ECONOMICS OF HEALTH AND
HEALTH CARE – HEPL 2023-2024
Full summary of lectures, QA questions and workgroups
,EHHC MODULE 1 – PRODUCTION OF
HEALTH
LITERATURE
Folland, Goodman and Stano, chapter 5, The Production of Health, pages 137-158
Bhattacharya, Hyde and Tu, sections 4.1, 4.3-4.9. Note: the parts relating to the Grossman model may be
skipped.
LECTURES
POPULATION HEALTH
We can measure health in:
- Length of life
o Life expectancy
o Survival
o Mortaility
- Quality of life
o Health or well-being score,
o Morbidity
- Combinations: healthy life expectancy, disability-adjusted life expectancy
There are three facts in health, which form the three puzzles of healthcare
1. Health changes over time
2. Health differs between countries
3. Healfh differs within countries
Summary:
- Health is not a given, but produced
- Health care is important as a production factor for health
- There are also other determinants
- Determinants interact: effectiveness of one input depends on other
- Graphical analysis helps to better understand the impact of variation, between persons/countries and
over time
ECONOMICS IN POPULATION HEALTH – NOT EXAM MATERIAL BUT BACKGROUND
In economics we assume
- That we all have goals and need resources to achieve these goals,
- Desires are infinite
- But resources are scarce
Therefore we need to decide which resources are used to achieve the two goals
,Economic models are a simplified version of (some part of) the world that contain assumptions, and some
aspects are omitted to highlight others. Models used in this course contain a few core elements: A decision
maker (or many), a set of resources and a set of alternative allocations: the choice problem.
People make optimal decisions, on the assumption that:
- There are set preferences: utility function
- Choice rules: utility maximization
- Full information
Careful modeling means understanding the core elements, explicit assumptions and their consequences.
Models are still a simplified version of the world, therefore assumptions may be realistic or not, and the model
might also be wrong, but still prove useful for insight.
In economics we also assume ceteris paribus, which is: holding everything else constant. It is a simplifying
assumption.
Economics are used to study population health because:
- Health is an important component of welfare
- Health determines economic potential
- Production of health is a resource allocation problem
- Health is determined by behavior that economics seek to understand.
DETERMINANTS OF HEALTH
In health we ask ourselves, why does not everyone achieve full health, and why is there no standard recipe for
maximizing health?
First we have to think about the determinants of health.
- How can we stay healthy? How to finance it?
- How to improve one’s health by spending 1000 euro? Or 10000 euro?
- And how to spend time?
The health production function is a graphical representation that describes the relationship or flows of inputs
and flows of output over a specified period. Here we assume
1. Health (h) is not given, but produced
2. Production is at the level of an individual i:hi
3. Health is produced using a number of factors,
we can influence some of these factors and
medical care (m) is one of these: hi = f(m,
other factors)
4. Utility maximization under constraints and
utility is a function of health, -> produce
health as efficiency as possible
We further see that there are diminishing marginal returns to
health care, as the health gain at m4 is less than at m2.
Health production may also differ due to other factors, and provide a different health production function
, Examples of production function and how it changes under certain conditions
In the case of a patient with a heart attack (acute mycordial infarction), treatment in the Netherlands has
changed in both ways:
1. More effective, less invasive treatment (Cram et al. 2022)
Increased marginal benefit: larger impact of one unit of M on H
Possibly at all levels of M
Production function shifts out
Higher level of H attainable at any level of M
2. More widespread use of highly effective medication after discharge (Mackenbach et al. 2011)
Health production function remains the same
Shift towards a higher level of M: M2 -> M4, which provides a higher level of H
With more treatment, we can also see differences in effectiveness depending on the person
With 2 persons, A and B, where A’s production function is steeper than B’s
A will achieve a higher level of H than B
HEALTH CARE – HEPL 2023-2024
Full summary of lectures, QA questions and workgroups
,EHHC MODULE 1 – PRODUCTION OF
HEALTH
LITERATURE
Folland, Goodman and Stano, chapter 5, The Production of Health, pages 137-158
Bhattacharya, Hyde and Tu, sections 4.1, 4.3-4.9. Note: the parts relating to the Grossman model may be
skipped.
LECTURES
POPULATION HEALTH
We can measure health in:
- Length of life
o Life expectancy
o Survival
o Mortaility
- Quality of life
o Health or well-being score,
o Morbidity
- Combinations: healthy life expectancy, disability-adjusted life expectancy
There are three facts in health, which form the three puzzles of healthcare
1. Health changes over time
2. Health differs between countries
3. Healfh differs within countries
Summary:
- Health is not a given, but produced
- Health care is important as a production factor for health
- There are also other determinants
- Determinants interact: effectiveness of one input depends on other
- Graphical analysis helps to better understand the impact of variation, between persons/countries and
over time
ECONOMICS IN POPULATION HEALTH – NOT EXAM MATERIAL BUT BACKGROUND
In economics we assume
- That we all have goals and need resources to achieve these goals,
- Desires are infinite
- But resources are scarce
Therefore we need to decide which resources are used to achieve the two goals
,Economic models are a simplified version of (some part of) the world that contain assumptions, and some
aspects are omitted to highlight others. Models used in this course contain a few core elements: A decision
maker (or many), a set of resources and a set of alternative allocations: the choice problem.
People make optimal decisions, on the assumption that:
- There are set preferences: utility function
- Choice rules: utility maximization
- Full information
Careful modeling means understanding the core elements, explicit assumptions and their consequences.
Models are still a simplified version of the world, therefore assumptions may be realistic or not, and the model
might also be wrong, but still prove useful for insight.
In economics we also assume ceteris paribus, which is: holding everything else constant. It is a simplifying
assumption.
Economics are used to study population health because:
- Health is an important component of welfare
- Health determines economic potential
- Production of health is a resource allocation problem
- Health is determined by behavior that economics seek to understand.
DETERMINANTS OF HEALTH
In health we ask ourselves, why does not everyone achieve full health, and why is there no standard recipe for
maximizing health?
First we have to think about the determinants of health.
- How can we stay healthy? How to finance it?
- How to improve one’s health by spending 1000 euro? Or 10000 euro?
- And how to spend time?
The health production function is a graphical representation that describes the relationship or flows of inputs
and flows of output over a specified period. Here we assume
1. Health (h) is not given, but produced
2. Production is at the level of an individual i:hi
3. Health is produced using a number of factors,
we can influence some of these factors and
medical care (m) is one of these: hi = f(m,
other factors)
4. Utility maximization under constraints and
utility is a function of health, -> produce
health as efficiency as possible
We further see that there are diminishing marginal returns to
health care, as the health gain at m4 is less than at m2.
Health production may also differ due to other factors, and provide a different health production function
, Examples of production function and how it changes under certain conditions
In the case of a patient with a heart attack (acute mycordial infarction), treatment in the Netherlands has
changed in both ways:
1. More effective, less invasive treatment (Cram et al. 2022)
Increased marginal benefit: larger impact of one unit of M on H
Possibly at all levels of M
Production function shifts out
Higher level of H attainable at any level of M
2. More widespread use of highly effective medication after discharge (Mackenbach et al. 2011)
Health production function remains the same
Shift towards a higher level of M: M2 -> M4, which provides a higher level of H
With more treatment, we can also see differences in effectiveness depending on the person
With 2 persons, A and B, where A’s production function is steeper than B’s
A will achieve a higher level of H than B
