Health Economics–
Lecture 6 & 7
BS. Public Health – SEM VII
Nimra Farrukh
Macroeconomics Microeconomics
1. Macroeconomics looks at the economy 1. Microeconomics focuses on individual
as a whole, analyzing large-scale issues economic units like households,
like national income, unemployment, businesses, and specific markets,
inflation, and economic growth examining topics such as supply and
demand and price determination.
2. Scope: The entire economy (national, 2. Scope: Individual agents (households,
regional, or global). firms) and single markets.
3. Examples: What causes national 3. Examples:
unemployment rates to rise or fall? A company's decision to hire more workers.
How do government policies (fiscal and The effect of a price change on the
monetary) impact the overall economy? demand for a product.
4. Focus: Top-down approach; looks at the 4. Focus: Bottom-up approach; looks at
"big picture" and aggregate variables. individual decisions and their market-level
effects.
5. Relationship: Macroeconomic factors 5. Relationship: Microeconomic decisions
influence individual and firm-level ultimately contribute to the
decisions, while the aggregate of macroeconomic picture, and
microeconomic choices shapes the macro macroeconomic policies can influence
economy. microeconomic behavior.
Defining Health from Economics
Perspective
Health is not only the absence of disease, but a form of
human capital.
Healthy individuals can work more, earn more, and
contribute to economic growth.
Health increases productivity, reduces absenteeism,
and improves quality of life.
Defining Wealth from Economics
Perspective
• Wealth refers to the total value of resources owned by
an individual or society (income, savings, property,
investments).
• In Health Economics, wealth influences the ability to
access healthcare, nutrition, education, and a safer
environment.
Connecting Health and Wealth
Wealth affects health (rich people can afford better
care).
Health affects wealth (healthy people can work and
earn more).
This creates a cycle: More wealth → Better health →
More productivity → More wealth.
Positive Impacts of Wealth on Health
Wealth allows access to:
1. Quality healthcare services
2. Proper nutrition and clean water
3. Safe housing
4. Health insurance
5. Education and awareness
• Therefore, wealthy individuals often have longer life
expectancy.
Positive Impacts of Health on Wealth
Good health leads to:
1. Higher productivity
2. Longer working years
3. Better concentration and performance
4. Lower healthcare costs
5. More savings and investments
Thus, health is an economic investment, not just a cost.
Examples
Reflecting on healthcare of a high-income country:
Japan has high GDP per capita and invests heavily in healthcare.
Life expectancy: 84+ years (one of the highest in the world).
Universal health coverage ensures access for all, reducing inequalities.
Reflecting on healthcare of a low-income country:
Sierra Leone is a country in West Africa
Low GDP per capita, limited healthcare infrastructure.
Life expectancy: around 54 years.
High rates of infectious diseases due to poor sanitation and lack of
resources.
Shows how lack of wealth leads to poor health.
Examples
Reflecting on healthcare of a middle-income country:
Brazil has growing wealth but large income inequality.
Urban rich have access to private hospitals.
Rural and poor communities struggle with basic care.
Shows that wealth distribution matters more than total wealth.
Health as Human Capital
Gary Becker's theory of health as human capital posits that health is a
form of capital that individuals can invest in to increase their
productivity and future earnings.
This investment can include medical care, and it enhances the ability
to earn income, just as investments in education and training do.
According to the theory, initial health is inherited, and its stock
depreciates with age but can be improved through investment.
Better health enables more effective learning and work, creating a
positive feedback loop where investments in health and education
complement each othe
Health Demand Model
• Michael Grossman (1972) said people demand health not just to
feel better, but to be more productive.
• People “produce” health through:
1. Medical care
2. Healthy behavior
3. Good environment
• Health decreases with age, so investment is needed to maintain
it.
Health as a Consumption Good vs.
Investment Good
• Consumption good: We enjoy being healthy (better
quality of life).
• Investment good: Health increases future
[Link] Economics views health as both.
Determinants of Health
• Health is not just biology. It is shaped by:
• Income and wealth
• Education
• Employment conditions
• Neighborhood and housing
• Social support
• These determinants are strongly linked to economic
status.
Health Inequality vs. Health Inequity
• Health inequality: Differences in health outcomes
(e.g., rich live longer than poor).
• Health inequity: Unfair or avoidable health differences
(e.g., poor communities lack hospitals).
• Health economics aims to reduce inequities through
policy.
Wealth and Access to Healthcare
• In many countries, access depends on ability to pay.
• Wealthy people use private hospitals.
• Poor people rely on public hospitals, long queues, or no
care at all.
• This leads to different health outcomes.
Wealth and Access to Healthcare
• Example:
• USA: No universal healthcare, high inequality. Rich have
private insurance; poor often uninsured.
• UK: National Health Service (NHS) provides free
healthcare for all, funded by taxes.
• Result: UK has less health inequality despite lower GDP
than USA.
Breakage of Health and Wealth
Cycle
• Poor health → Can’t work → Lower income → Can’t afford
treatment → Health gets worse.
• This cycle keeps people and communities in poverty.
• Breaking the cycle requires public health investment.
Government Role in Health and
Wealth
• Governments improve health and wealth by:
• Providing public healthcare
• Subsidizing medicines
• Introducing health insurance
• Investing in sanitation, water, education
• Regulating private sector
Health Insurance as Economic
Protection
• Health insurance reduces out-of-pocket spending and
protects families from financial ruin.
•
Universal Health Coverage (UHC) is a goal of WHO to
reduce inequality.
Wealth Inequality → Health
Inequality
• Not only individual wealth, but income inequality in
society affects health.
• Countries with more equality (like Sweden) have better
overall health outcomes.
• Unequal societies have more stress, violence, and worse
mental health.
Economic Benefits of Investing
in Health
• Every $1 invested in health returns $2–$4 in economic
growth.
Healthy populations mean:
• Higher productivity
• Fewer sick days
• More innovation
• Stronger economy
Case Study
• Vaccination Programs
• Countries that invest in vaccination save billions in
future healthcare costs.
• Example: Smallpox eradication cost $300 million but
saved $1.3 billion each year in treatment costs.
• Prevention is cheaper than cure.
Challenges in Low- and Middle-
Income Countries
• Limited health budgets
• Corruption and poor management
• Urban–rural gaps
• Brain drain of health professionals
• Cultural barriers
• These challenges prevent translation of wealth into
health.
Role of Education
• Education improves job opportunities (wealth) and
health knowledge (better lifestyle).
• Women’s education reduces child mortality and
improves family health.
• Education is a powerful link between wealth and health.
Future Trends in Wealth and Health
• Aging populations (need more healthcare)
• Rise of non-communicable diseases (diabetes, heart
disease)
• Digital health and telemedicine
• Global health financing
• Sustainable development goals (SDG 3: Good Health,
SDG 1: No Poverty)
