Theoretical Health Economics

Hans Keiding

• Publisher: WSPC
• Year: 2017
• eBook ISBN: 9789813227835
• Topic: Business
• Subtopic: Insurance
• Index: Business

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As a relatively young discipline, health economics as it appears today contains many features which can be traced back to its beginnings. Since it arose in the interface between the medical sciences and economics, the way of dealing with problems were often influenced by traditions which were well-established in the medical profession, while the classical way of thinking of economists came was filtering through at a slower pace. This means that much of both teaching and research in health economics puts the emphasis on collecting and analysing data on health and healthcare as well as on public and private outlays on healthcare. This is an extreme useful and worthwhile activity, and much new and valuable information is produced in this way, but occasionally there is a need for in-depth understanding of what is going on, rather than an estimated equation which comes from nowhere. This is where economic theory can offer some support.

The present book is an introduction to health economics where the emphasis is on theory, with the aim of providing explanation of phenomena as far as possible given the current level of economics.

--> Contents:

• Health and Healthcare: What is It?
• Demand for Health and Healthcare
• Supply of Healthcare
• Paying for Healthcare
• Health Insurance
• Cost-Effectiveness Analysis
• Regulating the Healthcare Sector

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--> Readership: Undergraduate and postgraduate economics students looking for an introductory text on health economics. -->
Health Economics;Healthcare;Grossman Model;Newhouse-Phelps Model;Dorfman-Steiner;Lindahl Equilibria;Healthcare Pricing;Cost-Effectiveness Analysis;Healthcare Regulation0

Chapter 1

Health and healthcare: What is it?

1Measuring health

Intuitively it is rather obvious that a closer analysis of the use of resources for improving health conditions, for society or for single individuals, will depend rather heavily on the way of measuring states of health. Clearly it would be very helpful for the analysis if a numerical measure of health was available, so that “marginal health effect” of each conceivable therapy might be computed as change in health per dollar spent in the treatment.

As already mentioned, there are considerable difficulties connected with such a measurement. There is no obvious unit of measurement for health, and even the concept of “health” as such is not terribly clear. This in itself should not be a cause of despair, since most of the economic disciplines run into similar difficulties. Even when seemingly exact measures exist, problems show up at a closer analysis – such as e.g. in national accounts: What does the GNP (Gross National Product) actually measure?. On the other hand, it is rather clear that the analysis improves with more precise measures of the consequences of economic choices. Therefore it is important to investigate how far one can get in measuring health.

At a closer sight this measurement problem pervades all of health economics. At the outset it is rather easily seen that there can be no measurement of health corresponding to those of the national accounts (where it makes sense to consider differences of two measured values as an expression of the magnitude of the improvement), but one might still hope for constructing a suitable scale and positioning different health states on this scale in such a way that higher scale value corresponds to better health. Next there is the problem of interpersonal comparisons – is it possible to compare the measures of health of two persons, concluding that one of them has a better state of health than the other? – and further on, can we aggregate the health of a whole society and then compare the overall state of health of two different countries?

Box 1.1 The WHO definition of health. According the the World Health Organization (WHO), ‘health’ is defined in the following way:

The definition was inserted in the preamble to the Constitution of WHO [WHO, 1946] and has not been changed since then. As it can be seen, health goes well beyond what is associated with good or bad health in common use of language. Also, it describes what we would call a state of perfect health but gives few if any hints to treating less-than-perfect health, with which we shall be primarily concerned in what follows.

Before we take up such theoretical aspects, we briefly consider methods for measuring health from a more intuitive angle. The approach is the following: First of all some fundamental characteristics of health of are isolated, so that each of them describes certain aspects of health, cf. Box 1.2. The degree of fulfillment of the demand for perfect health in each of these aspects is then measured on a scale from 0 til 1 (or rather, since the scores given are taken as integers, from 0 to 100). The difficult part of the measurement is then the weighing together of the scores in each of the health characteristics. For this a panel of individuals are questioned about there trade-offs between different states of health (where health is perfect in all except one of the aspects) and the average evaluation is then used for weighing the scorings of each of the aspects together to an aggregate health score.

The method has the advantage of being rather simple and easy to understand. The results show a considerable degree of coincidence in the answers of different individuals, which gives some promise that the measurement results are well founded. On the other hand it must be said that the measurement has no obvious theoretical foundation. If state of health is something to be measured in an objective way – which certainly is not to be excluded and indeed is the basic idea behind the measurements attempted – it would be comforting to have and least some conjecture of the reason why such a shared ranking of health states should exist. Indeed, the economist is accustomed to take the opposite viewpoint, namely that people apriori have very different tastes and desires (and this is indeed what makes trade possible), so that an observation of identical preferences would call for a special explanation. So far it has been the other way around in health state measurement; preferences are for some unexplained reason assumed to be identical among individuals, what remains is only to reveal them.

Box 1.2 The dimensions of health. Since a priori, health is something ranging from perfectness to total absence (death), a scale for measuring health states can naturally be chosen as the interval of real numbers from fra 0 to 1. Below we refer the work of Sintonen [1981] as an example of the construction of health measures.

A total of 11 characteristics were cho...

Table of contents

• Cover
• Halftitle
• Title
• Coyright
• Preface
• Contents
• 1. Health and healthcare: What is it?
• 2. Demand for health and healthcare
• 3. Supply of healthcare
• 4. Paying for healthcare
• 5. Health insurance
• 6. Cost-effectiveness analysis
• 7. Regulating the healthcare sector
• Bibliography
• Index