05/11/1443

HEALTH ECONOMICS

Objectives
a. To appreciate the relevance of
economics to health care planning and
evaluation.
b. To describe the economic factors
to be taken into consideration and
c. To be able to represent the health
sector in meetings involving
other sectors and lastly to work as
a health care services manager.

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Reasons for the increasing cost of

health care services:
1. Increasing role of governments and
social insurance.
2. Increasing people expectation from
health care services.
3. Mechanization of health care
services which made care more
sophisticated and costly.

4. Population increase in general and

particularly the elderly who consume
much more care than younger people.
5. Expansion in medical knowledge
with more and more addition of new
drugs, new procedures and so on.
6. In some population, increase in
unnecessary and inappropriate health
care services and service utilization.

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Reasons for governmental

intervention to supply health care
services

1. It is cheaper to provide them that

way. Although a health problem may
be looked at as an individual problem,
it is difficult or even impossible for
each individual to arrange provision of
solutions for his or her own health
problems alone and on their choice.

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2. Health problems are usually

community problems. Neither the sick
nor the community may be able to
distinguish communicable diseases
from non-communicable diseases at
least in the early stages and the
decision taken may be inappropriate.

3. Research in the health fields. It may

not be appreciated by people as a
contributor to the better health and
health care. Consequently, funding of
research is unlikely to be undertaken
by individual persons.

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4. Compulsory measures for public

benefit such as the isolation of
cases of certain communicable
diseases and the compulsory
treatment of mentally ill persons. The
latter can not make rational choices.

5. Health care services are public goods

that should be available for every one
There is no justification that some one
can buy and others can not buy health
care services. Allocation of money to the
health will increase equity of distribution
and use of health care services. In the
long run, population growth may be
reduced in response to improved
population health (the so called child
survival hypothesis).

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6. Private market in the health care

services will not operate efficiently. It
is expensive and profit maker and thus
may deprive many people from using
highly needed care.

7. Health care services are merit

goods. They should not be left to
individuals.
8. And lastly, the necessity of
information. It is not always possible
that consumers can choose the
appropriate health care services they
need.

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Universal coverage

Universal coverage is the core objective

of a social solidarity health care system.
It means:

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1. Access to health care when people

need it. Need driven use of care.
2. Availability at affordable cost: equity
in access.
3. Financial household's contributions
are on the basis of ability to pay or
equity in financing

4. Such system will lead to equity in health

5. Universal coverage may be achieved when
an efficient mechanism does exist to:
a. collect financial contributions
efficiently.
b. pool these contributions to ensure
equal risk of payment (shared payment).
c. Purchase effective health care services
which are tax-based, social insurance
schemes or mixed systems.

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Common systems of health care

financing

a. Social solidarity systems which

depends on drawing finances from the
government budgets or public revenue.
The system is characterized by its
ability to gather resources and direct
their use in different sectors including
the health care sector. It generally
ensures stable financial supply to the
health sector and tends to be just and
reasonably equitable if it is run
efficiently and scientifically.

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b. Social insurance. This is a strong

alternative to the social solidarity or tax-
based system. In this system, shares of
citizens are paid on regular basis to the
insurance organizations or parties and
kept in the insurance funds. These
funds are used to cover the cost of
health care utilization by insurance
clients.

c. Co-payment or fees for services at

the time of use. In this system, the
consumers pay the cost of the health
care service items they use at the time
of their visit to any source of care. The
payment may cover the cost of care
partially or totally. The money paid is
controlled by the health care providers.
The provider may be a government
agency (e.g. the Ministry of Health) or a
private agency. Poor are struck

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The situation in Iraq

a. Multiplicity of sources of health care.

An Iraqi citizen can obtain health care
from primary health centres, public
clinics, general hospitals, referral
hospitals, private hospitals and clinic
and pharmacies. The movement of
people among these sources is almost
liberal with few exceptions.

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b. Weakness of referral system. Given the

liberality of use of health care services,
most of citizens consult sources of these
services without organized referral. One
of the implications of such situation is the
overuse of resources due to "shopping
around". Actually part of the rising cost of
care is due to waste, fraud and overuse or
misuse of resources.

c. Financial difficulties: Many times, the

health care system runs short of
adequate resources including financial
resources. Actually the financing is
unstable and continually changing from
completely free services at the time of
use to partial co-payment and at some
stages almost complete co-payment.

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d. Disrupted planning. Many of the

MoH plans were disrupted or failed to
achieve desired objectives. One clear
example is the failure of the manpower
plan which was set in 1993 to improve
doctor: population ratio from 1:2000 in
1993 to 1:1000 in 2004. Economic
sanctions, wars and insecurity issues
played a major role in this failure.
Many of the qualified doctors have left
the country during the last 15 years.

Future prospects for financing the Iraqi

health care system

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1- According to the Ministry of Health,

the central government budget will
remain the main source of finances
for the health care services,
supported by small scale co-
payment (payment by services
users at the time of use).

2- In addition, the private sector and

health insurance schemes are
expected to share in the provision
of health care services and thus
meets part of the population needs
for curative care. In the long run,
such systems of financing must be
reconsidered.

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3- At one point in time, the government

will find itself obliged to ask people
to contribute to the cost of care.
New technologies, usually very
costly, will be inspired by both
professionals as well as
consumers. But it must be clear to
decide who to pay for such
technologies in the future. It is a
real challenge facing the Iraqi
health care system.

Definition of economics:
The study of how man and society
choose, with or without the use of
money, to employ scarce production
resources to produce various
commodities over time and distribute
them for consumption, now and in the
future, among people.

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Economics is interested in:

How are choices made?

How choices ought to be made?

What are the consequences
of a particular choice?
How may changes in decision-
making environment affect choices?

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Contribution of economics:

1. Quantifying over time the

resources used in health
care services delivery.
2. Asses efficiency with which
resources are allocated and used for
health care purposes.

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3. Determination of the consequences

of particular choices in terms of
preventive, curative and rehabilitative
health care services on individuals
and society.
4. Assist the choice of future
development.

Definition of terms related to health

economics:

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Health economics: The application of

theories, concepts and techniques of
economics to the health sector. It is
concerned the allocation of resources
between various health priority activities,
the quantity of resources used in health
care services delivery, the organization
and funding of health care services
institutions, the efficiency with which
resources are allocated and used for health
purposes and the effects preventive,
curative and rehabilitative health care
services on individual and society health.

Cost: In economic terms, cost is what a

health services activity will impose on
patients, their families and other
agencies as well as the costs to the
health sector itself.
Fixed cost: Cost of production, which
does not vary with time, or with size of
production (output) over time.
Examples are cost of building and fixed
cadre).

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Variable cost: Cost of production, which

varies with time and size of production
(output). Examples are drugs, clothes
and foods in hospitals.
Marginal cost: This is the cost of
producing one extra unit, or in health
care terms, the cost of delivering one
extra item of services (treating one extra
case, vaccinating one extra child and so
on).

Opportunity cost: This is the cost of

not doing something. What to be
sacrificed in terms of possible
solutions or gains by allocating the
available resources (money, material,
manpower, time) to a particular
activity.
Social cost: The cost borne by the
society form a particular choice.

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Sources of finances in health sectors

1. Government sources: public

revenue.
2. Other agencies: Charitable agencies
and private insurance.
3. Direct payment (co-payment):
Charges at the time of use
4. Lotteries and betting
4. Foreign aids

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