E&F - lecture 1

Question 1

Relevance of health economics

Answer 1

• The economic organization of healthcare systems has a significant impact on the efficiency and equity of healthcare allocation
• Health care is a large and expanding sector of national economies
• Health care is not a regular (economic) commodity; it is widely considered a right, not a privilege
• Specific features of health care can easily result in market failure as well as in government failure

Question 2

the expansion of the healthcare sector is likely to continue because of the following reasons

Answer 2

• Ageing of populations
• Advancing medical science & technology; cost-effectiveness
• Shift towards chronic diseases; people don’t die so fast anymore
• Increasing welfare; increasing welfare  more demand
• Expanding health insurance coverage; if people are insured, they are more likely to take risks because there is a less financial incentive  moral hazard
• Flawed (financial) incentives
• Baumol’s “cost disease”

Question 3

is healthcare spending growth sustainable?

Answer 3

increasing health spending may significantly harm the economy; taxes and/or premiums will rise, labor costs will rise and coympetitveness will decrease.

increasing public health spending may crowd out other public services

financial sustainability: how to pay for spending growth?
example: higher cross-subsidies to guarantee universal access

Question 4

Universal health coverage (WHO definition): is healthcare a right or privilege?

Answer 4

Ensuring that all people can use the promotive, preventive, curative, rehabilitative and palliative services they need, of sufficient quality to be effective, while ensuring that the use of these services does not expose the user to financial hardship.
* Universal coverage is firmly based on the WHO-constitution of 1948 declaring health a fundamental human right and the right to health care is embodies in many countries’ constitutions

Question 5

universal coverage; three dimensions

Answer 5

1. population; who is covered?
2. services; which services are covered
3. financial protection; what do people have to pay out-of-pocket

Question 6

Distinctive features of health care

Answer 6

• Presence and extent of uncertainty = consumers are uncertain about their health
• Problems of information = asymmetry
• Presence of insurance/ risk-bearing third parties
• Large role of nonprofit firms
• Restrictions on competition
• Importance of equity and solidarity
• Government subsidies and provision
• Ethical concerns (should smoker pay a higher premium?)

Question 7

Sources of market failure in health care

Answer 7

Market failure: individuals’ pursuit of self-interest leads to outcomes that can be improved upon from a societal point-of-view
* Uncertainty
* Risk-bearing third parties
o Moral hazard
* Asymmetric information
o Agency problems
* Externalities

Question 8

Sources of government failure:

Answer 8

• Information problems
• Coordination problems
• Motivation problems
• Special interests’ groups