1 Health Economics

Health

is the condition of being sound in body, mind or spirit, the presence of freedom from physical disease or pain. - Merriam-Webster’s Dictionary

Health

is the soundness of body and mind; that condition in which its functions are duly and efficiently discharged. - Oxford English Dictionary

Health

is a state of physical, mental and social wellbeing and not merely the absence of disease or infirmity that leads to a socially and economically productive life. - World Health Organization (WHO)

Overall Health

is achieved through the combination of physical, mental and social well-being.

Health

must be seen as a process of continuous adjustments to the changing demands of living and meanings we give to life.

Physical Health
Mental Health
Social Health

Aspects of Health

Physical Health

Means the overall condition of an individual inside and outside the physical body

Mental Health

Pertains to an individual’s emotional and psychological wellbeing.

Emotional wellbeing

the capacity to live a full and creative life and the flexibility to deal with life’s inevitable challenges

Social Health

Is defined in terms of a person’s ability to socially adjust to his environment and perform normal roles in the society.

Social Health

has become relevant in determining a person’s overall wellbeing

Health Economics

is about the optimization of health relative to other activities and making choices to employ resources in a way that improves health status and service delivery within the limited resources available. - Guinness and Wiseman, 2011

What to produce?
How to produce?
How much to produce?
For whom to produce?

Economic Problems in the Health Sector

In health economics, same scarce resources are used in the production of health care goods and services. Because business and health economics are both concerned with the utilization of scarce resources for production, it is necessary for society to develop an economic system that will respond to the needs of its members. There are four fundamental functions of the economic system:

What to produce?

The economic society must determine consumers’ demands

How to produce?

The problem of choosing how to produce certain good or service arises because there are technically many ways by which goods can be produced

how much to produce?

The determination of how much of a particular product should be produced depends substantially on how much people demands.

For whom to produce?

Though society has made its choices with regard to the previous economic questions, it has to consider for whom the society shall produce

Market Economy
Command Economy
Socialist Economy

What are the Economic Systems?

Market Economy

Principal features of this economic system are private property ownership, existence of pricing process, presence of competition, and profit motive.

Command Economy

The government owns most of property resources and major factors of production. The government, not private business, directly conducts, regulates and controls the economic activity through its central economic planning authority.

Socialist Economy

The government advocates the abandonment of profit motive as an incentive to production and substitutes it with production for use.

Scarcity
Choices and Opportunity Cost
The Margin
Efficiency
Equity

What are the Building Blocks of Economics

Scarcity

Resources are scarce such that the resources available now or for any foreseeable time are insufficient to meet all human wants.

Choices and Opportunity Cost

Since we cannot have all we want, then __________ must be made. In making the best choice, we must consider the ______________.

Our income is finite.
Our income is insufficient.

Two basic reasons why we have to make choices.

Opportunity Cost

= also known as the economic cost
is the satisfaction or benefit forgone in not being able to use the resources involved to obtain some other good which is also desirable and provides satisfaction.

The Margin

is about getting the most value out of the resources used and in practical terms entails measuring the costs and benefits of expanding or contracting an activity, program or service.

Efficiency

is a general term used to describe the relationship between inputs and outputs, which in turn can be valued respectively in terms of costs and benefits. It is concerned with maximizing benefits with the resources available or minimizing costs for a given level of benefit.

Equity

is another important concern of economists as well as of health services. It is about the distribution of benefits as opposed to their maximization (as in efficiency).

Technical Efficiency
Economic Efficiency
Allocative Efficiency
Pareto Efficiency

In health care, benefits may be interpreted as health gains, although health services produce a range of benefits including less tangible things like information and reassurance. A short list summarizing a number of type of efficiency is as follows:

Technical Efficiency

where a given output is produced with the least inputs (i.e. minimizing wastage). Also known as operational efficiency.

Economic Efficiency

where a given output is produced at least cost. Also known as productive efficiency.

Allocative Efficiency

where the pattern of output matches the pattern of demand.

Pareto Efficiency

the point at which no one can gain without someone else is being made worse off.

Happiness Index

a comprehensive survey instrument that assesses happiness, well-being, and aspects of sustainability and resilience.

Better Life Index

an interactive tool that lets you measure and compare the state of well-being in different nations based on eleven key areas that are crucial to a high quality of life.

Physical Quality of Life Index

the measure of the quality of life or well-being of a country. The value is the average of three statistics: basic literacy rate, infant mortality, and life expectancy at age one.

Quality of Life Index

are created to measure and assess various aspects of human well-being within a certain geographic area, such as a city, region, or country. These indices typically include factors like healthcare, education, income, environment, safety, infrastructure, and social services.

Human Development Index

was introduced in the early 1990s by Mahbub ul Haq, Amartya Sen, and the UNDP. It aimed to provide a holistic measure of development beyond GDP, incorporating health, education, and living standards. This initiative addressed the limitations of traditional economic measures, focusing on capabilities and freedoms. Initially comprising three components—life expectancy, education, and standard of living—the HDI assigns values between 0 and 1 to each component and combines them to generate an overall score. It has evolved over time with refinements and additional indicators, becoming a widely used tool in global development assessment through the annual Human Development Report, aiding policymakers, researchers, and development practitioners in tracking progress and comparing development levels across countries.