Healthcare
Economics and
Financing
By Ranjit Kumar Dehury
OUTLINE
• Economic Principles in Healthcare
• Healthcare Costs and Expenditures
• Health Insurance Models and Marketplaces
• Value-Based Care and Payment Models
Economic Principles in Healthcare
• 1.1 Supply and Demand
• Supply: Refers to the availability of healthcare services and products.
• Demand: The desire and ability of individuals to obtain healthcare
services.
• Price Elasticity of Demand: Measures how sensitive the quantity
demanded is to a change in price. Healthcare demand is generally
inelastic.
Contd.
• 1.2 Opportunity Cost
• The value of the next best alternative that is forgone when a decision is made.
• Example: Allocating funds to build a new hospital means those funds are not available
for other public health initiatives.
• 1.3 Market Failure in Healthcare
• Information Asymmetry: Patients often have less information than healthcare
providers.
• Externalities: Healthcare can have positive externalities, such as herd immunity from
vaccinations.
• Monopoly Power: Limited competition can lead to higher prices and reduced
efficiency.
Healthcare Costs and Expenditures
• 2.1 Rising Healthcare Costs
• Factors: Aging population, technological advancements, chronic diseases.
• Impact: Increased financial burden on individuals and governments.
• 2.2 Cost Control Mechanisms
• Preventive Care: Reduces long-term costs by preventing diseases.
• Efficiency Improvements: Streamlining operations to reduce waste.
• Cost-Sharing: Patients share the cost of care through co-payments and
deductibles.
Contd.
• 2.3 Types of Expenditures
• Direct Costs: Medical expenses such as hospital stays and medications.
• Indirect Costs: Lost productivity due to illness or disability.
• Intangible Costs: Pain and suffering, reduced quality of life.
Health Insurance Models and Marketplaces
• 3.1 Private Health Insurance
• Individuals or employers purchase insurance from private companies.
• Pros: Comprehensive coverage, competition encourages innovation.
• Cons: Can be expensive, may lead to inequalities in access.
• 3.2 Social Health Insurance
• Funded by mandatory contributions from employers and employees.
• Pros: Equitable access, comprehensive coverage.
• Cons: Complex administration, potential for high costs.
Contd.
• 3.3 National Health Insurance
• Funded through taxes, government provides insurance for all residents.
• Pros: Universal coverage, cost control through regulation.
• Cons: Potential for long wait times, higher tax burden.
• 3.4 Marketplaces and Exchanges
• Platforms for individuals to compare and purchase health insurance plans.
• Example: The Health Insurance Marketplace in the United States under
the Affordable Care Act (ACA).
Value-Based Care and Payment Models
4.1 Value-Based Care
• Focuses on providing high-quality care and improving patient outcomes.
• Metrics: Patient outcomes, readmission rates, patient satisfaction.
4.2 Payment Models
• Fee-for-Service (FFS): Providers are paid for each service performed.
• Pros: Simple and straightforward.
• Cons: Can incentivize unnecessary services.
• Bundled Payments: Single payment for all services related to a treatment episode.
• Pros: Encourages efficiency and coordination.
• Cons: Complex to administer.
Contd.
• Capitation: Providers are paid a set amount per patient per period, regardless of services
used.
• Pros: Predictable costs, incentivizes preventive care.
• Cons: May lead to under-provision of services.
• Accountable Care Organizations (ACOs): Groups of providers jointly responsible for the
health of a population, with shared financial incentives.
• Pros: Focus on quality and efficiency.
• Cons: Requires significant coordination and infrastructure.
4.3 Measuring Value
• Quality Indicators: Clinical outcomes, patient safety measures.
• Patient Experience: Satisfaction surveys, patient-reported outcomes.
• Cost Efficiency: Total cost of care, resource utilization.
Discussion Questions
• How do economic principles like supply and demand affect healthcare
access and pricing?
• What are the main drivers of rising healthcare costs, and what strategies
can be employed to control these costs?
• Compare and contrast different health insurance models and their
impact on access to care.
• How does value-based care improve healthcare outcomes and system
efficiency compared to traditional fee-for-service models?
Further Reading
• "Health Economics" by Charles E. Phelps - Comprehensive introduction
to health economics.
• "The Economics of Health and Health Care" by Sherman Folland, Allen C.
Goodman, and Miron Stano - Detailed exploration of economic aspects of
healthcare systems.
• World Health Organization (WHO) reports - Extensive resources and
reports on global healthcare systems and financing.
Thank you
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