Health Economics

Question 1

What does health economics concern?

Answer 1

Health economics is the application of the following financial principles:
- resources are finite/scarce
- wants/needs are potentially infinite
- choices need to be made, as there aren’t enough resources to do everything
- costs and benefits of alternative patterns of resource allocation
to health care issues.

Question 2

What are economic resources?

Answer 2

Economic resources are anything that can be used to produce material goods and services that benefit individuals and society. This includes:
- labour (human resources)
- capital (equipment, buildings)
- natural resources (land, water)

Question 3

What does scarcity imply?

Answer 3

Scarcity implies that by allocating resources to one area, fewer resources can be devoted elsewhere.

Question 4

What is the opportunity cost?

Answer 4

The opportunity cost is the value of the benefit forgone because, by spending the resource in one way, the next best
alternative can no longer be provided.

Question 5

Who pays opportunity cost?

Answer 5

The person who does not receive treatment.

Question 6

Describe economic efficiency.

Answer 6

Economic efficiency involves maximizing benefits for resources used.

Question 7

Describe technical efficiency.

Answer 7

Technical efficiency involves meeting a given objective at minimum cost (resources) i.e. minimizing inputs of e.g. labour and capital.

Question 8

Describe allocative efficiency.

Answer 8

Allocative efficiency involves producing the pattern of output (supply) that matches the pattern of consumer want (demand) (i.e. maximising net benefit to society) given the available budget e.g. what to produce.

Question 9

What is the fundamental economic problem?

Answer 9

As economics is concerned with the choice between competing alternatives and is based on the axiom of scarcity - resources limited relative to wants, - the fundamental problem is the allocation of scarce resources.

Question 10

What are other terms for resource allocation?

Answer 10

Rationing and priority setting are other terms for resource allocation.

Question 11

Why must economists make choices?

Answer 11

Demand almost always exceeds supply, therefore, resources are scarce, and economists have to make choices: do we use our scarce resources in this way or that way?

Question 12

What needs to be considered in order to make choices?

Answer 12

To make choices economists need to weigh up benefits and opportunity costs. Every choice involves a sacrifice - as we cannot use the same resources for something else while it is already in use. The benefits we forgo are effectively the costs (value) of the benefits we enjoy.

Question 13

What do economists want to maximize and minimize?

Answer 13

Economists want to maximize benefits and minimize opportunity costs.

Question 14

What is implicit rationing?

Answer 14

Implicit rationing means care is limited, but neither the decisions, nor the bases for those decisions are clearly expressed.

Question 15

What is explicit rationing?

Answer 15

Explicit rationing means care is limited, but the decisions are clear, as is the reasoning behind those decisions.

Question 16

What type of rationing is best?

Answer 16

Explicit rationing is best because if assumptions and methods are clear and transparent, they can be examined and challenged. This will lead to better and fairer decisions.

Question 17

What can economic methods be used to decide?

Answer 17

Economic methods can be used to decide what to provide (which treatments), how to provide it (GP/nurse, surgery/drug), and who for (age groups, inequalities).

Question 18

What is economic evaluation?

Answer 18

The comparative analysis of alternative courses of action in terms of both their costs (monetary units and uni-dimensional scale) and consequences.

Question 19

What are the types of economic analysis?

Answer 19

• cost-minimisation analysis
• cost-effectiveness analysis
• cost-utility analysis
• cost-benefit analysis

Question 20

What are the features of an economic evaluation?

Answer 20

• compares any health care programme with an alternative; for example, no treatment or routine care
• measures the benefits produced by all alternatives compared
• measures the cost (resources required) to provide each of the alternatives compared
• results include both benefits and costs, each as a combined measure

Question 21

What does a cost-benefit analysis compare?

Answer 21

A cost-benefit analysis compares the monetary value of the benefit to the cost.

Question 22

What does a cost-effectiveness analysis determine?

Answer 22

A cost-effectiveness analysis determines which option achieves the desired outcome(e.g. reducing blood pressure) most efficiently.

Question 23

What does a cost-minimization analysis determine?

Answer 23

A cost-minimization analysis determines which option has the lowest cost, assuming both options are equally effective.

Question 24

What does a cost-utility analysis determine?

Answer 24

A cost-utility analysis determines which option is the most efficient way to achieve increased health utility / quality-adjusted life-years.

Question 25

What makes quality-adjusted life-years useful?

Answer 25

Quality-adjusted life-years are multi-dimensional, allowing them to capture different aspects of health, enabling comparison between different outcomes and treatments. They also combine quality and length of life into a single outcome measure.