Lecture 8A
Key questions in health economics:
● How to maximize health with the available scarce resources?
● Which factors (inputs) contribute to our health (output)?
● What is the marginal contribution of these inputs?
● What’s the optimal combination of these inputs in a given context?
The health production function
● Defines the relationship between health and the inputs
● Output is some measure of health status (H)
● Health care is one of the inputs
● Health = h (health care, schooling, nutrition, prevention, safety)
● Goal → maximize health given a budget constraint
What is the contribution of health care to population health?
What we need to know;
● How to measure population’s health?
○ A measure of the population’s health status, which captures those aspects of
health that are meaningful, and can be measured with accuracy.
○ Typical measures:
■ Mortality/life expectancy → do not take into account quality of
life
■ Morbidity/disability
■ Combination → disability-adjusted life expectancy (DALE) →
healthy life expectancy
● Equivalent number of years people are expected to live in full
health.
● Calculation → for each country data about severity-
adjusted prevalence of disabilities at each age are
used to calculate equivalent years of life lost due to
disability.
● How to estimate the impact of health care on health?
Lecture 8B
Empirical evidence shows that practitioner-provided medical interventions played only a
, small, perhaps negligible, role in the historical decline in population mortality rates until the
mid-twentieth century. A larger role, on of the most significant ones, might be attributed to
public health measures and the spread of knowledge of the sources of disease.
Why has mortality declined over time:
● Economic growth (1750-1850)
○ Increased supply of food due to agricultural and industrial revolutions allow
one to withstand disease.
● Improvement of public health facilities (1850-1950)
○ Better hygiëne → cleaner water and air, sewer systems.
● Improvements in medicine (1950-now)
○ Antibiotics for infectious diseases, high-tech treatments for cardiovascular
disease.
What is the marginal effect of health care at country level?
● Methodological challenges to measure this adequately:
○ Adjust for differences in need
○ Ruling out all other relevant factor affecting population health
○ Ruling out reverse causality → extra health care may increase
health, but better health may also reduce healthcare use/spending.
● Empirical studies meeting these challenges find that healthcare expenditure has a
demonstrably positive marginal effect on outcomes.
What is the marginal effect of health care at the individual level?
● Studies meeting methodological challenges to measure causal effects:
○ RAND Health insurance experiment → no effect of higher healthcare
utilization (due to lower coinsurance) on health expect for the poor
in poor health.
○ Oregon experiment → higher healthcare utilization (due to a
Medicaid voucher) resulted in better self-reported health but no in
improved objective health measures.
○ Card et al. → more treatments to 65-years old Americans needing
emergency (due to becoming eligible for Medicare) resulted in
significant reduction of mortality.
Lecture 8C
The healthcare production function:
● Measures the relationship between output in terms of patients treated or activities
performed (admissions, hospital days) and healthcare inputs used
● Goal → maximize Q given a budget constraint
● Production functions describes the use of production technology:
○ How can healthcare inputs be combined to produce a certain output?
○ How easily can one production factor be substituted for others?
Key questions in health economics:
● How to maximize health with the available scarce resources?
● Which factors (inputs) contribute to our health (output)?
● What is the marginal contribution of these inputs?
● What’s the optimal combination of these inputs in a given context?
The health production function
● Defines the relationship between health and the inputs
● Output is some measure of health status (H)
● Health care is one of the inputs
● Health = h (health care, schooling, nutrition, prevention, safety)
● Goal → maximize health given a budget constraint
What is the contribution of health care to population health?
What we need to know;
● How to measure population’s health?
○ A measure of the population’s health status, which captures those aspects of
health that are meaningful, and can be measured with accuracy.
○ Typical measures:
■ Mortality/life expectancy → do not take into account quality of
life
■ Morbidity/disability
■ Combination → disability-adjusted life expectancy (DALE) →
healthy life expectancy
● Equivalent number of years people are expected to live in full
health.
● Calculation → for each country data about severity-
adjusted prevalence of disabilities at each age are
used to calculate equivalent years of life lost due to
disability.
● How to estimate the impact of health care on health?
Lecture 8B
Empirical evidence shows that practitioner-provided medical interventions played only a
, small, perhaps negligible, role in the historical decline in population mortality rates until the
mid-twentieth century. A larger role, on of the most significant ones, might be attributed to
public health measures and the spread of knowledge of the sources of disease.
Why has mortality declined over time:
● Economic growth (1750-1850)
○ Increased supply of food due to agricultural and industrial revolutions allow
one to withstand disease.
● Improvement of public health facilities (1850-1950)
○ Better hygiëne → cleaner water and air, sewer systems.
● Improvements in medicine (1950-now)
○ Antibiotics for infectious diseases, high-tech treatments for cardiovascular
disease.
What is the marginal effect of health care at country level?
● Methodological challenges to measure this adequately:
○ Adjust for differences in need
○ Ruling out all other relevant factor affecting population health
○ Ruling out reverse causality → extra health care may increase
health, but better health may also reduce healthcare use/spending.
● Empirical studies meeting these challenges find that healthcare expenditure has a
demonstrably positive marginal effect on outcomes.
What is the marginal effect of health care at the individual level?
● Studies meeting methodological challenges to measure causal effects:
○ RAND Health insurance experiment → no effect of higher healthcare
utilization (due to lower coinsurance) on health expect for the poor
in poor health.
○ Oregon experiment → higher healthcare utilization (due to a
Medicaid voucher) resulted in better self-reported health but no in
improved objective health measures.
○ Card et al. → more treatments to 65-years old Americans needing
emergency (due to becoming eligible for Medicare) resulted in
significant reduction of mortality.
Lecture 8C
The healthcare production function:
● Measures the relationship between output in terms of patients treated or activities
performed (admissions, hospital days) and healthcare inputs used
● Goal → maximize Q given a budget constraint
● Production functions describes the use of production technology:
○ How can healthcare inputs be combined to produce a certain output?
○ How easily can one production factor be substituted for others?
