Zarmina Khan

Health economics deals with the methodical and rigorous assessments of the issues experienced in the health promotion. In this field by applying different economic models of customers, producers, and social choice, basically health economics targets to comprehend the human behaviour, especially health providers, private and public organizations and governments in policymaking.

In general healthcare system are confined with the fixed funding and to meet all the demands and necessities, there are restricted resources available. Important decisions are needed to be taken that what need to be spent on what.

Keenth Arrow discussed in his paper “ Uncertainty and the welfare economics of medical care” that there are differences between health care market and market for the other things and there is the bond of uncertainty between these two markets. Moreover people spent on healthcare because people want health and doctors are working as agents. Moreover he claimed that markets cannot perform in the healthcare therefore non market organizations are needed to get the objectives of optimising results which will happen anywhere without interferences.

The purpose of healthcare is to maximize the profits (benefits) and to minimalize the  opportunity cost to the society. However resources should be organized in a way to make sure the “ Efficiency”  in the choices are made and the cost and benefits of the selected choices should be measured at the “Margins”. Marginal cost and marginal benefits are important in healthcare economics.“ Opportunity cost” is basically the relinquished profits of the next most appropriate substitute usage of resources.

Economic evaluation is also considered as “ Health technology Assessment” and it may helps the policy makers to take a decision regarding funds that either its needed to fund a specific project or not. Efficacy, Efficiency and effectiveness is analysed in the evaluation process. There are basically three types of economic evaluation. Cost effective analysis, Cost utility analysis, Cost benefit analysis and it depends upon the question that which technique can be used in this process. Type 1 questions are related to the “ Technical Efficiency” (to get the target goals by utilizing minimum recourses or getting the most possible maximum amount of outputs from the resources which are given). Type 2 questions are related to the “Allocative Efficiency”  ( to get the maximum output from the resources entirely).

“Cost effective analysis”  deals with the “ Technical Efficiency”  in which the costs and effects are in the one dimensional and these are measured in the physical units for example death prevented etc. “Cost utility analysis” usually deals with the “ Technical efficiency” but it can also address the “ Allocative Efficiency” questions strictly confined with health sector. Moreover it helps to measure if the impacts is multidimensional. “ Cost benefit analysis” deals with the “ Allocative efficiency”  in which the benefits and costs are measured in the commensurate units, for example money.

The role of economic in health care is significant. In health care system consumers are patients and producers are doctors, nurses etc but market makes this system more complicated by introducing the third parties, which could be unwitting bystanders, insurers or governments and they do have the interest in health care yield. The occurrence of the externalities is crucial in health economics. Any externality rises when an individual involves in an activity, which affects the well-being of the bystander, but he does not pay for that effect nor he gets any reimbursement for that impact. If the effect on the bystander is adverse then it is considered negative externality, on the other hand if it is beneficial then its positive externality. Moreover, government responds to the externalities in different ways. It could be possible that government grants the researcher a patent on the new product or may be government subsidizes the research to deal with the externality.

In health care market, the quality is important but the evaluation of the quality in health care market is not an easy task. Because consumers (patients) do not have enough medical knowledge to evaluate that either that product is of good quality or not, therefore, they are more interested in put their trust in any institution, which is not essentially established to enrich its holders. Insurance in health care market has its own importance because no one knows when he will fall ill and what would be the cost of treatment. Markets for insurance is helpful in reducing risks but there are two main challenges, Ethical Hazards and Adverse selection. (Ethical Hazards) When people have health insurance then they will have less inducement to involve in behaviour that will keep those expenses to a sensible level. They visit doctors quickly even with the minor symptoms. (Adverse Selection) When there will be the difference in the customers relevant attributes which are known to the customers but unknown to the insurers. In addition to it, the adverse selection is also known as “Death spiral” because the patient’s health profile information is private and all the insurance corporations must charge everybody the same amount. However, may be the healthy people could decide that insurance is not worth and they prefer to drop out of the insured pool therefore the adverse selection problem is centre of the debate when it comes to discuss the health policy.

The writer is Research Associate at School for Law and Development

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