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Principles in Health Economics and Policy is a concise introduction to health economics and its application to health policy. It introduces the subject of economics, explains the fundamental failures in the market for health care, and discusses the concepts of equity and fairness when applied to health and health care. The book takes a policy-oriented approach, emphasizing the application of economic analysis to universal health policy issues. It explores the key questions facing health policy-makers across the globe right now, such as: how should society intervene in the determin
Health economics is a branch of economics concerned with issues related to efficiency , effectiveness, value and behavior in the production and consumption of health and healthcare. Health economics is important in determining how to improve health outcomes and lifestyle patterns through interactions between individuals, healthcare providers and clinical settings.
A seminal article by Kenneth Arrow is often credited with giving rise to health economics as a discipline. His theory drew conceptual distinctions between health and other goods. Health economists evaluate multiple types of financial information: costs, charges and expenditures. Uncertainty is intrinsic to health, both in patient outcomes and financial concerns. The knowledge gap that exists between a physician and a patient creates a situation of distinct advantage for the physician, which is called asymmetric information.
Externalities arise frequently when considering health and health care, notably in the context of the health impacts as with infectious disease or opioid abuse. For example, making an effort to avoid catching the common cold affects people other than the decision maker     or finding sustainable, humane and effective solutions to the opioid epidemic.
The scope of health economics is neatly encapsulated by Alan Williams ' " plumbing diagram "  dividing the discipline into eight distinct topics:.
The demand for healthcare is a derived demand from the demand for health. Healthcare is demanded as a means for consumers to achieve a larger stock of "health capital. The above description gives three roles of persons in health economics. The World Health Report p. Michael Grossman 's model of health production  has been extremely influential in this field of study and has several unique elements that make it notable.
Grossman's model views each individual as both a producer and a consumer of health. Health is treated as a stock which degrades over time in the absence of "investments" in health, so that health is viewed as a sort of capital. The model acknowledges that health is both a consumption good that yields direct satisfaction and utility , and an investment good , which yields satisfaction to consumers indirectly through fewer sick days.
Investment in health is costly as consumers must trade off time and resources devoted to health, such as exercising at a local gym, against other goals. These factors are used to determine the optimal level of health that an individual will demand. The model makes predictions over the effects of changes in prices of healthcare and other goods, labour market outcomes such as employment and wages, and technological changes. These predictions and other predictions from models extending Grossman's paper form the basis of much of the econometric research conducted by health economists.
In Grossman's model, the optimal level of investment in health occurs where the marginal cost of health capital is equal to the marginal benefit. The marginal benefit of health capital is the rate of return from this capital in both market and non-market sectors. In this model, the optimal health stock can be impacted by factors like age, wages and education.
Age also decreases the marginal benefit of health stock. The optimal health stock will therefore decrease as one ages. Beyond issues of the fundamental, "real" demand for medical care derived from the desire to have good health and thus influenced by the production function for health is the important distinction between the "marginal benefit" of medical care which is always associated with this "real demand" curve based on derived demand , and a separate "effective demand" curve, which summarizes the amount of medical care demanded at particular market prices.
Because most medical care is not purchased from providers directly, but is rather obtained at subsidized prices due to insurance, the out-of-pocket prices faced by consumers are typically much lower than the market price.
This distinction is often described under the rubric of "ex-post moral hazard" which is again distinct from ex-ante moral hazard, which is found in any type of market with insurance. Economic evaluation , and in particular cost-effectiveness analysis , has become a fundamental part of technology appraisal processes for agencies in a number of countries.
This approach measures outcomes in a composite metric of both length and quality of life, the Quality-adjusted life year QALY. Although assumptions of textbook models of economic markets apply reasonably well to healthcare markets, there are important deviations. Many states have created risk pools in which relatively healthy enrollees subsidise the care of the rest. Insurers must cope with adverse selection which occurs when they are unable to fully predict the medical expenses of enrollees; adverse selection can destroy the risk pool.
Features of insurance market risk pools, such as group purchases, preferential selection "cherry-picking" , and preexisting condition exclusions are meant to cope with adverse selection. Insured patients are naturally less concerned about healthcare costs than they would if they paid the full price of care. Insurers use several techniques to limit the costs of moral hazard, including imposing copayments on patients and limiting physician incentives to provide costly care.
Insurers often compete by their choice of service offerings, cost-sharing requirements, and limitations on physicians. Consumers in healthcare markets often suffer from a lack of adequate information about what services they need to buy and which providers offer the best value proposition. Health economists have documented a problem with supplier induced demand , whereby providers base treatment recommendations on economic, rather than medical criteria. Researchers have also documented substantial "practice variations", whereby the treatment also on service availability to rein in inducement and practice variations.
Some economists argue that requiring doctors to have a medical license constrains inputs, inhibits innovation, and increases cost to consumers while largely only benefiting the doctors themselves.
There are several separate and independent reasons for governments intervening in health-care systems rather than leaving it to the private market forces. The first is to ensure that the optimum level of production and consumption of public goods hospitals, vaccines and goods with a partially public character are available. Secondly, the rationale is to increase the quality and equity of insurance for those services that can be produced in the private sector but require risk-sharing due to the expense and uncertainties about needs.
For example; investing in research and development for new cures and health care equipment. Governments usually subsidize for those who cannot afford insurance or, in certain situations, those low-cost activities and facilities that non-poor citizens can afford on their own. For example; the largest health insurance scheme in the world was launched in India by the name Ayushman Bharat in The third reason for which the government might want to intervene is to prevent market failure.
Several health-care markets tend to have the potential for monopoly control to be exercised. Medical care in markets with few hospitals, patent-protected prescription products, and some health insurance markets is the major reason for higher costs and especially in cases where the providers are private companies. Knowledge can be perceived as a public good with a strong economic value.
The information provided by one user does not restrict the information available to another. While those who do not pay are often denied access to information and the marginal cost of providing information to another person is frequently low. As a result, one might argue that private markets would under-produce knowledge, necessitating government intervention to increase its availability. Government intervention, in this case, can be seen as assisting in the public distribution of established information, either directly or by subsidizing private sector operations.
Often used synonymously with health economics, medical economics , according to Culyer ,  is the branch of economics concerned with the application of economic theory to phenomena and problems associated typically with the second and third health market outlined above: physician and institutional service providers.
Typically, however, it pertains to cost—benefit analysis of pharmaceutical products and cost-effectiveness of various medical treatments. Medical economics often uses mathematical models to synthesise data from biostatistics and epidemiology for support of medical decision-making , both for individuals and for wider health policy. Mental health economics incorporates a vast array of subject matters, ranging from pharmacoeconomics to labor economics and welfare economics.
Mental health can be directly related to economics by the potential of affected individuals to contribute as human capital. In Currie and Stabile published "Mental Health in Childhood and Human Capital" in which they assessed how common childhood mental health problems may alter the human capital accumulation of affected children.
For example, studies in India, where there is an increasingly high occurrence of western outsourcing, have demonstrated a growing hybrid identity in young professionals who face very different sociocultural expectations at the workplace and in at home. Mental health economics presents a unique set of challenges to researchers. Individuals with cognitive disabilities may not be able to communicate preferences.
These factors represent challenges in terms of placing value on the mental health status of an individual, especially in relation to the individual's potential as human capital. Further, employment statistics are often used in mental health economic studies as a means of evaluating individual productivity; however, these statistics do not capture " presenteeism ", when an individual is at work with a lowered productivity level, quantify the loss of non-paid working time, or capture externalities such as having an affected family member.
Also, considering the variation in global wage rates or in societal values, statistics used may be contextually, geographically confined, and study results may not be internationally applicable. Though studies have demonstrated mental healthcare to reduce overall healthcare costs, demonstrate efficacy, and reduce employee absenteeism while improving employee functioning, the availability of comprehensive mental health services is in decline.
Petrasek and Rapin cite the three main reasons for this decline as 1 stigma and privacy concerns, 2 the difficulty of quantifying medical savings and 3 physician incentive to medicate without specialist referral. From Wikipedia, the free encyclopedia. For the journal, see Health Economics. See templates for discussion to help reach a consensus. This article needs attention from an expert in economics.
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Home About My account Contact Us. In countries like the United States the subject can lead to much contention. Therefore, this material should be regarded as an introduction to health economics rather than to economics. Section 3 describes the main features of health economics for low-income count ries. The same behavior arises from the randomness of health … Health Economics, Policy and Law serves as a forum for scholarship on health and social care policy issues from these perspectives, and is of use to academics, policy … Health Economics Information Resources: A Self-Study Course Module 1, Part 1: The Scope of Health Economics Part 1 of this two-part module: describes the nature of health economics positions the role of health economics in health care decision making provides an overview of the structure of the subdiscipline of health economics… An overview of health economics is presented in Section 2, with a special focus on its distinctiveness as a sub-discipline.
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Principles in Health Economics and Policy
This article describes the various concepts of equity and fairness that have been developed by economists in health and health care. It begins with a background framework on the principal causes of inequalities in health and health care. It is concerned with equity issues and theories of distributive justice being integrated into health economic models. It enquires what the key question of equality in terms of stream of health is and is concerned with the equality of opportunities or equality of outcomes.
From a Public Health point of view, health economics is just one of many disciplines that may be used to analyse issues of health and health care, specifically as one of the set of analytical methods labelled Health Services Research. But from an economics point of view, health economics is simply one of many topics to which economic principles and methods can be applied. So, in describing the principles of health economics, we are really setting out the principles of economics and how they might be interpreted in the context of health and health care. As Morris, Devlin Parkin and Spencer put it: Health economics is the application of economic theory, models and empirical techniques to the analysis of decision-making by individuals, health care providers and governments with respect to health and health care. There are many different definitions of economics, but a definition given in a popular introductory textbook Begg, Fischer and Dornbusch, is instructive: The study of how society decides what, how and for whom to produce.
Health economics is a branch of economics concerned with issues related to efficiency , effectiveness, value and behavior in the production and consumption of health and healthcare. Health economics is important in determining how to improve health outcomes and lifestyle patterns through interactions between individuals, healthcare providers and clinical settings. A seminal article by Kenneth Arrow is often credited with giving rise to health economics as a discipline. His theory drew conceptual distinctions between health and other goods. Health economists evaluate multiple types of financial information: costs, charges and expenditures.
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