This document discusses key concepts in health economics. It defines health economics as analyzing the production, distribution, and consumption of health care resources and services. Some main points covered include: - Health and healthcare resources are scarce and societies must make choices about allocating them. - Individuals demand health because it provides utility and the ability to work, and they produce health through behaviors and medical care as one input. - Societies face trade-offs in allocating resources between medical vs. non-medical goods, treatments vs. prevention, and equity vs. efficiency.

1. Tony Umadhay, PhD., CRNA
Barry University

2.  Health
◦ ― a complete state of physical, mental and social
well-being, and not merely the absence of illness or
disease‖
 Economics
◦ is the social science that analyzes the production,
distribution, and consumption of goods and
services.
◦ offers a framework to study the implications of
individual decision making and help define the
alternative mechanisms available to improve
resource allocation
◦ Scarcity & Uncertainty

3.  studies the supply and demand of health care
resources and the impact of health care
resources on a population.
 determination and allocation of health care
resources
◦ Medical Supplies
◦ Personnel
◦ Capital Inputs

4.  are limited or scarce at a given point in time
 wants are limitless
 trade-offs are inevitable
◦ each society must make a number of fundamental
but crucial choices
Each society must make important decisions
regarding the consumption, production, and
distribution of healthcare goods and services

5. 1. What mix of nonmedical and medical goods
and services should be produced in the
macroeconomy?
2. What mix of medical goods and services
should be produced in the health economy?

6. 3. What specific health care resources should
be used to produce the chosen medical
goods and services?
4. Who should receive the medical goods and
services that are produced?

7. What is the best way to allocate resources to
different consumption uses?
1. What mix of nonmedical and medical goods and
services should be produced in the macroeconomy?
2. What mix of medical goods and services should be
produced in the health economy?

8.  How can society get the maximum output from its
limited resources?
3. What specific health care resources should be used to
produce the chosen medical goods and services?

9.  Is the distribution of services equitable or fair
to everyone involved?
4. Who should receive the medical goods and services
that are produced?

10.  Scarcity of economic resources
◦ A society generally wishes to produce the best
combination of goods and services
◦ By employing least-cost methods of production
 Trade-offs are inevitable
◦ Some amount of one good or service must be given
up if the production and consumption of another
good or service increases

11.  Choices may involve sensitive trade-offs
◦ The young vs. the old
◦ Prevention vs. treatment
◦ Men (prostate cancer) vs. women (breast cancer)
 Achieving equity
◦ Desirable goal
 Redistribution of income – Taxation
◦ Creates a disincentive for efficiency
 Trade-off between equity and efficiency
 A nation’s healthcare system normally
reflects the way society has chosen to balance
efficiency & equity concerns

12.  Production and consumption of healthcare
goods and services
 Distribution of these goods & services to
consumers
 Barometers of health economy
◦ Costs
◦ Access
◦ Quality

13.  Structural quality
◦ Physical and human resources of the medical care
provider
 Facilities (level of amenities), medical equipment (type
and age), personnel (training and experience), and
administration (organization structure)

14.  Process quality
◦ Specific actions health care providers take on behalf
of patients in delivering and following through with
care
 Access (waiting time), data collection (background
history and testing), communication with the patient,
and diagnosis and treatment (type and
appropriateness)

15.  Outcome quality
◦ Impact of care on the patient’s health and welfare
as measured by patient satisfaction, work time lost
to disability, or post-care mortality rate

16.  Health – a durable good, or type of capital,
that provides services
 The flow of services produced from the stock
of health ―capital‖ is consumed continuously
over an individual’s lifetime
 Initial stock of health
◦ Depreciates with age
 Rate of depreciation
 Varies from individual to individual
 Age, physical makeup, lifestyle, environmental factors,
amount of medical care consumed
 Some are uncontrollable

17. ◦ May be augmented by investments in medical
services
 Medical services
 May compensate for many deficiencies
 Health depends on
◦ Quantity of life
 Number of life-years remaining
◦ Quality of life
 Relative concept
 Death
◦ An individual’s stock of health falls below a critical
minimum level

18.  Durable good - generates a flow of services
 Yield utility (satisfaction)
 Desired for consumption
◦ Utility from an overall improvement in quality of life
 Desired for investment purposes
◦ Positive state of health
 Allocate less time to sickness
 More healthy days available in the future to work and
enhance your income or to pursue other activities

19.  High value on future events
◦ Preference for the future
◦ Pursue a healthy lifestyle
◦ Increase the likelihood of enjoying more healthy
days than a person
 Maximize utility
◦ Consume: combination of goods & services
◦ Includes services produced from the stock of health

20.  ―Good‖ health can be regarded as a
fundamental commodity: one of the true
objects of people’s wants and for which more
tangible goods and services—such as health
care—are simply a means to achieve it.
 Formulating the basis for the demand for
health provides the basis for the demand for
health care.

21.  A key difference is that because health is not
tradable, it is not possible for it to be
analyzed in the market framework
(i.e., improvements in health cannot be
purchased directly)

22. Health is Demanded & Produced
by Individuals
 Health is demanded because it affects the
total time available for the production of
income and wealth and because it is a source
of utility itself

23. Health is Demanded & Produced
by Individuals
 Health produced by individuals, using a
variety of means such as diet, lifestyle
choices, and medical care
◦ Health production efficiency depends on an
individual’s knowledge and education
◦ Medical care is but one input to the production of
health
◦ Each individual begins life with a ―stock‖ or
―capital‖ of health

24. References:
Dewar, D. (2010). Essentials of health economics. Sudbury, MA:
Jones & Bartlett Learning Co.
Santerre, R. & Neun, S. (2009). Health economics: Theory,
insights, and industry studies. (5th ed.), Mason, OH.:
Cengage Learning.
Parts of the slide presentation was adapted from:
Jones & Bartlett Publishers (2010)
Cengage Learning (2010)