Health Economics

Health Econ Basics - Money Matters Medically

• Health Economics: Application of economic principles (scarcity, choice, efficiency) to health and healthcare.
• Key Concepts:
  • Scarcity: Limited resources vs. unlimited health needs/wants, forcing choices.
  • Opportunity Cost: Value of the next best alternative forgone. E.g., MRI funds vs. primary care services.
  • Efficiency:
    • Allocative: Producing services society values most. ('Doing the right things').
    • Technical/Productive: Producing services with least resources. ('Doing things right').
  • Equity: Fair distribution of health and healthcare.
    • Horizontal: Equal treatment for individuals with equal needs.
    • Vertical: Appropriately unequal treatment for individuals with different needs.

⭐ Opportunity cost is fundamental: every healthcare decision involves a trade-off.

Healthcare Markets - Peculiar Patient Puzzles

• Healthcare markets differ significantly from standard economic markets.
• Information Asymmetry: Patients possess less knowledge than providers, creating a principal-agent relationship. This can lead to inefficient choices.
• Externalities:
  • Positive: Vaccination benefits community beyond the individual.
  • Negative: Antibiotic overuse contributes to resistance, affecting all.
• Supplier-Induced Demand (SID): Providers may influence patient demand for services, potentially driven by financial incentives. 📌 Roemer's Law: "A built bed is a filled bed."

  ⭐ Information asymmetry is a key driver of supplier-induced demand.

• Uncertainty: Regarding illness onset, treatment needs, and outcomes.
• Third-Party Payers: Insurance companies and government dominate, affecting price sensitivity.
• Demand: Often urgent, irregular, and price inelastic.
• Supply: Restricted entry (licensing), specialized inputs, geographical disparities.

Economic Evaluation - Value Vision Verdicts

Economic evaluation systematically compares costs and consequences of ≥2 health interventions to assess efficiency and value.

• Types of Evaluation:

  • Cost-Minimization Analysis (CMA): Outcomes proven equivalent; select least costly option.
  • Cost-Effectiveness Analysis (CEA): Outcomes in natural/clinical units (e.g., life-years gained, BP reduction). Uses Incremental Cost-Effectiveness Ratio (ICER): $ICER = (Cost_A - Cost_B) / (Effect_A - Effect_B)$.
  • Cost-Utility Analysis (CUA): A subtype of CEA; outcomes measured in utility-based units like QALYs or DALYs. Uses ICER: $ICER = (Cost_A - Cost_B) / (QALY_A - QALY_B)$.
  • Cost-Benefit Analysis (CBA): Both costs and benefits valued in monetary terms. Results as Benefit-Cost Ratio (BCR) or Net Benefit.

• Key Metrics:

  • QALY (Quality-Adjusted Life Year): Measures disease burden, incorporating quality and quantity of life. 1 QALY = 1 year in perfect health. Calculated as: Years of Life × Utility Score (0=death, 1=perfect health).
  • DALY (Disability-Adjusted Life Year): Measures overall disease burden; sum of Years of Life Lost (YLL) due to premature mortality and Years Lived with Disability (YLD).

⭐ CEA is the most frequently utilized method for economic evaluation in healthcare resource allocation decisions globally and in India.

Health Financing India - Rupee Routes & Risk Pools

• Rupee Sources (NHA 2019-20):
  • Govt. Health Expenditure (GHE): 40.6% of Total Health Expenditure (THE); 1.35% of GDP.
  • Out-of-Pocket (OOP): 47.0% of THE (major share).
  • Private Health Insurance: 6.6% of THE.
  • External Aid/NGOs.
• Risk Pooling: Spreads financial risk of illness across groups.
  • Mechanisms: Taxation (Govt. funding), Social Health Insurance (e.g., ESIS, CGHS), Private Health Insurance, Community-Based Health Insurance.
• Flagship Scheme - Ayushman Bharat PM-JAY:
  • Covers ~12 crore vulnerable families.
  • ₹5 lakh/family/year for secondary & tertiary care hospitalisation.
  • Cashless & portable across India.

⭐ National Health Policy 2017 aims to ↑ public health expenditure to 2.5% of GDP by 2025 from the current ~1.35%.

High‑Yield Points - ⚡ Biggest Takeaways

• Master economic evaluations: CEA, CUA (uses QALYs), CBA for resource allocation.
• Opportunity cost: Value of the next best alternative foregone in decision-making.
• QALYs & DALYs: Key metrics for measuring health outcomes and disease burden.
• Willingness-To-Pay (WTP) is crucial in CBA for valuing health program benefits.
• Identify direct, indirect, & intangible costs of illness and healthcare interventions.
• Moral hazard & adverse selection: Primary challenges in health insurance markets.
• National Health Accounts (NHA) track a nation's health expenditure sources and uses.