What is Health Economics?

Introduction to Health Economics and Policy

• Key Topics:

  • Definition of health economics

  • Limitations: more healthcare-oriented, lacks grounding in health equity

  • Uniqueness of the US health system

What is Economics?

• Definition: The social science of production, distribution, and consumption of goods and services tied to decision-making in scarcity.

• Major Fields:

  • Macroeconomics: Aggregate decision-making and economic performance.

  • Microeconomics: Individual and household decisions and resource allocations.

What is Health Economics?

• A dynamic field analyzing health decisions.

• Encompasses:

  • Goods: Pharmaceuticals, medical devices, PPE, etc.

  • Services: Healthcare services from primary care to mental health.

  • Public health: Housing, education, legal services.

Limitations of the Field

• Focused on healthcare over public health issues.

• Requires understanding of health equity.

Limitations of Health Economics

• Primarily healthcare-focused, limiting public health perspective.

• Main areas:

  • Healthcare delivery

  • Health insurance

  • Clinical care models

  • Healthcare technologies

Further Limitations

• Insufficient focus on health equity and structural determinants.

• Often emphasizes individual behavior over systematic issues.

• Examples of flawed individual focus: obesity, addiction, smoking.

Capitalist Assumptions in Health Economics

• Generally operates under pro-capitalistic assumptions.

• US healthcare is capitalistic, affecting access and outcomes.

Key Definitions in Economics

• Capitalism: Economic system guided by private ownership and free markets.

Capitalism from the IMF Perspective

• Characterized by private ownership and the profit motive.

Adam Smith on Capitalism

• Known as the "Father of modern economics."

• Highlighted self-interest as a driver of economic activity.

Invisible Hand Concept

• Market guided by rational self-interest leads to optimal societal outcomes.

Free Market Capitalism

• Supply and demand run markets, with limited government intervention.

• Intervention needed when markets fail.

A Perfect Market

• Describes ideal conditions in free-market economics.

Characteristics of a Perfect Market

• Achieves optimal outcomes based on Adam Smith's principles:

  • Information transparency

  • Sufficient market participants

  • Perfect competition with substitutes

  • No market failures

Challenges to Perfect Market Characteristics

• Consumers struggle with informed decisions in healthcare.

Market Participants in Healthcare

• Limited service providers complicate market entries.

Competition Barriers in Healthcare

• Regulations hinder new healthcare providers from entering freely.

Substitute Availability

• Varies between healthcare services based on market conditions.

Market Failures

• Definition: Government intervention needed when markets fail.

Government Intervention

• Essential when markets fail to achieve intended results.

Review of Perfect Market Characteristics

• Recap of characteristics ensuring equitable outcomes.

Types of Market Failures

• Monopoly: One entity dominates production.

• Public Goods: Socially beneficial goods/services not produced by markets.

• Externalities: Costs not accounted for in production (e.g., pollution).

Role of Government in Market Failures

• Must influence markets when they fail.

Examples of Government Intervention

• Providing competition and public options in healthcare (e.g., ACA).

Providing Public Goods

• Governments fund social goods/services to fill gaps.

Externality Corrections

• Taxing and subsidizing activities related to externalities.

Policy Levers for Market Failures

• Various government interventions to address market inefficiencies.

Economic Theories: Keynes vs. Friedman

• Diverging views on government intervention in the economy.

Economic Theories Overview

• Two extremes of intervention:

  • More intervention (Keynes, Marx)

  • Less intervention (Friedman, Smith)

Adam Smith's Perspective

• Advocated minimal government intervention in markets.

Karl Marx's Perspective

• Argued for total government involvement as a critique of capitalism.

Keynes's Perspective

• Supported government spending during economic downturns.

Friedman's Perspective

• Advocated for deregulation and minimal government intervention.

Economic Thoughts Spectrum

• Spectrum of beliefs about intervention within various economic theories.