Objectives

To be able to:
Discuss the definition and basic concepts
of economics including the assumptions
that lie behind economics
Describe the scope of health economics
Analyze the economic characteristic of
the health industry, and
Describe various ways of financing the
health system
Definition of Economics ( Samuelson)
the study of how people and society
end up choosing, with or without the use of
money, to employ scarce productive
resources that could have alternative uses
to produce various commodities and
distribute them for consumption, now and in
the future, among persons and groups in
society.
The key words and phrases in this
definition are:
with or without the use of money
scarce productive resources
alternative uses:opportunity costs
Scarcity
resources( land, labor, capital) are
limited
Choices must be made as to what
health care should be provided, how it
should be provided, in what quantities
and how it might be distributed
Concept of opportunity costs
The value of foregone benefit which
could have been obtained from a resource in
its next-best alternative use
Opportunity costs
By choosing to use resources in one
particular way, other opportunities for
using those resources are foregone
From a limited budget, the most
efficient mix of services to fund will be
that which generates the greatest
aggregate benefit

The aim of economics is to ensure that

we do those activities whose benefits
outweigh their opportunity cost
To choose the options (within our
given set of resources) that will
minimize opportunity forgone

Assumptions:
man is rational he wants to
maximize his benefits in making
choices or decisions
mans wants are insatiable but
resources are limited to satisfy all
these wants

Overview of Health Economics

Nature of the Commodity Health
Care
Economic Characteristics / Dimensions
of the Health Industry
Various Ways of Financing the Health
System

Nature of the Commodity Health Care

Concepts:
1. Health care is a commodity
commodities include anything which
there is a demand for products,
services and ideas
health care is a commodity you
purchase or avail of when you need it

2 reasons for the demand of health care

by consumers
1) it is a consumption commodity it
makes the consumer feel better
2) it is an investment commodity a state
of health will determine the amount of time
available to the consumer
2. The kinds, types and amount of health
care a person needs is not known to him and
the physician determines these for the
patient.
3. The benefits of health care and being
healthy are not limited to the individual
patient himself but also include his family
and community as well.
Economic Characteristics / Dimensions
of the Health Industry

I.
Influence
of
economics
on
the
PRODUCTION subsystem
- Production subsystem providers
or producers of health services, i.e.,
physicians, hospitals, clinics, laboratories,
etc.

increase the wages and salaries of personnel

accordingly
2. There is proliferation of over-the-counter
drugs. Many people self-medicate to save on
doctors fees.
III. Influence of economics on the ADAPTIVE
subsystem

1. The supply and demand for the health

providers is affected by prices and income,
as well as the type of health service.
1.1.based on surveys, it is often found
that families with higher incomes have
greater expenditures for medical care,
although the % of income spent on medical
care declines as income increases
1.2.the price of a service and the use
of that service are, according to economic
theory, inversely related: as the price is
reduced, purchase or use of the service will
increase
1.3. the more sophisticated the health
service, the more expensive
2. The supply of providers is also affected by
income and prices:
- cost of education and training of
health manpower and the prices or cost of
producing the health services such as the
cost of equipment, supplies and all other
materials
- the income that can be derived in the
operation of the services including the wages
and salaries of health manpower
3. The supply of health services and health
providers is affected by the level of
economic development of the country.

II.
Influence
of
economics
on
the
MAINTENANCE subsystem
Maintenance
subsystem

(health
organizations, health finance organizations,
professional education) concern with
mechanisms to maintain the health services
delivery such as rules and regulations to
maintain standards.
1. The health sector is a very labor-intensive
industry.
e.g. when the price of labor or wages and
salaries go up, many hospitals are affected
adversely because they are not able to

Adaptive component how the

health
system
adapts
to
changing
environment;
activities
include
health
services and biomedical researches.
a. education and training for research is
quite expensive
b. lack of trained personnel to do research
IV. Influence of economics on MANAGERIAL
subsystem

This
subsystem
is
concerned
with
organization and financing of health care
delivery, which in turn is influenced by the
economic development of the country and
the political outlook of the government
Various Ways of Financing the Health
System:
1. out-of-pocket expenditures
2. health insurance both government and
private
3. employer-provided benefits
4. community financing
5.
government taxation and foreign
financing

Out-of-pocket expenditures
households/consumers pay for health care
services out of their own money, either on a
fee-for-service or on a per case basis
Philippines: of all health care expenditures
are paid out-of-pocket

Health Insurance
a method of payment wherein consumers or
prospective patients pay to a third party in
the form of a premium which in the event of
illness are used to pay the health care
providers for some or all of the expenses
incurred in diagnosis and treatment of the
patients

a. government provided PHILHEALTH

- the government pays for the health

care expenditures of its citizens with the
premium paid by the people
- for employed citizens, the premium
paid is a sharing between the individual
and his employer; for self-employed, the
individual solely pays for the premium.
b.
Private
Health
Maintenance
Organizations (HMOs) e.g. Medicard,
Valu care, Philamcare, etc.

Employer-Provided Benefits
the firms either employ a physician and/or a
nurse or maintains a health provider on the
retainer basis; or they enroll their employees
with an HMO or provide health insurance
benefits for them.

Community Financing
a term used for risk sharing in health care
financing including such activities as people
donating labor or materials to construct a
health center and contributions to a common
pool in exchange for discounted medical
services or drugs
usually, funds are provided for a community
health
worker,
and
depending
on
membership and amount of contribution,
funds could be made available for sickness
loans

the community itself provides for the health

needs of its members either through a BHS
with a BHW and/or a botika-sa-barangay
which sell drugs at a discounted price
Government
Financing

Taxation

and

Foreign

a. Taxation
- through taxes collected, the
government could provide health care
services through the following:
(1) by putting up hospitals and
clinics and employing health personnel on a
salary basis and providing free drugs
(2) by employing the services of a
private health care provider on a capita or
per head basis
b. Foreign financing
- usually done for preventive health
care services by international organizations,
i.e., WHO, UNICEF (United Nations Childrens
Fund)
- it is the government which seeks the
assistance of these agencies through the
submission of proposals which the latter
consider
--------------------------end
of
lecture-------------------------------------

I have told you these things, so that

in me you may have peace. In this
world you will have trouble. But take
heart! I have overcome the world.
-John 16:33, NIV