iPedia Free Information Center

Information about Health Economics

Health Economics is a journal published by Wiley Interscience, covering the subject of health economics. It was established in 1992, and is published monthly.

External links

Health economics is a branch of economics concerned with issues related to scarcity in the allocation of health and health care.

The scope of health economics is neatly encapsulated by Alan William's "plumbing diagram"[1] dividing the discipline into eight distinct topics:
  • what influences health? (other than health care)
  • what is health and what is its value
  • the demand for health care
  • the supply of health care
  • micro-economic evaluation at treatment level
  • market equilibrium
  • evaluation at whole system level; and,
  • planning, budgeting and monitoring mechanisms.

What influences health?

What is health and what is its value?

The demand for health care

The Supply of Health Care

Micro-economic evaluation at treatment level

A large focus of health economics, particularly in the UK, is the microeconomic evaluation of individual treatments. In the UK, the National Institute for Health and Clinical Excellence (NICE) appraises certain new and existing pharmaceuticals and devices using economic evaluation.

Economic evaluation is the comparison of two or more alternative courses of action in terms of both their costs and consequences (Drummond et al.). Economists usually distinguish several types of economic evaluation, differing in how consequences are measured: In cost minimisation analysis (CMA), the effectiveness of the comparators in question must be proven to be equivalent. The 'cost-effective' comparator is simply the one which costs less (as it achieves the same outcome). In cost-benefit analysis (CBA), costs and benefits are both valued in cash terms. Cost effectiveness analysis (CEA) measures outcomes in 'natural units', such as mmHg, symptom free days, life years gained. Finally cost-utility analysis (CUA) measures outcomes in a composite metric of both length and quality of life, the Quality Adjusted Life Year (QALY). (Note there is some international variation in the precise definitions of each type of analysis).

A final approach which is sometimes classed an economic evaluation is a cost of illness study. This is not a true economic evaluation as it does not compare the costs and outcomes of alternative courses of action. Instead, it attempts to measure all the costs associated with a particular disease or condition. These will include direct costs (where money actually changes hands, e.g. health service use, patient co-payments and out of pocket expenses), indirect costs (the value of lost productivity from time off work due to illness), and intangible costs (the 'disvalue' to an individual of pain and suffering). (Note specific definitions in health economics may vary slightly from other branches of economics.)

Market equilibrium

Health care markets

The five health markets typically analyzed are: Although assumptions of textbook models of economic markets apply reasonably well to health care markets, there are important deviations. Insurance markets rely on risk pools, in which relatively healthy enrollees subsidize 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 markets, such as group purchases and preexisting condition exclusions are meant to cope with adverse selection.

Insured patients are naturally less concerned about health care costs than they would if they paid the full price of care. The resulting "moral hazard" drives up costs, as shown by the famous RAND Health Insurance Experiment. 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 health care 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 a patient receives depends as much on which doctor they visit as it does on their condition. Both private insurers and government payers use a variety of controls on service availability to rein in inducement and practice variations.

The U.S. health care market has relied extensively on competition to control costs and improve quality. Critics question whether problems with adverse selection, moral hazard, information asymmetries, demand inducement, and practice variations can be addressed by private markets. Competition has fostered reductions in prices, but consolidation by providers and, to a lesser extent, insurers, has tempered this effect.

Competitive equilibrium in the five health markets

While the nature of healthcare as a private good is preserved in the last three markets, market failures occur in the financing and delivery markets due to two reasons: (1) Perfect information about price products is not a viable assumption (2) Various barriers of entry exist in the financing markets (i.e. monopoly formations in the insurance industry)

Efficiency vs equity

The First Theorem of Welfare Economics states that any Walrasian equilibrium (that is, any competitive equilibrium) is Pareto-efficient. Its implications are that competitive markets will always be efficient. This result follows from the definition of a Walrasian equilibrium and the definition of Pareto efficiency. A key assumption to the proof of the theorem is local non-satiation of consumer preferences. It is that assumption that is often violated in the first two of the health markets and therefore the First Welfare Theorem does not hold for these markets.

In addition, even if the outcome in a health market is Pareto optimal, the government deems it to be inequitable due to vast health disparity or lack of basic healthcare services.

So, government intervention is warranted for two reasons:
  • Absence of Pareto Optimality in a health market
  • Pareto Optimality with socially inequitable health outcome.

Ideological bias in the debate about the financing and delivery health markets

The healthcare debate in public policy is often informed by ideology and not sound economic theory. Often, politicians subscribe to a moral order system or belief about the role of governments in public life that guides biases towards provision of healthcare as well. The ideological spectrum spans: individual savings accounts and catastrophic coverage, tax credit or voucher programs combined with group purchasing arrangements, and expansions of public-sector health insurance. These approaches are advocated by health care conservatives, moderates and liberals, respectively.

Evaluation at a whole system level

Planning, budgeting, and monitoring mechanisms

Other issues

Medical economics

Often used synonimously with Health Economics Medical economics, according to Culyer,[2] 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. 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.

References

1. ^ Williams A (1987) "Health economics: the cheerful face of a dismal science" in Williams A (ed.) Health and Economics, Macmillan: London
2. ^ A.J. Culyer (1989) "A Glossary of the more common terms encountered in health economics" in MS Hersh-Cochran and KP Cochran (eds) Compendium of English Language Course Syllabi and Textbooks in Health Economics, Copenhagen, WHO, 215-234

Further reading

  • Michael F. Drummond (2005) Methods for the Economic Evaluation of Health Care Programmes, Oxford University Press. Preview. ISBN 0-19-852945-7
  • Victor R. Fuchs (1987). "Health economics" The , v. 2, pp. 614-19.

See also

External links

John Wiley & Sons, Inc.

Public (NYSE:  JWA , NYSE:  JWB )
Founded 1807 in New York, New York
Headquarters Hoboken, New Jersey

Key people William J.
..... Click the link for more information.
Economics is the social science that studies the production, distribution, and consumption of goods and services. The term economics comes from the Greek for oikos (house) and nomos (custom or law), hence "rules of the house(hold).
..... Click the link for more information.
In 1948, in its constitution, the World Health Organization (WHO) defined health as "a state of complete physical, mental and social well-being and not merely the absence of disease or infirmity" [1].
..... Click the link for more information.
Health care, or healthcare, is the prevention, treatment, and management of illness and the preservation of mental and physical well being through the services offered by the medical, nursing, and allied health professions.
..... Click the link for more information.
supply and demand describe market relations between prospective sellers and buyers of a good. The supply and demand model determines price and quantity sold in the market.
..... Click the link for more information.
Supply may refer to:
  • Supply and demand, an economic theory
  • Government budget, in the Westminster System
  • Materiel, the goods and equipment that a military unit needs to fulfill its mission
  • Supply (StarCraft), supply being consumed and available


..... Click the link for more information.
Microeconomics (or price theory) is a branch of economics that studies how individuals, households, and firms make decisions to allocate limited resources,[1] typically in markets where goods or services are being bought and sold.
..... Click the link for more information.
Treatment may refer to:

In health:
  • Therapy, the act of remediation of a health problem, which could include:
  • chemotherapy
  • counseling

..... Click the link for more information.
Equilibrium is the condition of a system in which competing influences are balanced and it may refer to:

Biology

  • Equilibrioception, the sense of balance present in humans and animals

..... Click the link for more information.
For the rental car company, see .


Budget (from french bougette) generally refers to a list of all planned expenses and revenues. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs
..... Click the link for more information.
A private good is defined in economics as a good that exhibits these properties:
  • Excludable - it is reasonably possible to prevent a class of consumers (e.g. those who have not paid for it) from consuming the good.

..... Click the link for more information.
public good is a good that is non-rival and non-excludable. This means that consumption of the good by one individual does not reduce the amount of the good available for consumption by others; and no one can be effectively excluded from using that good.
..... Click the link for more information.
merit good in economics is a commodity which is judged that an individual or society should have on the basis of a norm other than respecting consumer preferences. One rationale for this is paternalism, that the government or other donor provides such a good on the basis of
..... Click the link for more information.
National Institute for Health and Clinical Excellence or NICE is a Special Health Authority of the National Health Service in England and Wales. It was set up as the "National Institute for Clinical Excellence" in 1999, and on 1 April 2005 joined with the Health Development
..... Click the link for more information.
Cost-benefit analysis is a term that refers both to:
  • a formal discipline used to help appraise, or assess, the case for a project or proposal, which itself is a process known as project appraisal; and
  • an informal approach to making decisions of any kind.

..... Click the link for more information.
Cost-effectiveness analysis (CEA) is a form of economic analysis that compares the relative expenditure (costs) and outcomes (effects) of two or more courses of action.

CEA in pharmacoeconomics


..... Click the link for more information.
Cost-utility analysis (CUA) is a form of economic analysis used to guide procurement decisions. The most common and well-known application of this analysis is in pharmacoeconomics, especially health technology assessment (HTA).
..... Click the link for more information.
Indirect costs are costs that are not directly accountable to a particular function or product; these are fixed costs. Indirect costs include taxes, administration, personnel and security costs.

See also

  • Operating cost

..... Click the link for more information.
Finance studies and addresses the ways in which individuals, businesses, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects.
..... Click the link for more information.
physician applies to a person who practices some type of medicine. Such medical practitioners are concerned with maintaining or restoring human health through the study, diagnosis and treatment of disease and injury, through both an area of knowledge
..... Click the link for more information.
Nurses are responsible—along with other health care professionals—for the treatment, safety, and recovery of acutely or chronically ill or injured people, health maintenance of the healthy, and treatment of life-threatening emergencies in a wide range of health
..... Click the link for more information.
Institutions are structures and mechanisms of social order and cooperation governing the behavior of two or more individuals. Institutions are identified with a social purpose and permanence, transcending individual human lives and intentions, and with the making and enforcing of
..... Click the link for more information.
Education encompasses teaching and learning specific skills, and also something less tangible but more profound: the imparting of knowledge, positive judgment and well-developed wisdom.
..... Click the link for more information.
The RAND Health Insurance Experiment (RAND HIE) was a comprehensive study of health care cost, utilization and outcome in the United States. It is the only randomized study of health insurance, and the only study which can give definitive evidence as to the causal effects of
..... Click the link for more information.
Pareto efficiency, or Pareto optimality, is an important notion in economics with broad applications in game theory, engineering and the social sciences. The term is named after Vilfredo Pareto, an Italian economist who used the concept in his studies of economic efficiency
..... Click the link for more information.
General equilibrium theory is a branch of theoretical microeconomics. It seeks to explain production, consumption and prices in a whole economy.

General equilibrium tries to give an understanding of the whole economy using a bottom-up approach, starting with individual
..... Click the link for more information.
Pareto efficiency, or Pareto optimality, is an important notion in economics with broad applications in game theory, engineering and the social sciences. The term is named after Vilfredo Pareto, an Italian economist who used the concept in his studies of economic efficiency
..... Click the link for more information.
Pareto efficiency, or Pareto optimality, is an important notion in economics with broad applications in game theory, engineering and the social sciences. The term is named after Vilfredo Pareto, an Italian economist who used the concept in his studies of economic efficiency
..... Click the link for more information.
A pharmaceutical company, or drug company, is a commercial business whose focus is to research, develop, market and/or distribute drugs, most commonly in the context of healthcare. They can deal in generic and/or brand medications.
..... Click the link for more information.
Medicine is the science and "" of maintaining and/or restoring human health through the study, diagnosis, and treatment of patients. The term is derived from the Latin ars medicina meaning the art of healing.
..... Click the link for more information.


This article is copied from an article on Wikipedia.org - the free encyclopedia created and edited by online user community. The text was not checked or edited by anyone on our staff. Although the vast majority of the wikipedia encyclopedia articles provide accurate and timely information please do not assume the accuracy of any particular article. This article is distributed under the terms of GNU Free Documentation License.
Herod_Archelaus


page counter