PUBLIC HEALTH POLICY

Module 2 -Policy Agenda, Governance,& Economy

Emmedy Neo Sakala

Texila American University(2020)
Learning Objectives

1. Discuss the concept of “policy agenda”

2. Explain the process of prioritisation of issues for agenda setting
3. Discuss theoretical models of policy formulation
4. Analyse the process and main actors involved in policy agenda
setting
Learning Outcomes
5. Explain the concept of policy agenda
6. Utilise the process of prioritisation of issues for agenda setting
7. Summarise and apply the theoretical models of policy
formulation
8. Elaborate the role of the government and media in setting
agenda for policy making
Introduction to Policy Agenda (PA)

• Issues that gain more importance than others are

considered as policy matter and bind the decision makers
to act for such.
• PA catch the attention of the policy makers.
• What causes so to happen.
• Know about the range of interest groups that;
– contribute to agenda setting;
– increasing role of mass media in issue recognition and
giving it a catching view for the policy makers
Overview of Policy Agenda

• The term agenda is used to describe the sequence of issues

to be addressed at a meeting.
• In context of policy making, it refers to a set of important
issues that gets serious attention of people involved in
policy making
Definition of Policy agenda (PA)
• Kingdon says that " PA is the list of subjects or problems to
which government, critical people inside and outside the
Government pay serious attention at any given point of
time with a view to taking some sort of action
Examples of Policy agenda

• Every section of the Government has a long list of problems to be

considered i.e.
– MoF - interest rate, fiscal deficit and inflation
– MoE - petrol prices, use of non-renewable sources and nuclear
plants.
– MoH – pandemics, regulation of medicines
• Some are high level of high political importance e.g setting up
national health insurance system or low level - administrative
approval for setting infrastructure.
Issues in Policy Agenda

• issues themselves explain the criticality for taking it up

for immediate action. E.g, massive terrorist attack,
• Mostly, policy making is, "Politics-as usual changes": a
response to routine, day-to-day problems that need
solutions Grindle and Thomas (1991).
• Some problems need time, energy and resources of
the government to deal, where does the impetus for
change or response to a problem come from when
there is no crisis
• what is perceived to be a 'crisis' will vary from place to
place and over time)?
 Agenda Setting in Politics-as-usual Circumstances

• Process starts with Agenda setting and it's critical in terms of influencing
subsequent stages in determining issues that government will consider
further for policy making.
• The problems existed always in purely objective terms and were simply
waiting to be recognised by government acting in a rational manner.
• Here problem does not refer to something which individuals and
families face on one to one basis and are supposed to be dealt with
• It refers to something which has affected to a large mass of the people
or in general threatens the well-being of the population.
• Government, would actively scan the horizon and most important would
be the subject of policy attention.
• Important policy actors can clash and compete in attempting to
persuade government not only to put an issue on the agenda but also in
the way they wish to see it presented and dealt with. E.g. women
empowerment
The Hall Model

• One of the models for analysing issues which might

be chosen by government for policy.
• An issue that is high along all three dimensions is far
more likely to emerge on the policy agenda and be
addressed than one that does not share these
characteristics (Buse et al., 2012; Hall, 1975).
• Public action is seen as legitimate, with a feasible
solution in place and one that commands
widespread support
The Hall Model characteristics

a. Legitimacy is a characteristic of issues which give

the belief to governments the right or obligation to
intervene.
• E.g It’s commonly expected from the gov by most
citizens in most societies in the past and the present
to keep law and order and to defend the country
from attack.
• Hence these are widely accepted as highly
legitimate state activities.
 The Hall Model characteristics cont’d
b. Feasibility It refers to the potential for implementing the
policy.
• Capacity of institutions should be assessed before
implementing any policy.
• It refers to prevailing technical and theoretical
knowledge, resources, availability of skilled staff,
administrative capability and existence of the necessary
infrastructure of government.
• assess the technological, financial or workforce
limitations that suggest that a policy may be impossible
to implement, regardless of how legitimate it is seen to
be.
 The Hall Model characteristics cont’d

c. Support refers to public support for government, at

least in relation to the issue in question.
• Popular support is less required by more authoritarian
and nonelected regimes than democratic
governments, but even dictatorships must ensure that
there is some support among key groups, such as the
armed forces, for their policies.
• In case of discontent with the government or absence
of support, it may be very difficult for a government to
put an issue on the agenda and do anything about it
The Logic of the Hall model

• is in fact that government will estimate the position (high or

low end) of any issue on the three continua of legitimacy,
feasibility and support.
• The issue would have high chances of reaching the policy
agenda if it has:
1. High Legitimacy (Government is seen as having the right
to intervene)
2. High Feasibility (There are sufficient resources, personnel,
infrastructure)
3. High Support (The most important interest groups are
supportive – or at least not obstructive)
cont’...

• Obviously, it does not rule out more tactical reasons

for putting an issue onto the policy agenda.
• These reasons can be sometimes to demonstrate
that they care for people or appease donors who
demand a response as a condition of aid or to
confound the political opposition.
• At these times, mostly, these issues do not translate
into policy as it has low feasibility and/or support.
The Kingdon Model

• It focuses on the role of policy entrepreneurs inside

and outside government who take advantage of
agenda-setting opportunities - known as policy
windows - to move items onto the government's
formal agenda.
• The model suggests that the window of opportunity
to shift an issue into agenda depends on:
[Link] of issue,
• 2. features of political issues and circumstances,
development of policy solutions.
The Kingdon Model suggests that;

• The policy emerges of three streams:

– the problem stream,
– the politics stream and
– the policy stream".
• Synchronised running of all 3 together can make
governments to take policies seriously.
• Kingdon's 'windows' are the metaphorical launch 'windows'
in a space mission. Blast-off can only occur when all the
conditions are favourable.
Three Streams of Policy Process

a. Problem Stream: perceptions of public matters requiring gov action

and is influenced by previous efforts of gov to respond to them.
 Problems or socio-economic conditions reach the government through
indicators, feedback from existing programmes, pressure groups, or
sudden crises.
b. Policy Stream: On-going analyses of problems and their proposed
solutions together with the debates surrounding these problems &
possible responses.
• ideas, a range of possibilities is explored and
• For an idea or solution to get to the surface, it must be technically
feasible, publicly acceptable and must resonate with politicians.
c. Politics Stream: It functions separately & mainly includes events such as
swings of national mood, changes of government and campaigns by
interest groups
Streams of Policy Process visible and hidden participants

Visible participants may be inside or outside gov,

– highlight a specific problem,
– put forward a point of view,
– advocate a solution and use the mass media to gain attention.
Hidden participants are the specialists in the field –
– the researchers, academics and consultants who work mainly
in the policy stream - developing and proposing options
– have a role in getting issues onto the agenda, particularly if
they work with the mass media.
Some academics shift from hidden to more visible roles
in the agenda-setting process.
Policy Windows

The three streams (PPP) usually work along different and largely
independent channels.
They flow together or intersect at certain times, known as policy
windows.
Here, new issues get onto the agenda and policy is highly likely to
change.
As a result, policies do not get onto the agenda according to some
logical series of stages.
The three streams flow simultaneously, each with a life of its own, until
they meet, at which point an issue is likely to be taken seriously by
policy makers.
The meeting of the streams cannot easily be engineered or predicted.
The key reasons for convergence of three streams and opening a policy
window may include:
Cont..

a. Policy Entrepreneurs:
 Key players in political stream who work to link particular policy
'solutions' to particular problems and at the same time create the
political opportunity for action.
 It is the political version of activity of bringing buyers, sellers and
commodities together on which commerce thrives.
b. Media attention to a problem and possible solutions (policy stream
influencing the politics stream).
c. A crisis E.g a serious failure in the quality or safety of a service or
other unpredictable event (problem stream).
d. The dissemination of a major piece of research (policy stream which
may affect the policy stream).
e. Changes of government after elections or other regular, formal
landmarks in the political process (e.g., budgets) (politics stream).
Note:

 The process hardly goes from identification of a problem to seeking

solutions.
 Alternative courses of action are generated and promoted by experts
or advocates over long periods before the opportunity arises (the
policy window opens) to get the issue they relate to and the solutions
onto the agenda.
 The two models above can fairly help in understanding that why an
issue is on the policy agenda, or why it has not reached the policy
agenda.
Agenda Setting and Policy change under Crisis

• Perceived crisis can be one reason why policy windows open.

• Policy making in times of crisis is different from ordinary, business-as-
usual policy making.
• Policy makers perceive crisis as real and threatening set of
circumstances.
• Sometimes, there is pressure from outside government, then the
chances are that the government will see the problem as a crisis and
pay it serious attention.
• This may or may not, in turn, lead to an actual change of policy
• Crises can be acute or more chronic. Since crises are defined by the
intersection of 'objective' conditions and perceptions of the gravity
of those conditions, there is always scope for interest groups and
governments to heighten the sense of crisis to pave the way for
changes they particularly want to introduce.
Non-Decision Making
 Both models (crisis and politics-as-usual) explain that how issues come onto
the policy agenda and are acted upon, or why eventually they are not.
 The reason is that they may lack legitimacy, feasibility or support or
because the three policy streams (PPP) do not come together in favourable
circumstances to provide a window of opportunity.
 Those with enough power are not only capable of stopping items reaching
the agenda, but can shape people's wishes so that only issues deemed
acceptable are discussed, never mind acted on.
The Policy Agenda Setter
 It is important to understand the role of main actors in the policy process,
above all, the government and the media put issues on the policy agenda.
 Other actors like business community, the medical profession and other
interest groups.
 The media’s primary role in policy making is likely to be in helping to set the
policy agenda rather than in other aspects of the process.
Government as Agenda-Setter
 Particularly of large, wealthy countries, are very influential in setting the
international policy agenda.
 It is possible because of the large sums of money available for an agenda.
 Within their own countries, governments are plainly crucial agenda-setters
since they control the legislative process and often initiate policy change.
 The manifesto only increases the likelihood of an issue getting onto the
agenda and being acted on, it is not a guarantee.
The Mass Media as Agenda-Setter
 The media- was underestimated in policy making, However, the mass
media have had a major influence over many years on governments’ policy
agendas through their ability to raise and shape, if not determine, issues
and public opinion which, in turn, influence governments to respond.
 The arrival of the Internet in the 1990s made this process even more
apparent, since the Internet has enabled the rapid mobilisation and
feedback of public opinion in ways that governments cannot easily predict
or control, but which they may have to respond to in some way.
Cont....

They serve a range of vital functions:

 Sources of information
 Function as propaganda mechanisms
 Agents of socialisation (transmitting a society’s culture & instructing
people in the values and norms of society)
 Serve as agents of legitimacy, generating mass belief in, and
acceptance of dominant political and economic institutions such as
democracy and capitalism,that criticise the way societies and
governments operate, bringing new perspectives to the public
Policy Agenda

The media function is affected by the political system in the following:

 In many countries newspapers and television stations are entirely
state-owned and censor themselves, fearing government reprisals for
covering issues in an inappropriate way, thereby prejudicing their
impartiality.
 The Internet and satellite broadcasting are less easy for individual
regimes to influence or undermine but are less accessible in poorer
countries than television and radio which are easier to control.
 Even in liberal democracies, the mass media may be controlled in
harmful ways. Governments, increasingly concerned about their
image in the media, can favour certain more cooperative
broadcasters over others, giving them exclusive news stories and
warning of policy announcements to boost their viewer numbers in
return for generally favourable coverage.
Cont...

However, the extent of media influence on policy makers is open to question because of
certain reasons:
First - Policy makers have many different sources of information and can use the media
themselves to draw attention to an issue. Often, busy journalists report the contents of
government press releases verbatim.
Second - It is difficult to differentiate and fragment the elements of influence which
affect the agenda. The media are both part of the process itself, not outside it, and they
are not alone. Mostly, the media highlights movements that have started elsewhere .
Third - Single media account hardly moves policy makers,Concerted action by the press
may make a difference, but in a competitive media environment, there is unlikely to be a
unified view of an issue and the news media particularly are always looking for novelty.
There are examples of the media inspiring policy shifts as well as of politicians and their
officials resisting media pressure to change policy.
In countries, where media are owned directly by government, there is unlikely to be
much critical analysis of government policies.
Policy circles are small in many low income countries, and those journalists who are
perceived as threatening a political regime are often the first to be arrested when
repression strikes
 UNIT 2: Policy Governance

• Emmedy Neo Sakala

Texila American University(2021)
Learning Objectives
• Identify the institutions involved in government policy making
• Explain the inter relationship of institutes in different types of
government system
• Elaborate the special characteristics of government policy making in the
health sector
• Discuss the process of coordination between different parts and
different levels of government.
Learning Outcome
• List the institutions involved in government policy making
Summarise the relationship between different institutes in
government system.
• Illustrate the process of government policy making in health
sector.
• Explain the process of coordination between different parts
and different levels of government
Introduction

An Issues make their way onto the policy agenda through
processes not necessarily controlled by government. The
government has a role in the formulation and shaping of policy
and it has influence on the policy process.
The policy formulation usually involves taking account of a
wide variety of interests, albeit driven by the ideological
assumptions of the government in power. It also depends on
type of government institutions or constitution of a country.
The role of the government institutions is to be directly
involved in forming and carrying out policies:
It's important to learn about particular set of official 'actors'
within the policy process and policy formulation with some
reference to policy implementation.
Characterising Government Systems

Capacity of states to make a policy depends on two features which are autonomy and
capacity.
Autonomy confers the ability to government institutions to oppose being captured by self-
interested groups and to act fairly as an arbiter of social conflicts.
It also gives the opportunity to government to operate ideally with objective to improve the
well-being of the entire country and not to respond and protect the interest of sections of
community.
However, it's difficult for system to be neutral as it must work with government of different
ideologies.
Capacity refers to ability of the government system to make an implement policy. It is
constituted by governments' expertise, resources and marshalling its machinery to support
policy implementation.
The decisions and behaviour of individual ministries can have major implications for other
arms of government and they should refrain from self-interested actions.
The different forms of government system have consequences for the autonomy and capacity
of government policy making.
Federal versus Unitary Systems Power distribution between various levels is an important
aspect of constitutional organisation. The levels of national and state, exist in all governments.
Cont...
In unitary system, there is a clear chain of commands which links
different government levels. However, governance structures are
different in different countries,e.g In France, New Zealand, Japan and
China, national government holds all the decision-making powers, and
it can delegate these powers to lower levels of government as well as
can take these powers back also.
In federal systems, power is shared between at least two separate
levels of government.
The subnational level of government is not subordinate to the national
level, but has high level of freedom over those matters under its
jurisdiction.
Central government cannot remove these freedoms without consent
which normally means rewriting the constitution of the country.e.g,
India, Brazil, Nigeria, the USA, Canada and Australia are all federal
countries.
Policy Governance cont’d
Relations between the Legislature, Executive and Judiciary
The working relationship between the legislature, the executive and the
judiciary affect how public policy is formulated.
The legislature is the representation of the people and responsible for enacting
the laws which govern the people. It oversees the executive which is the
leadership of the country (i.e. the president and/or prime minister and other
ministers).
 The role of judiciary is to ensure that the government of the day acts within
the laws passed by the legislature and it also takes decision on the unavoidable
disputes that occur in the interpretation of laws in practice.
In parliamentary systems, the executive is chosen by the legislature among its
members and remains in office if it has majority support among the legislators.
In presidential systems, such as the USA, the executive is separate from the
legislature, elected separately by the public and need not have the support of
most members of the legislature to govern. These differences have major
implications for the way in which policy is developed.
Cont...
 In presidential systems, the executive (the president and senior
colleagues) can propose policy but the approval of the legislature
(most of whose members may not even be from the same political
party) is required for the policy to become law.
 In addition, members of the legislature can play an active part in
designing and amending policies. This means that the policy
development process is more open than in parliamentary systems
with more room for interest groups to exert influence.
Political Parties
Liberal democracies allow people to form political parties and put themselves forward for
election.
They produce manifesto and policy documents which becomes basis of contesting for
elections and broadly, this can affect outcome of elections and after that. However, voters
tend to vote on basis of broad package of measures designed to maximise party's appeal
instead of specific policies.
Which policy catch the eye of Government agenda and how it is developed further, it is
beyond the direct control of party as well as the voters.
The parties, once in the government, cannot move too away from what it promised to
party members, supporters and voters at the time of election, even if the circumstances
change, otherwise it may lose the ground support for future elections.
However, often ministers in power may find that turning manifesto promises into coherent
policy far more technically and politically than they had envisaged while in opposition.
Political parties have little direct effect on policy at early stages of policy identification, but
they have larger indirect effect through influencing the staffing of legislative, executive
and sometimes judicial institutions.
 In single party systems, voters do not have much choices or policy alternatives and
criticism of ruling party is often mute or stifled.
The Role of the Legislature

Mostly, legislature is believed to be expression of

the will of people (popular sovereignty) and the
highest decision-making body with formal three
functions: to represent people, to enact legislation,
to oversee the executive.
Policy Governance

Five main reasons are given for the rising power of executive and
gradual marginalisation of legislatures. Still relative importance of
each varies in country to country.
1. Increasingly strong political party discipline, controlling the activities of
members and reducing criticism of the executive.
2. Ability of the executive to use its powers of patronage to control
members of the legislature.
3. Shifting of political and policy debate from the parliamentary chamber
to the mass media.
4. Expansion of government activities and delegation to a range of
specialised agencies which has allowed bureaucrats to take decision
without the need for new laws or legislative debate.
5. Increasing influence of supra-national bodies such as the European
Union or International Monetary Fund that limit or remove issues from
domestic legislative politics
The Influence of the Executive

In most countries with multi-party systems, most of the power to make
policy lies with the executive the elected politicians who become prime
minister or president and the ministers,this group is often called the
'cabinet'.
The elected members of the executive are supported by the bureaucrats
or civil servants, who both advice ministers and take directions from
them.
 The Role of the Chief Executive In low income countries where political
leadership is personal and unaccountable where constitutional checks
on the executive rarely operate most major policy decisions lies in the
hands of the chief executive.
Sometimes, decision making is in the hands of a small group of
ministers chosen from among the cabinet by the chief executive
because they closely identify with the chief executive's goals and
methods.
The Contribution of the Bureaucracy
 The appointed officials who administer the system of government are
referred to as civil or public servants.
 Although referred to as 'servants' of the politicians, their role extends
beyond simply serving to managing policy processes in many areas of policy.
 Civil servants also have influence because of their expertise, knowledge and
experience. While ministers and governments may come and go, most of the
bureaucrats remain to maintain the system of government.
The Position of the Ministry of Health
 The Ministry of Finance is responsible for ensuring that resources are
allocated between different ministries in line with government priorities
whereas, an individual ministry such as health is responsible for ensuring
that the needs of their health sector are properly represented when
decisions are made.
 Some conflict of view is inevitable as each ministry argues for what it regards
as its proper share of the government's budget..
Professional versus other Sources of Advice

 A notable feature of Ministries of Health lies in the relatively high

status of their principal advisers.
 They employ and purchase technical advice from doctors, nurses,
pharmacists and other professionals.
 Potential conflict between high status professionals and other
bureaucrats is clearly possible.
 If the Minister of Health is a doctor, there may be some dissonance
between professional and other goals. For example, the minister may
be reluctant to initiate reforms which threaten the clinical freedom of
doctors.
 Tendency in policy thinking to see medical care as the main means of
health improvement to the neglect of public health measures such as
immunisation or better water supplies.
UNIT 3: Economics and Health Economics

Emmedy Neo Sakala

Texila American University(2021)
Learning Objectives
• Discuss basic concepts of economics and its applications in health sector
• Illustrate the concepts of demand and supply and its impact on price
• List different types of markets and underlying competition in the market
• Identify the rationale and key players of health financing and insurance
and its importance in health care
Learning Outcome .
• Explain the basic concepts of economics and its impact on health sector
• Elaborate the demand and supply theory in relation to healthcare with
its application on price
• Summarise different types of markets and underlying competition in the
market
• List the rationale and key players of health financing and insurance
Introduction to Health Economics

 Anything involving scarcity and choice including all activities and institutions within a
geographically defined area can be seen holistically as Economy.
 Accordingly one can think of terms like national economy, global economy and local economy.
 In economies there are certain terms which are used very commonly and need to be understood
very carefully.
 Resources
 Every item within an economy which can be used to produce and distribute goods and services
are called [Link] can be classified as:
a. Labour - human effort. manual and non-anual, skilled and unskilled.
b. Capital - goods used to produce other goods or services, e.g. machinery, buildings and tools.
c. Land - all natural resources and manufactured consumables i.e. everything which usually
cannot be termed as labour or capital.
 Resource may or may not be useful as individual entity, but can be combined to make something
that is useful,this process is called production.
 The process of combining resources during production gives Commodities as results or
production outputs.
 These can be final products as well as intermediate products, Final products can be used by
people as per need while intermediate products are used to produce some other commodities.
Commodities

Commodities are either goods that could be held or touched or

else they are services that happen.
Every commodity is having following three essential characteristics
to be distinguished from others:
a. Physical Attributes :An ice cream and a cup of tea are clearly
different commodities because they require different
manufacturing techniques and they satisfy different wants.
b. The Time Frame (date and sometimes time of day) : At which the
commodity is available – an ice cream that is available on a hot
summer’s day is a different commodity from one available in the
cold midwinter.
c. The Place - Available - a cup of tea available in a fashionable café
is a different commodity from tea available in a local supermarket.
Markets

Any situation where people demand a good or service

encounter from the suppliers of that good can be termed
as [Link] does need to be a physical encounter.
Amount of money exchanged for the commodity is the
price.
It’s influenced by a number of suppliers in the market
and amount of money they are prepared to accept.
Equal role is played by number of buyers in market and
amount of money they are prepared to pay.
These influences are known as market force of supply
and demand.
Economics and Health
Economics has also several sub disciplines, -health economics
being one of them. Two main categorisations are as follows:
1. Microeconomics and Macroeconomics- Microeconomics deals
with decisions taken by individual consumers and firms and with
the way these decisions contribute to the setting of prices and
output in various kinds of market.
Macroeconomics deals with the interaction between different
sectors of economy and interaction of broad economic
aggregates (such as general price inflation, unemployment of
resources in the economy, the growth of national output).
2. Positive & normative economics – Postive economic statements
describe how things are e,g through empirical research.
Normative economics put forward the economic statements in
form of how things should be.
Cont.....Economics and Health

Scarcity of resources in health is a well-known fact,therefore, choices are

inevitably made about what treatments are provided and who receives
treatment; that is, there is some form of rationing.
Economists advocate making such rationing decisions explicit,few reasons
for demand of health care exceeding supply can be an ageing population,
new health technologies and increased expectations from people.
The basic concept of economics is to study about scarcity and choice
which does not apply uniquely to health, but interest of economists lies in
measuring and optimising an objectively defined ‘population health’,
rather than ‘social welfare’, which is explicitly based on individuals’
preferences.
The aim of health economics is to inform decision makers so that the
choices they make maximise health benefits for populations as well as
improve the level and distribution of population health with the resources
available.
Supply and Demand
The two basic concepts of economics are Supply and
Demand.
Demand "How much quantity of a product or service is
desired by buyers.
The Law of Demand - If all other factors remain equal, the
higher the price of a good, the less people will demand that
good and vice versa.
How much market can offer is known as Supply.
The Law of Supply - It presents the quantities that will be
sold at a certain price & shows an upward slope which means
that the higher the price, the higher the quantity supplied.
The goods are supplied by producers at higher price as it will
give more revenue by selling goods at higher price.
Equilibrium
The economy is considered "at equilibrium" when
supply and demand are equal (i.e. when the supply
function and demand function intersect).
At this point, there is most efficient allocation of
goods which means amount of goods supplied is
equal to amount of goods demanded.
Disequilibrium can be due to either excess supply
or excess demand.
Excess Supply: At too high price, there will be
allocation inefficiency and hence excess supply
Elasticity

The demand and supply curve react to change in price and its degree
of reaction can be termed as curve's elasticity.
Elasticity varies as some of the products may be more essential to the
consumer.
More essential products (necessities) are more insensitive to price
changes because consumers would buy them despite price increases.
Conversely, in case of price rise, a less needed product would be
bought less and the opportunity cost of buying the product will
become too high.
The elasticity of supply or demand curves can be understood as
follows:
Elasticity = (% change in quantity / % change in price)
Curve is elastic if elasticity is greater than or equal to one and its
inelastic when elasticity is less than one.
Utility

In economics the term utility is used to describe the satisfaction or happiness
provided by commodities to individuals while same thing applied to large
population can be described as welfare.
Utility is one another important concept. It is an abstract concept instead of a
concrete, observable quantity. Some arbitrary value is assumed to the amount
of utility which represents a relative value.
Total utility is the aggregate sum of satisfaction or benefit that some individual
gains from consuming a given amount of goods or services in an economy. The
amount of a person's total utility corresponds to the person's level of
consumption.
Total utility increases with more and more [Link] satisfaction
or amount of utility gained from each extra unit of consumption is termed as
Marginal utility.
Normally, consumer behaves rationally & tries to maximise his or her total
utility by purchasing a combination of different products rather than more of
one product.
Cont...

Economists assume that the several different buyers and sellers in the
marketplace and competition allows price change according to change
in demand and supply.
As, almost every product has a substitute, people always have choice
to buy cheaper products instead of costlier one.
When there are many buyers and sellers in a market, both consumer
and the supplier have equal ability to influence price.
Market economies normally have many buyers and sellers, high
competition and many substitutes.
In Monopoly, supplier determines prices and high barriers prevent
any competitors from entering the market.
In oligopoly, there are industries with few interdependent
companies,when many businesses compete with one another for
consumer interest and profits, it is perfect competition.
Markets
 useful mechanism for resource allocation as they respond to changes in
consumer preferences, are automatic and allocative efficient under right
conditions.
 A market can be called free if there is perfect competition and it can be
characterised by four features:
– Many producers selling the same product to many purchasers;
– No limitations on potential producers entering the market;
– Old producers have no benefit in comparison to the new producers;
– Producers and purchasers are well informed about prices.
Efficiency:
In principle, social efficiency is an uncontentious objective of any health
care system because the objective seeks the greatest improvements in
health from available resources.
This is synonymous with what economist's term minimising 'opportunity
cost', i.e. minimising the cost to society of achieving these health
benefits.
Effective health care
 Effective health care does not necessarily imply efficiency,simply means that production or
consumption of something will yield satisfaction (or utility).
 Thus, effective health care is about improving health status both operational and allocative
efficiency, however, are necessarily conditional upon effectiveness.
– An example of effectiveness would be a drug with a proven beneficial impact on a health
condition. The focus is limited to the production of health gains.
1. Operational Efficiency raises the question that "if any activity is worth doing, what is the best
way of providing it?" This perspective brings costs into the calculus alongside effectiveness.
1. involves the selection between alternative means of achieving the same ends.
2. pursuit of maximum output / minimum cost for a given level of resources
2. Allocative Efficiency judges whether an activity is worthwhile doing and, given that much
health policy is about the scale at which programmes should operate,
1. address the question of scale, or as economist's term it, marginal analysis
2. infers operational efficiency.
3. If something is deemed worth doing, then it must be carried out in a way which ensures
the optimum use of scarce resources. For patients to be sovereign in the health care
market they must:
a. Analyse the costs and benefits of health care.
b. Bear the costs and receive the benefits.
c. Purchase those treatments where benefits exceed costs.
Health Financing
Health care financing represents a flow of funds
from patients to health care providers in exchange
for [Link] are two ways of paying for health
services:
1. Out-of-Pocket Payments: This is the simplest & earliest
form of transaction between patient and provider.
Access to care depends on ability to pay.
2. Third-Party Payments: The uncertainty of need and the
great costs of health care mean that people choose to
finance health services through payments to a third
party, an insurance company or a government. These
third parties are involved in the economic transaction
between patients and providers.
1. Out-of-Pocket Payments

• In many countries out-of-pocket payments for health care play an important role.
• From low income countries there is evidence that people who are not covered by
insurance pay high amounts for health care in relation to their income.
• In Africa, more than 50 per cent of health care expenses come from directly paid
private sources (Bennet et al. 1997). Types of out-of-pocket expenditure include:
 Private consultations with doctors
 Over the counter (OTC) drugs Co-payments and user fees
 Co-payments may apply to prescribed drugs, hospital care, outpatient care and
emergency transport.
 Unofficial fees: besides official fees, unofficial payments to health workers are
common in many countries.
 Payments to staff to get access to hospital care are common in some Asian
countries.
 Services which are not covered by insurance like costs of transport, traditional or
complementary medicine and luxury services such as cosmetic surgery.
2. Third-Party Payments
 These are expenses that are high in relation to [Link] , expensive therapies are unlikely to be
paid out of pocket, as people would need to spend a large proportion of their income or wealth
on health care.
 Usually, individuals seek insurance to protect themselves against such potentially catastrophic
losses. Also, there are services with characteristics of a health promotion and prevention of
disease.
Achieving Universal Health Care Coverage
 Countries have used different means of making health care available to all through:
 the extension of social insurance or government provision to the whole population.
 In the USA, private insurance has assumed a larger role than in Europe. However, even in the USA,
publicly funded health care pays a large role for the elderly
Developing Methods to Pay Providers
Methods of paying health care providers have evolved along with the development of funding
systems.
 Finding the optimal means of providing payment has been a constant source of political debate.
 Strategies used by doctors to gain favourable conditions have included boycotts and takeovers as
well as the foundation of their own insurance organisations (Abel-Smith and Campling 1994).
 Conflicts between the medical profession and financing agents are related to issues of whether:
– Doctors should be employed or act as independent contractors.
– Payments should be based on a salary, on the number of patients cared for (capitation), on
the items of care provided (fee-for-service FFS), on the quality of their performance or on a
combination of these options.
The Changing World of Health Services Finance

• The means of paying for health care is an issue of concern in most countries.
• Governments are more concerned about its economic and political consequences and trying
to limit spending through tighter controls.
• Many countries are dissatisfied with the existing methods of finance and delivery of health
services.
• During the last decade, governments have introduced a series of reforms.
• Though the motives and types of reform may differ, there have been some common themes:
– Separation of purchaser and provider responsibilities.
– funders (government and insurance companies) have two options:
• to run their own hospitals or to
• act as purchasers and buy services from providers, including the private sector.
– The underlying idea is that purchasers make contract with those providers offering best
value for money and that this increases efficiency of service delivery.
– Redefining the state role and responsibility in providing health care Encouragement of
the private sector.
– Encouragement of competition between providers.
– Alternate sources of funding as economic crises have exacerbated the problems of
financing the health sector.
Increasing Health Care Costs
 The reasons for health services getting more expensive are an ageing population,
increased population coverage, technological advance and growing expectations.
 Three-stage model to explain how health systems have changed during the last 60
years (Relman 1988; Hurst 1992):
 Three-stage model
 During the first stage, policies removed the existing financial barriers to health care.
New funding arrangements increased population coverage and triggered the
expansion of health services.
 The subsequent increase in demand led to a rapid growth of health care
expenditure faster than the gross domestic product (GDP) and policy efforts were
focused on cost control.
• From the experience of ever-rising costs, it was realised that cost control alone is
not effective.
– Policies of the third stage aim to improve efficiency of service delivery and use.
A brief overview of a range of potential factors is presented below
 Demographic Factors - Distinguish between absolute population growth and relative
changes within a population towards groups with higher health care needs (the elderly,
the very young, displaced populations).
– Both mechanisms may influence health care costs. Economic Factors Economic
growth is associated with rising costs for health services.
Health Technology Advances
 Economic recession has opposite effects. Unemployment and poverty are related to ill
health and put additional strain on health services.
 The number of effective interventions has steadily expanded – for example, antibiotics
(1938), open heart surgery (1954), haemodialysis (1960) and computerised tomography
(1973).
 Disease Patterns
 change of disease patterns, in many low-income countries, affect health care costs
– First, new diseases like HIV/AIDS increase the level of ill health in the population.
– Secondly, the relative increase in chronic diseases and long-term illness is related to
higher treatment costs.
 With economic development, countries are likely to experience higher health care costs,
as deaths among infants from communicable diseases decrease relative to adult deaths
from chronic diseases.
 This trend has been described as the epidemiological (or health) transition.
Political Factors

• Health budgets are inevitably based on political

judgement.
• There may be additional 'cash injections' before
elections or deviations from planned growth rates
because of other priorities.
• Health funds diverted officially to support other
purposes.
• Concerns about equity improves access to services
and increase costs.
• On the other hand, corruption may lead to
substantial economic losses.
Health Insurance

Moral hazard exists in private insurance-based health care

[Link] a third party (i.e. the insurance company) paying health
care bills on a full reimbursement basis and employers contributing
heavily to premiums, neither the consumer nor the provider has an
incentive to be [Link] schemes differ according to
the nature of the financial arrangement but take four main forms:
a. A flat rate charge for each unit of service.
b. Co-insurance (the insured individual has to pay a certain proportion
of each unit of health care consumed).
c. A deductible akin to the 'excess' in some motor vehicle insurance
policies (the individual pays 100 percent of all bills in a given period
up to some maximum amount beyond which insurance benefits are
paid in full).
d. And a combination of the last two.
Organisationally, HMOs
Health maintenance organisations can be of one of the four types:
1. Staff model, in which all doctors are employed and/or contracted directly by the HMO;
2. Group model, in which HMO contracts with an independent group practice to provide
services;
3. Network model, in which more than one independent group is contracted to provide
services;
4. Independent practice association in which HMO contracts several doctors in
independent practice.
Social Insurance
Social insurance is based on redistribution policies to equalise the financial burden of health
care and to ensure access to care based on need and not on ability to pay.
The main difference between social and private insurance is the extent of the redistribution
intention of the former.
Social insurance aims at four means of cross subsidisation:
a. The healthy to the ill: Contributions regardless of individual risk.
b. The young to the old: Smaller contributions from the elderly.
c. The rich to the poor: Contributions are a fixed percentage of earnings.
d. Singles to families: Equal contributions regardless of the number of dependents.
Efficiency
 In setting economic objectives, most health care systems will want to pursue
both efficiency and equity.
 Efficiency is a general term used to describe the relationship between inputs and
outputs; which in turn can be valued respectively in terms of costs and benefits.
 Efficiency is concerned with maximizing benefits with the resources available, or
minimizing costs for a given level of benefit.
 In health care, benefits may be interpreted as health gains, although health
services produce a range of benefits including less tangible things like
information and reassurance.
 Technical efficiency: where a given output is produced with the least inputs (i.e.
minimizing wastage). Also known as operational efficiency,
 Economic efficiency: where a given output is produced at least cost. Also known
as productive efficiency.
 Allocative efficiency: where the pattern of output matches the pattern of
demand.
 Pareto efficiency: the point at which no one can gain without someone else
being made worse off.
Efficiency

Every level of a health system faces questions about efficiency. For

example, there are several ways in which hospitals might seek to
improve the efficiency of their operations including
• Length of stay could be reduced;
• Staff productivity could be increased;
• Equipment could be fully utilized and maintained regularly;
• Over-prescribing of drugs could be avoided;
• Drug ordering and storage could be managed properly to avoid
wastage;
• Nurses could replace doctors when appropriate;
• Low-cost equipment could replace staff when appropriate;
• Day surgery could replace inpatient stays.
 
 
Equity

Equity is about the distribution of benefits as opposed to their

maximization (as in efficiency).
 First, equity usually has something to do with fairness and justice. It is
subjective, as it will mean different things to different people and
different communities.
 Second, equity is different from equality. Equity is about fairness but
this may or may not mean the equal sharing of a good or service.
Third, equity and efficiency are often conflicting objectives. For instance,
it may be efficient to fund health services concentrated in a small
number of large centers but more equitable in terms of access to
services to fund a larger number of dispersed smaller services.
Healthcare Financing Reform in Zambia

 Following fifteen years of implementing user fees, great concerns

were raised about the role of user fees in a health setting in which
widespread poverty and dismal key health indicators are pervasive.
 Over time, several evaluations of user fees have reported both
negative and positive effects. These gains and losses of policy are
weighed differently by different stakeholders.
 However, the political and policy climate seems to favour a more
direct policy to protect the rural poor at the very least.
 Against this background, user fees were abolished in rural and Peri
urban areas, effective from 1 April 2006.
Problems of Risk and Uncertainty

 Policy makers in the health sector face a continuous

search for optimal methods of financing and funding
national health services.
 In public finance and health care in particular, optimal
is often defined in terms of some idea of equity and
efficiency.
 In resource-constrained settings such as Zambia,
these challenges take priority status and so policy
makers place greater emphasis on questions of how
to mobilize additional resources for financing the
growing health care need.
Problems of Risk and Uncertainty
 If we are going to buy health care in a free market, then
we have to have enough money to pay for it.
 Nevertheless, health care is expensive and we cannot
predict when we are going to be ill.
 What makes this worse is that postponing buying health
care is often risky. So, we face the problems of risk and
uncertainty.
 The market response to this problem is to develop an
insurance market to remove the uncertainty and risk from
health care spending.
Problems of Risk and Uncertainty
• We pay an agreed amount of money per year
whether we need health care or not.
• Then, when we need care, the insurer pays the bills,
however large they are.
• So, a free market in health care requires an effective
health care insurance market.
• Unfortunately, the health care insurance market
itself is often not efficient. Moral hazard and
adverse selection both cause significant market
failure (inefficiency).
Moral hazard
 Having insurance can change the way in which we act.
 Imagine you are in a cinema and the film is just about to start. Then you
remember that you have left your bicycle unlocked. What do you do? If you have
comprehensive, insurance this will compensate you against any loss you are much
more likely to carry on watching the film.
 Your attitudes have been changed by the fact that you have got insurance - this is
what economists call moral hazard.
 Moral hazard can affect any insurance market, but is a particularly serious
problem for health care insurance.
 Consumers who are insured have an incentive to over-consume health care - to
demand operations and treatments, which they would not choose if they were
directly paying for them.
 They may also not bother to follow a healthy lifestyle or to get preventative
checkups. As a result, when they do fall ill, the cost of treatment is higher than it
would otherwise have been.
 Doctors too are affected by moral hazard. They know that the costs of treatment
are covered by insurance so the temptation is to over-treat and over-prescribe
medicines for their patients. Moral hazard thus leads to an inefficiently large
quantity of resources being allocated to health care.
Adverse Selection

• A company selling health care insurance has to estimate the level of

risk accurately.
• This is difficult because they will not have complete information on
the risk status of the person they are insuring.
• One solution is to set the premium at an average risk level. But this
makes the policy expensive for low risk customers who therefore may
choose not to buy the insurance.
• The process whereby the best risks select themselves out of the
insured group is called adverse selection.
Adverse Selection

• Insurance companies know that this is likely to happen so they offer different
premiums according to the level of risk and the person’s experience of ill health.

• This is why most companies will offer non-smokers a lower premium than smokers.

• Offering low insurance premiums to low risk groups, often called ‘cream skimming’
or ‘cherry picking’, means high premiums have to be charged to high risk groups
such as the elderly or chronically sick.

• Therefore, in a free market, healthcare insurance is likely to be too expensive for

many people, and especially for those most in need of health care.
Unequal Information
• Moral hazard and adverse selection help to explain why a
free market in health insurance is unlikely to be efficient.
• However, health care markets face even more fundamental
information problems.
• We are now going to examine the problems caused by
unequal information and the consequent role of doctors as
agents for patients.
Information Problems

• Most medical information is technically complex and so not

easily understood by a layman.
• this is made worse by the fact that many illnesses do not
repeat themselves, so that the cost of gaining the
information is very high.
• You could argue that the only way a patient could become
fully informed would be by training to be a doctor!
Information Problems
• The costs of a mistaken choice are much greater
and less reversible .
• In the worst situation if you make the wrong
decision you will be dead.
• It is also often difficult to postpone treatment and
so virtually impossible to shop around, and anyway
how do you judge between different doctors’
opinions?
Doctors as Agents
• The asymmetry of information makes the relationship
between patients and doctors rather different from the
usual relationship between buyers and sellers.
• We rely upon our doctor to act in our best interests, to act
as our agent.
• This means we are expecting our doctor to divide herself in
half -on the one hand to act in our interests as the buyer of
health care for us, but on the other to act in her own
interests as the seller of health care
Doctors as Agents

• In a free market situation where the doctor is primarily motivated by

the profit motive, the possibility exists for doctors to exploit patients
by advising more treatment to be purchased than is necessary –
supplier induced demand.
• Traditionally, doctors’ behaviour has been controlled by a
professional code and a system of licensure.
In other words, people can only work as doctors provided they are
licensed and this in turn depends upon their acceptance of a code,
which makes the obligations of being an agent explicit.
Supplier Induced Demand (SID)

• The change in demand associated with the discretionary

influence of providers, especially physicians, over their
patients.
• Demand that is provided for the self interests of providers
rather than solely for patients interests.
Example:
If doctors behaved like some financial advisers or computer
salespersons in the past and maximized profits without any
limit from a professional code.
Common Problems of Countries

 Some of the common problems of most countries in their

policy are misallocation, inefficiency and cost explosion
 i) Misallocation; one of the most important aspects of
making health policy is the appropriate allocation of material
financial and human resources. This implies optimal
disbursement of economic resources among competing
needs. This in turn calls for the proper identification of the
need. Sometimes public money is spent on health
interventions with low cost effectiveness, at the expense of
that critical and highly cost effective interventions such as
treatment of tuberculosis and sexually transmitted diseases
remain under funded.
Cont....Common Problems of Countries
ii)Inequity; the poor lack access to basic health service and receive low
quality care. Government spending for health goes disproportionately to
the affluent in the form of subsidies to sophisticated public tertiary care
hospitals and to private hospitals.
iii)inefficiency; much of the money spent on health is wasted because
brand name pharmaceuticals are purchased instead of generic drugs
,health workers are badly deployed and supervised and Hospital beds
are under utilized .
iv) cost explosion; in some middle income developing countries health
care expenditures are growing much faster than income as increasing
number of specialists, the availability of new medical technologies and
expanding health insurance linked with fee-for-service payments
together generate a rapidly growing demand for costly tests, procedures
and treatments. As developing and industrial countries alike rethink the
best way to provide health care in the century ahead some argue that
governments should step up their financing while allowing more
Common Problems of Countries
iv) cost explosion; in some middle income developing
countries health care expenditures are growing much faster
than income as increasing number of specialists, the
availability of new medical technologies and expanding health
insurance linked with fee-for-service payments together
generate a rapidly growing demand for costly tests,
procedures and treatments.
As developing and industrial countries alike rethink the best
way to provide health care in the century ahead some argue
that governments should step up their financing while
allowing more participation by non-government organizations
and the private sector in supplying services.
 
What can Governments do?
• Governments should finance a nationally defined package
of essential public health and clinical care, especially for the
poor, and should ensure the widespread and efficient
delivery of such a package.
• The public sector should devote far fewer resources or
none at all, to financing health services outside of the
essential package which are of lower cost effectiveness.
• Governments should promote such types of health
insurance that not only achieve broad coverage of the
population, but also build in payment mechanisms that
control the cost of health services.
• Governments should encourage diversity and competition
in the supply of health inputs, particularly drugs, supplies
and equipment, as a means of improving quality and
Summary

• Economics may adopt a micro or macro perspective

and be positive or normative. Some of the
fundamental concepts of economics are resources
and commodities, markets and efficiency. Health
economics is a sub-discipline of economics, which
applies the theories and methods of economics to
all aspects of health and health care. Some factors
that influence demand are: prices of related goods,
income, expected future prices, population and
preferences.
Summary
• Demand changes with changes in individual behaviour,
influenced both by total and marginal utility.
• Governments can regulate markets through price
regulation and the imposition of taxes and subsidies.
Factors that influence elasticity of demand are closeness
of substitutes, proportion of income spent on the good
and time elapsed since a price change. Health service
planners should organise their provider units such that
each one is scale efficient. This entails mergers if there
are economies of scale and decentralisation if there are
diseconomies of scale.
END OF LESSION