The decisions about using
drugs, caring in hospital or home, how long the patient spend for treatment, health care
1
Diagram was created by Alan Williams (9 June 1927- 2 June 2005). He was a British Economist.

4
services necessary are decided by doctor. The patient decides which hospital they should
go, but the decision also is dependent on the hospital where the doctor works.
 The lack of experience
Maybe the consumer have information about health services less than any goods or
sercives they use or buy. They can consult, try or compare the goods or services. The
Journal of consumer reports that some of that leads us to choose the best choice. But have
hardly the quality of that goods or services. Therefore, the services of hospital, doctor are
not controlled of quality. The mistake, human errors, poor quality or health care services
can not be discovered until late for the consumers.
In the medical sector, rarely set the price list of services. Under some circumstances, the
patient does not ask or know how much does the health care services costs is until they
receive the bill- in time they have to choose pay or to be detained. Price, quantity, quality
of the health care service are kept secret to the most guests. The health care service
supplier haven’t done any thing to change this reality.
 Rights of having good health
Most people consider having a good health as a right. They believe that the sick need to
approach medical services no matter how much their expenses is. This is the reason why
people get indignant to hear on the radio, watch on TV, or read on the newspaper about a
serious accident or a case of severe disease wihout being taken to the hospital because of
having no money or insurance to pay for the medical services. According to the basis
notion, medical service is an essential demand and everyone deserved it. However, it’s
contradictory with a notion that money is the only decisive factor of health service’s
provision.
 The unpredictability of disease
Individuals and families might work out how much to spend and to save by setting up a
budget. Some medical services can be planned by that way but some can not. A family
can anticipate to meet some demands such as having a periodically medical check-up or
vacination. However, it’s not easy to foresee diseases or accidents because people don’t
like to be concerned with a sickness prospect. Besides, while planning, the possibility of
disease or accidents is not sure and unpredictable.
3. The important of health economics
In our developing and modern life, human is the top factor. To rise the developing level
of society, we have to focus on rising the standard of human development. It’s
comprised of rising physical strength and mental power, especially the physical strength,
which is the basic factor to produce and enhance the mental power.2
Thus, health care
service plays a more and more important role. It protects human health against the
fluctuant disadvantages of the world as the weather varies, diseases by viruses, etc.
Having a good health, human can acquire and enhance knowledge efficiently. Besides,
as the world are incessantly developing, health care system have to be improved and
enhanced to keep up with the world rate. Furthermore, it also meets the increasing
2
http://voer.edu.vn/m/tam-quan-trong-cua-su-nghiep-y-te-trong-doi-song-xa-hoi/b0b08ece

5
demands of human. For example, as soon as the child occurs in the mother womb, he
needs a comprehensive health care. The pregnant woman needs to have a follow-up
examination periodically or to have a nutritious diet for her child’s growth. After that,
when the child is born, he needs to be vaccinated…
The economists also study about how resources should be allocated and distributed (Fig-
2). Examples of research are inquires into the response of demand to changes in the price
of personal health care services, individual’s choices among several health insurance
plans, the decisions pharmaceutical manufactures make about investments in research
and development, etc. They give us accurate information about the health value to make
the best choice, effectively so that marginal benefit equals marginal cost.
In sum, the importance of the economic model is that it provides useful insights into how
health care can be organised and financed and provides a framework to address a broad
range of issues in an explicit and consistent manner. Organisational changes such as the
development of the National Institute for Clinical Excellence and the devolution of
decision making to primary care organisations have led to an increasing interest in the
subject and its influence on health care organisation and decision making.3
Figure 2
Diagrammatic background to health economics – increasing demands on limited
resources ( 1970s – 1990s).4
Source: http://pmj.bmj.com/content/79/929/147.full
II. The expansion of health economics
1. The growth of health economics
Due to the important effect of health care to society and economics of the world in general
and the nation in particular, health care attracts the concernment of people, especially the
3
http://pmj.bmj.com/content/79/929/147.full
4
Thirty years ago there were limited options for doctors making treatment choices and patients did as
they were told. Any values that contributed to the decision making process were implicit and
determined by the physican. However, being against the limited health care resources, an empowered
consumer and an increasing array of intervention options, there is a need for decisions to be taken
more openly and fairly.

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economists. The proof is the number of PhDs5
awarded annually in health economics has
increased rapidly overtime. For example, in the United States, the number of dissertations on
health economics increased elevenfold from 1965 to 1994. By contrast, the number of
dissertations in all fields of economics increased only 2.5 times during the same period.6
Figure 3
Trends in Health Economics Research.
Sources: Counts from the Journal of Economics Literature, 1991-2008, and National Bureau
of Economic Research Working Papers, 1986-2008.
This figure reveals a high rate of growth of health economics in term of the number of
dissertations completed during 1991-2008. And this figure also shows us the metric about the
share of National Bureau of Economics Research (NBER)7
working papers devoted to health
economics has gron from 1.2 percent in 1986 to 12 percent in 2008.
The number of professional journals devoterd to health economics has also increased.
The first professional journal in the field, the Journal of Health Economics8
, began in 1982.
By 2006 there were seven journals specializing in health economics.
5
Phd: Doctor of Phisolophy.
6
http://mitpress.mit.edu/sites/default/files/titles/content/9780262016766_sch_0001.pdf
7
http://www.nber.org/papersbyprog/HE.html
8
http://www.ncbi.nlm.nih.gov/nlmcatalog/8410622

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Table 1
Professional Journals in the Field of Health Economics
Source: http://mitpress.mit.edu/sites/default/files/titles/content/9780262016766_sch_0001.pdf
The number of professional journals devoterd to health economics has also increased.
The first professional journal in the field, the Journal of Health Economics9
, began in 1982.
By 2006 there were seven journals specializing in health economics.
4. The improvement in health and longevity
Improvements in health and longevity are closely related to everall improvements in well-
being and go on happening dramatically in most countries around the world, especially in the
middle-income and the most affluent countries. More recently, gains in life expectancy have
also been observed in less affluent countries. For example, the longevity gain between 1960
and 2005 in the United States was 7.9 years. By contrast, the gain in life expectancy in China
was 25.5 years during the same period (fig. 4). More specifically, 149 out of 156 countries
world wide experienced substantial longevity gains during 1960-2005 (fig. 5).
Most countries experienced longevity gains in the range of 5 to 10 years. Eight countries,
including China, Indonesia and VietNam, realized a gain of more than 25 years in life
expectancy during 45-year period. Middle-income countries tended to expericence greater
gains than did low- and hight-income countries10
.
Underlying the comparison of per capita GDP and longevity is the notion that higher income
leads to better health. Of course, causality runs in the opposite direction as well: better health
leads to higher income.
9
http://www.ncbi.nlm.nih.gov/nlmcatalog/8410622
10
Sources: World Bank Group, World Development Indicatiors (2007)

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Figure 4
Life expectancy (LE) at Birth in China and the United States, 1960-2005.
Source: World Development Indicator (2009)
Figure 5
Global Distributionn of Longevity Gains.
Source: World Bank Group, World Development Indicators (2007)

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Figure 6
Relationship between Life Expectancy at Birth and Gross Domestic Product per Capita.
Sources: Deaton (2003) and Culter, Deaton, and Lleras-Muney (2006)
The circles in fig. 6 represent a country’s population size. Thus, the circles are relatively large
for China, India, end the United States. When the circle for a country is above the curve
depicting the average relationship between longevity and per capita GDP, and conversely.
5. The share of GDP spend on health care
The definition of GDP is the total market value of all final goods and services produced in a
country in a given year.11
GDP is a measure of the size of the economic pie, therefore, the
share of GDP allocated to health care is a measure of the size of a country’s health sector
relative to its national output.
11
http://www.investopedia.com/terms/g/gdp.asp

10
Figure 7
Total Expenditures on Health Care as Percent of Gross Domestic Product, 2005-2012.
Source: World Bank Group.
In the United States, the share of GDP allocated to health care has increased from 15.8
percent in 2005 to 17.9 percent in 2012. During the same period, it increased from 8.3 percent
to 9.4 percent in the United Kingdom. In VietNam, this share just have increased a little, from
5.9 percent to 6.6 percent with the same period. (Fig. 7).
As the health sector has expanded, there has been growing public concern about both
efficiency and equity in health services delivery. Efficiency refers to how society uses its
given resources to maximize the welfare of its members; equity refers to how society
distributes its goods and services among its members. So that have some questions: Which,
how, and for whom will health services be produced? That is, which health services are to be
produced? How, utilizing which technologies, are health services to be produced? Who will
use those health services that are produced?
 Some features of Equity
Equity means having no bias, no discrimination and no difference. Human is a living creature
which is a kind of animal and evaluates things relatively. We just know what we have as we
see what our neighbors have. It affects the way we estimate about our positions in social
classes, our desires and finally, our happiness. No difference, however, it’s just a basis
concept. Specially, it applies in health, which plays an important role in our benefits.
There are equitable solutions.
Equal resources use of services: Every body receives the same services or has the similars
resources for use. This is not persuative. Due to the effective viewpoint, the health care
demands of people are very different.
Equal health: According to the WHO ( World Health Organization), the right of equal
health is that there is no discrimination of age, sex, occupation, knowledge.. Everyone has a

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right to ask for good health. However, there is no absolute equity between everyone. The
reason is that each of us has a different health condition, financial situation and environment.
Furthermore, the use manner to finance, health care, ect of people is also various. For
example, if an alcoholic meets an early death, should the government spend an amount of
money to save his life?
Fair innings: it means that it aims at a certain age, the health system will do everything to as
many people as possible to live to that age. But, as Williams points out, there is a gender
difference in health outcomes; women live longer than men. As Williams says ‘We males are
not getting a fair innings!’ But we certainly would object to a system where we
systematically favoured men over women; health equity cannot be judged in isolation of
ideas of fairness.12
In brief, there are many definitions of equity but not all of them are appropriate to every
society. Thus, we have to determine dearly the certainly social circumstance to make a
equitable decision correctly.13
6. Government’s role
United States is a nation in OECD14
which don’t have the system of universal health
insurance. However, the government still plays an importain role in the provision of health
care services, reflected in two aspects: the government establishes a legal scope in medical
and fundes health care for some certain objects. The role of the government in directly
providing health care service for the civizen is very small, essentially by private hospitals.
About 70 percent of hospitals in United States are private hospitals operating as the nonprofit
organizations. The rest are private hospitals operating for profits and public hospitals, which
are owned and operated by local government.
The government fund some basis health care services as curing for people who will live
under 6 months, birth-controlling programs and bearing the responsibilitives of insuring the
medical service’s quality. For example, the government can control and enhance the medical
services through the ideas, that is a communitive report and the activitives’s effection of
hospitals, medical staff and other health caring organizations.
Today, the government’s funding programmes for medical about 28 percent of population,
which is comprised of the senior citizen, the disabled, kids, the veterans, some of the poor
and medical services emergency. Total budget spending for medical of government makes up
about 45-56 percent in US. US is also one of the nations have the highest rate health spending
per capital.
Two funding programmes of US finance all the accrued expenses relating to the medical
service for the people in funded area are Medicare and Medicaid.
Medicare (Health care program for senior citizen): finances for the people from 65 year olds
and over in health care. This is the program funded by the federal budget, the source of
12
http://aheblog.com/tag/fair-innings/
13
http://vhea.org.vn/NewsDetails.aspx?CateID=183&NewsID=131
14
OECD (Organization for Economic Co-operation and Development): OECD’s aim is to find out
policy which develope economics and the civil benefits. At the moment, OECD has 34 members,
most of them have high-income.

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medical tax, citizen’s donation. This program funds all the expenses including diagnosing and
treating diseases, hospital and medicine. It costs an enormous amount of US’s budget,
estimated about 500 billion per year.
Medicaid (Health care program for the poor): This program sponsor for some objects having
lơ-incomes, pregnant women and the disabled. Thí program funded by the federal budget,
budgets of many states, each of two funds 50 percent. Children in family having 4 members
with the total income abou 40000 dollars per year will be financed by this program.
Besides, the government also sponsors some medical programs such as health care program
for children which isn’t sponsored by Medicaid, diagnosing and treating diseases program for
military, veteran, etc.
People not financed have to self-purchase health insurance or have their employer purchase it
for them. At the same time, US’s government encourage firms to purchase insurance for their
employees by applying duty-free on insurance’s spending. Thus, most firms in US purchase
health care insurance for their employees. The unemployed have to self-purchase their health
insurance.
Recently, Obama also has a plan to minimize the amount of people who don’t have health
insurance by expanding the funding area of the programmes above, showing in the low of
protecting the sick and meeting payment;s ability for medical, which also called the new law
of health insurance named Obamacare. It was adopted in 2010 and became effective as from
01/01/2014.
III.Supply and Demand of health care services
1. The elasticity of Demand
The consumers of some health care services often react slowly to change of price. A raise of
prices don’t lead to a remarkable decrease in demand and vice versa. The elasticity of
demand’s price in this case is litter or maybe there’s not. However, in medical, it might not
similar for different services. For example, demands of important surgeries are nearly not
elastic such as if the price of important surgery decreases from $10.000 to $0, the amount of
people taking surgeries won’t increase. On the other hand, the demand of medical check-up is
likely to be more elastic.
 Factors changing the demand of health care services
Changes in the income of the service’s consumer: the raise in the consumer’s income lead
to the displacement to the right of the demand curve of the medical service.
Changes in the prices of alternative products: they will replace the demand of medical
service. For example, when a cost of a certain service of entertainment decrease as much as
the cost of medical check-up service, people will choose the service of entertainment. It leads
to the decrease in the demand of medical service. Due to the few alternative product of this
service, the medical service might not be affected by the change of alternative product’s price.
However, stay healthy by exercising or healthy eating habits is an alternative to get the lowest
cost for health care services.

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2. The elasticity of Supply
 Feature of supply: Doctor
The amount of doctor increases more and more through every year. For example, the
physician per 10.000 patients has increased from 12.23 in 2008 to 12.52 in 2009; the doctor
per 10.000 patients has increased from 6.52 to 6.59.15
The supply curve of doctor hasn’t been
elastic in short-term. Therefore, the increase in demand of medical service almost affects to
the price of medical service. However, in long-term, the supply curve is more elastic, the
increase in demand of medical service may lead to the increase in the amount of doctor and
vice versa.
 Fearure of supply: Hospital
The short-term supply curve of hospital services in cluding quantity of hospital serive will be
served in various price with the constant amount of hospital and equipment. In other hand,
the long-term supply curve differs from the short-term in investing hospital (comfor and
equipment). In long time, this modification will displace the short-term supply curve.
 Factors changing the supply of health care services
Investment: Increasing investment in hospital such as construcing and extending hospital,
buying new equipment will increase the ability of provision services. Investing hospital is a
way to increase the supply of hospital services; at one, to meet the growing demand. For
example, in Viet Nam, Nhi Dong 1 hospital just have 700 sick-beds but one day they need to
serve about 1500 to 1600 children. The everload intern rate is 136%16
Technology: The advancement of technology makes the quantity and quality of health care
services increase. Thanks to the new technology, a large amount of the similar services are
served with the loew cost or the better technology will be served with the high cost. The
modern technology help the important surgeries have the higher successful rate as well as
more expensive cost.
IV.Overall assessment of the health economics in VietNam
Vietnam is on the way of socio-economic development with a rapid rate. Thanks to the
development of a market economy in the direction of socialism, foreign investment, favorable
business environment, cheap and abundant labor force. VietNam has reached middle-income
and set a basic target to become an industrialized country in 2020. From 1999 to 2009,
VietNamese population increased by 1.2% per year. Per capital income increased 12.5 times
from 1990 to 2010. The poverty rates fell sharply; almost poor households live in rural areas
and ethnic minorities live in mountain region. Government considered health as a pillar to
develop socio-economic. The government wants all people have access to quality health
services in the best way.
VietNam is on the way implementation of Millennium Development Goals17
1. To eradicate extreme poverty and hunger
15
Source: www.jahr.org.vn
16
http://www.nhandan.com.vn/mobile/_mobile_ndct/_mobile_anninhxahoi/item/19299202.html
17
http://en.wikipedia.org/wiki/Millennium_Development_Goals

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2. To achieve universal primary education
3. To promote gender equality and empower women
4. To reduce child mortality
5. To improve maternal health
6. To combat HIV/AIDS, malaria, and other diseases
7. To ensure environmental sustainability
8. To develop a global partnership for development18
1. Development aspects
From 1999 to 2009, maternal deaths per 100.000 live births fell from 233 to 69. Infant deaths
per 1.000 live births fell from 58 to 24 in the same period.
The proportion of malnourished children fell from 45% to 19% from 1994 to 2009. The
number of case acquire tuberculosis, HIV, malaria is decreasing. Beside, the coverage of
health care services is high, infrastructure, education, clean water are upgraded, rising income
also contribute to the achievement of MDG.
2. Incomplete aspects.
However, VietNam is facing a burden to 3 major diseases: infectious diseases,
noncommunicable diseases, accidents.
Infectious diseases have decreased but they still not be adequately controlled, while the new
epidemic disease appears, counterfeit drugs, drug resistance are causing serious risk to global
and public health. The noncommunicable disease has increased rapidly such as
cardiovascular disease, diabetes, cancer, mental which are the main reasons for death in
VietNam; and because popular aging, bad habits (smoking, alcohol, too much salt intake..),
sedentariness. The accident, injury, contamination are the main causes of death in adults.
These challenges requires the strong development and reorganization health sector.
3. The challenges of the health
Equity in health care services: Government need to increase disadvantaged groups access to
health care services. Mortality of maternal deaths in ethnic minorities is 4 times higher and in
rural is 2 times higher than in country. Proportion of malnourished children is always high.
Rural people have to pay more due to the travel costs accrual, private services use, self-
medication. Health insurance is limited, there are 60 percent population participate in health
insurance, but paying by health insurance just 18 percent of total health expenditure of social.
About 61% of the cost paying by pocket of the patient, which leading to reduce income and
fall into porverty.
Standards of quality medical care: VietNam has a large health worker, such as 1.7 worker per
1.000 people in 2007. On average, 1.3 nurse per a doctor, whereas the WHO19
standard is 4:5.
Almost the commune health station lack of equipment, efficient work of health workers is
low cause incentive mechanisms low, quality training is not good enough. Resident are not
satisfied with the commune health station.
18
http://www.unicef.org/vietnam/vi/overview_14585.html
19
WHO: World Health Organization.

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V. Endnotes
1. http://www.dictionarycentral.com/definition/fair-innings.html
2. http://data.worldbank.org/indicator/SH.XPD.TOTL.ZS/countries/GB-US-
VN?display=graph
3. http://isos.gov.vn/Thongtinchitiet/tabid/84/ArticleId/783/language/vi-VN/Vai-tro-ch-
c-nang-va-nhi-m-v-c-a-Nha-n-c-trong-vi-c-cung-c-p-d-ch-v-y-t-va-giao-d-c-Kinh-
nghi-m-c-a.aspx
4. http://en.wikipedia.org/wiki/Health_economics
5. http://voer.edu.vn/m/tam-quan-trong-cua-su-nghiep-y-te-trong-doi-song-xa-
hoi/b0b08ece
6. http://pmj.bmj.com/content/79/929/147.full
7. http://mitpress.mit.edu/sites/default/files/titles/content/9780262016766_sch_0001.pdf
8. http://vhea.org.vn/NewsDetails.aspx?CateID=183&NewsID=131
9. http://aheblog.com/tag/fair-innings
10. www.jahr.org.vn
11. http://www.nhandan.com.vn/mobile/_mobile_ndct/_mobile_anninhxahoi/item/192992
02.html
12. http://www.worldbank.org/vi/country/vietnam/publication/moving-toward-universal-
coverage-of-social-health-insurance-in-vietnam
13. http://www.vn.undp.org/content/vietnam/vi/home/library/poverty/health-care-
financing-for-viet-nam.html
14. http://www.nhandan.com.vn/suckhoe/tieu-diem/item/22472202-xay-dung-nen-y-te-
viet-nam-huong-toi-cong-bang-chat-luong-hieu-qua-va-phat-trien.html
15. http://maxreading.com/sach-hay/y-hoc-gia-dinh/chuong-7-kinh-te-y-te-va-quan-ly-
hoat-dong-y-te-3968.html

16
16. http://www.adb.org/sites/default/files/linked-documents/cps-vie-2012-2015-ssa-07-
vi.pdf
17. http://www.medicine.ox.ac.uk/bandolier/painres/download/whatis/what_is_health_ec
on.pdf
18. http://www.whatiseconomics.org/health-economics
19. http://www.cartercenter.org/resources/pdfs/health/ephti/library/lecture_notes/health_s
cience_students/LN_Intro_to_Health_Economics_final.pdf
20. www.worldbank.org
21. www.moh.gov.vn

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Table of contents
I. OVERVIEW.......................................................................................................................................3
1. What is Health Economics?.........................................................................................................3
2. Some features of health economics ...........................................................................................3
 The role of doctors..................................................................................................................3
 The lack of experience............................................................................................................4
 Rights of having good health ..................................................................................................4
 The unpredictability of disease ...............................................................................................4
3. The important of health economics............................................................................................4
II. The expansion of health economics ...............................................................................................5
1. The growth of health economics ................................................................................................5
4. The improvement in health and longevity..................................................................................7
5. The share of GDP spend on health care......................................................................................9
 Some features of Equity........................................................................................................10
6. Government’s role ....................................................................................................................11
III. Supply and Demand of health care services.............................................................................12
1. The elasticity of Demand ..........................................................................................................12
 Factors changing the demand of health care services...........................................................12
2. The elasticity of Supply .............................................................................................................13
 Feature of supply: Doctor .....................................................................................................13
 Fearure of supply: Hospital...................................................................................................13
 Factors changing the supply of health care services.............................................................13
IV. Overall assessment of the health economics in VietNam ........................................................13
1. Development aspects................................................................................................................14
2. Incomplete aspects...................................................................................................................14
3. The challenges of the health.....................................................................................................14
V. Endnotes .......................................................................................................................................15

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