Health Economics- Lecture Ch05

8/3/2019 Health Economics- Lecture Ch05

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The Production of Health

Dr. Katherine Sauer

Metropolitan State College of Denver

Health Economics


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Outline

I. Health Production Function

II. Historical Role of Medicine and Health CareIII. Production of Health in the Modern Day


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I. Health Production Function

The role of health care in society is ultimately a

production question.

How does health care contribute to the health

status of the population?

health status = f(health care, lifestyle, environment,)

- many ways to measure health status

ex: # disability daysmortality rates / morbidity rates

# healthy days in the population per capita

life expectancy


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Morbidity is a state of less than perfect health.

It can also refer to the degree/severity of a health

condition. (disability)

prevalence = total # cases in the entire population

incidence = # new cases

The morbidity rate refers to either the incidence rate or

prevalence rate.


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The production function for health:

HS

HS

0.96

0.95

0.92

0.85

0.75

Health Care Inputs

0 1 2 3 4

Health Care Inputs

0 1 2 3 4

MP

0.10

0.07

0.030.02

MP


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Two Main Points:

1. The total contribution of health care is substantial whilethe marginal contributions may be small.

- on the flat of the curve

The margin is often of interest to policy makers.- Many government programs encourage health

care use (especially certain populations).

- What effect would an increase (or decrease) of $1billion in health spending have?


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2. Too much health care can reduce health status.

a. iatrogenic disease (provider caused)

- an inevitable by-product of many medical

interventions

ex: surgery has riskdrug interactions/reactions

b. medicalization takes away the ability to face natural

hardships

- leads to less personal effort to preserve health


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II. Historical Role of Medicine and Health Care

Many medical historians agree that practitioner-provided

medical interventions played only a small role in the

historical decline in population mortality rates.

A larger role might be attributed to

- public health measures

- spread of knowledge of the sources of disease.

Many researchers attribute the largest share of the

improvement to increased supply of foods available due

to the agricultural and industrial revolutions.


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World Population

from 10,000BC


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Thomas McKeowns The Modern Rise of Population

1976


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Did Medicine Cause the Decline in Mortality Rates?

Death rates per

thousand in the

U.S. for four

infectious diseases

show that declines

begin well before

the availability of

medical

interventions.


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Two of the most respected students of the mortalitydecline, medical historian Thomas McKeown (1976) and

economic historian Robert Fogel (2004), argued strongly

that the main cause was improved nutrition.

Public health advocates claim major mortality declines

did not start until around 1870, and if they began this late,

then public health, which began about 1850, would have

been the cause.


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Lessons learned from medical history?

We cannot conclude that medical research is unimportant

in history or in the present day.

The argument regarding the role of medicine in the

decline of mortality is a historical one, today, the

arguments are be different.


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Hold a healthy skepticism toward the

- effectiveness of any given medical practice

- significance and benefit to the population

Historical puzzles have relevance to the progress andpublic investment practices of developing nations.


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III. Production of Health in the Modern Day

When measuring health status:

- need to capture the aspect of health status that is

meaningful

- need to measure with adequate precision

It is often very difficult to do both at once!


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There is a bias in health status estimates.

- statistical estimates are based on data for some

health care inputs in the population, not on the

amounts of all inputs actually used

(estimation of reduced form equations rather than

structural equations)


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The elasticity of health with respect to spending on

health care inputs is a common way for estimating the

contribution of health care to health.

dingHealthSpen

Health

(

(!

%

%I


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Suppose the elasticity of health is 0.10, the average life

expectancy is 76 years, and the government is currently

spending $1trillion on health per year. If the governmentallocated an additional $100billion to health spending,

what would be the gain to health status?

%health = ?%spending = 1,100billion 1,000billion x 100

1,000 billion

= 10%

= 0.10


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0.10 = %health

10%

1% = %health

So, spending 10% more would increase health by 1%.

(76)(0.01) = 0.76

Average life expectancy would increase by 0.76 years.

[In order for the increase in life expectancy to be

permanent, the $100billion increase would need to be

permanent as well.]


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Health care affects subpopulations differently.

health care production elasticities for Medicare population:

White Males 65+ 0.123

White Females 65+ 0.141

Black Males 65+ 0.163

Black Females 65+ 0.173

reduction in neonate mortality rates, contribution from WIC

(reduction per 1,000 live births)

Whites 0.425

Blacks 1.330


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Other factors that influence health:

-pharmaceuticals (higher pharma consumption linked to

greater life expectancy)- magnitude is on a par with the effects of reduced

cigarette consumption and increases of fruit and

vegetables in the diet


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- lifestyle and environment

Victor Fuchs studied the

death rates in two states

similar in many ways

except lifestyle andenvironment, Nevada and

Utah.

The table shows the excessdeath rate in Nevada

compared to Utah.


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Recent research studies both

- the determinants of lifestyle behaviors

- the determinants of health status

A good nights sleep, avoiding smoking, and regular

exercise each contribute importantly to self-reported

health.

- family (one theory: if parents individually makedecisions about childs health care, and if decisions are

made in response to the expected decisions of others, not

optimal)


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- social capital (mixed findings, most support the

hypothesis that social capital improvements lead to health

improvements.)

- environment (pollution effects are sizable and

significant)

- income (very complex ---- good health when forming a

career can increase income later in life, being rich doesnt

mean wise health behavior, etc)

- education (measured by years of schooling is

positively correlated with population health)

- two theories


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Grossman: A better educated person is a more efficient

producer of health status.

- understand technology and have the know howto stay healthy

- use medical and other market inputs and their

own time to stay healthy

Fuchs: (PV) The decision to invest in health care is

similar to the decision to invest in education.

- current costs with a future payout

- people with longer time horizons tend to makeinvestments in both education and health

(correlated)


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Summary:

The health production function exhibits the law of

diminishing marginal returns.

While the total contribution of health care is substantial,

the marginal product is often small.

Historically the contributions of health care, at least as

provided by the health practitioner, were probably smalluntil well into the twentieth century.


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The small, modern-day marginal product of health care isstatistically significant.

Health care benefits people differentially.

Certain categories of health care have greater marginal

effects on the population than others.

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Health Economics- Lecture Ch05