Health Economics

Health Economics Health Production Functions: Chapter 5

Outline • Measures of Health • Concepts: • Health Production Function • Marginal Product of Health • Historical Health Production Functions • Modern Health Production Functions • Contributions of health care • Lifestyle & Environment (Pollution) • Education

Measures of Health Status What do we want: A measure of the population’s health status, that captures those aspects of health that are meaningful, and can be measured with accuracy (i.e., quantifiable).

Measures of Health Status:Mortality Measures • Crude death rate: number of deaths per 100,000 population (for some time period—usually a year) • Adjust for age, sex, and race to make more meaningful • Infant mortality rate: number of death of children < age 1 per 1000 population. • Are popular measures because is easy to quantify (know when someone dies) and is regularly recorded information • Not necessary accurate in low-income and war-torn places • In more developed countries, can use the cause of death to make analysis more meaningful • i.e., if studying pollution, may want to look at deaths due to asthma, or respiratory infections for infants (< age 1) or small children (< age 5) • Look at handout on Causes of Death in US

Measures of HealthMortality Measures • Life expectancy at birth (male and female) • Problems with mortality measures • Give information on acute problems that lead to death but don’t provide information on quality of life (do you live in pain and can you perform the tasks you want) • Tend to be used in aggregate data analysis not individual analysis

Measures of HealthMorbidity • Morbidity: is a statement about the extent of disability a person suffers as a consequence of a disease over time. • Difficult to quantify because no clear end point and need to asses: duration, severity, and consequences of a disease. • Need to measure the disability which could be physical, mental, functional, or social. • Some sources of these types of data are: • Hospital inpatient discharge records. • Hospital outpatient discharge records / outpatient records. • Survey data: self health assessments, days lost from work.

Measures of HealthMorbidity • Typical morbidity measures includes: • Restricted-activity days due to illness (e.g number of working days lost – see Table 5.2). • Incidence rate of certain chronic conditions. • Self-assessment of health status. • Measures of mobility or activity (ADLs–activities of daily living). • Biomarkers: a characteristic that is objectively measured and evaluated as an indicator or normal biologic process. For example: blood pressure, cortisol (stress measure). • Chronic conditions with the highest overall prevalence in US are: chronic sinusitis, arthritis, asthma, chronic bronchitis, and diabetes.

Health Production Functions(Determinants of Health: US Pop.) • Health Production Function: describes the relationship of flows of inputs and flows of outputs over a specified period. • HS=F(inputs to health) • What could the inputs be? • HS=F(health care, environment, education, lifestyle, genetic factors, income)

Health Production Functions Health Status (HS) Does it make sense the curve flattens out, should it bend downwards again? B A A>B : as you increase the number of health care inputs, the effects on total health status decrease. 1 2 3 4 5 6 Health Care Inputs (HI)

Marginal Product of Health Care Marginal Product of Health Care Marginal Product: Is the increment to health caused by one extra unit of Health Care, holding all other inputs constant? A MP is diminishing in size, demonstrating the law of diminishing marginal returns. B 1 2 3 5 4 Health Care Inputs

Marginal Product of Health Care • It is usually the marginal product that is relevant for policy makers: • They want to know if I add one billion dollars to health care, how much better health will the population have. • The marginal product might be different for different types of groups, such as young, elderly, or poor.

Determinants of Health Historical View • To know what factors go into the health production function (inputs) need to understand the determinants of health. • Historical Question: what led to the population explosion seen in Figure 4-2. • Usually explained as a population health story. Mortality rates declined substantially during this period. • Historians have been trying to understand why mortality rates declined. (McKeown working on England and Wales)

Determinants of Health Historical View • Table 4-1: Airborne infectious diseases account for the largest reduction in mortality. • TB, bronchitis, pneumonia, and influenza. • What caused the decline? Historians argue it was NOT medical provision. • No effective interventions during the time period of reduced mortality. (e.g., Figure 4-3) • Fuchs hypothesizes that the decline was due to: rising living standards, spread of literacy, and fall in birth rate.

Determinants of Health Historical View • Reduction in human exposure: public health interventions • Public health interventions include: immunizations, quarantines, water and sewage systems, sanitary handling of food (pasteurizing milk) • E.g., 1854 and John Snow Cholera outbreak • Sept 1854, 600 people living with a few blocks died of cholera. (thought a low lying cloud caused cholera) • Obtain water by signing up with a water supply company. (there were a couple of companies in area) • One company moved to a less polluted part of Thames–deaths much lower for HH receiving this water. • Matter of public health to make sure water coming from clean areas or to chlorinate the water.

Determinants of HealthHistorical Perspective • Improvement of Human Resistance to Disease – nutrition. • Robert Fogel (1986) – Nobel laureate • Felt that decline in mortality rates since 1700 is one of the greatest events in human history. • Showed that 40% of the historical decline was due to improved nutrition. • This was a time of exploration and many new foods were introduced into people diets. • Agriculture was advancing, new crops, crop rotation, seed production …. • Standards of living were increasing as a result of trade so people had the money to buy more food.

Determinants of HealthHistorical Perspective • Medical Research • Research was going on to try to understand what were the causes of the diseases. • Snow figures out the water connection with Cholera, typhoid also connected to water problems. • These understandings of the problem lead to public health measures.

Determinants of HealthModern Day • Contribution of Health Care to Population Health—which part of the health production curve are we on. • Look at elasticity of health status (HS) with respect to health care expenditure (HE).

Determinants of HealthHealth Care Evidence • Table 4-2 gives examples – US example. • First three use mortality as HS, last measures activity and mobility. • 1969 and 82 studies how health exp. has little impact. A 10% increase in health care expenditure reduces mortality by at most 1.7%. • Marginal effect of health care on health status is small in US – might be on flat part of health production function. • Need to think about population effects: may be small improvement in health status for one person but summed over the population is a much bigger effect. Do you think the elasticities will be the same in other countries developed or developing?

Determinants of HealthHealth Care • Table 4-3: shows that averages like in Table 4-2, hide impacts for certain subgroups (heterogeneity). • Medicare lead to greater improvements in the health of black females than white males. • The young blacks also benefit more the young whites. Table 4-4 on neonates (<one month olds). • WIC: government program designed to improve nutrition of women and infant and provide prenatal care. • BCHS: Bureau of Community Health Services Projects: i.e., maternal and infant care and community heath centers • Able to explain 56.5% of black neonate mortality with these health interventions. • But program such as WIC or prenatal care, do more to reduce mortality than expensive neonatal intensive care units (but hospitals make a lot of money from intensive care units).

Determinants of HealthHealth Care We have been focusing on mortality, maybe health care is better at reducing morbidity (reduction of pain, mobility, etc.). Evidence: • Newhouse and Friedlander (1980) looked at biomarkers such as blood pressure, cholesterol, abnormal chest Xrays … • Found availability of health care was rarely significantly related to these measures. But better educated individuals had better health. • They did not control for the quality of health care, did these organizations do an adequate job. Maybe just good at preventative health?

Determinants of HealthHealth Care • Rand Health Experiment • Controlled experiment in health insurance • 1974-1982, 7,000 individuals • Randomized into 14 different insurance plans but one health maintenance organization. (different price, same quality) • Co-payments ranged from 0-95% with a maximum outlay of $1000 dollars per participant. • Wanted to test the effects of alternative health insurance policies on the demand for health care and on the health status. • Fully insured purchased roughly 40% more health care. • But almost no different in health status – Table 4-5.

Determinants of HealthHealth Care Rand Health Experiment (continued) • Folland, et al. use this as evidence that health care has little effect on health status. • How would you criticize the study. • Is 40% meaningful (reduce from 2 visits to the doctor to 1 visit?) might not have been going enough to the doctor in the first place. • We showed earlier that subgroups mattered. So what is the effect of greater costs on the poor, on newborns, infants or on blacks—other studies show that the poor’s health declined. • Time period of the study, duration of experiment and length of time till poor health are also important factors.

Determinants of HealthHealth Care • Folland summarizes that health care is not a big determinant of health status. • So what else might be?

Determinants of HealthEnvironment and Life Style Factors • Evidence shows that countries whose citizens have better life-styles (lower smoking, more exercise, not excessive drinking…) have better health status. (difference between US and Europe?) • Table 4-6: Fuchs compares average death rates in Nevada and Utah for 1959-1961 and 1966-1988. • Compares these two states because feels they are similar, same level of income and medical care, but Utah has Mormons so smoke and drink less. • To do this better need to control for as many observables as you can (income, pollution levels, % urban population ….) • Concludes the lifestyle is an important part of health. • What is a major health problem today and what type of life-style factors lead to this? What is being done about it?

Determinants of HealthEnvironment and Life Style Factors • There is a lot of work going on studying the effects of air pollution (especially particulate matter) on asthma and other respiratory disease. • If you want to look at recent economic studies look at Chay and Greenstone. • Drug use/smoking/excessive drinking: especially crucial for newborn health.

Determinants of HealthHealth and Income • Talked about this for developing countries. • But just looking in the developed (already rich world) there is less of a correlation between health and income. This is partly because there is just not enough variation in income. • Pritchett and Summers (1996) do show that people with very low incomes in developed countries have worse health.

Determinants of HealthEducation Two Theories: 1. Education central to health: • Better educated people know how to use medical and other market inputs and their own time to produce health care. • More efficient producer of health status. • Medicaid, all the confusing paper work, when are you eligible and when not. Hard for an uneducated person to figure this out. • Better educated probably demand more answers. • Able to read and understand how to take care of themselves better.

Determinants of HealthEducation • Omitted Variable Bias: Some third factor that is missing that effects both education and health status (e.g. mother’s education). Evidence: • Tends to show that theory 1 is correct. Education does lead to better health outcomes. (Miguel article) • Lleras-Muney (2002): used timing of compulsory education laws. • Birth cohorts from before and after compulsory education would have had similar experiences but differed in education. • Compulsory education led to 1.7 more years of life per person.

Health Production FunctionsDeveloping Countries • Van der Gaag and Gertler (1990) Table 2-4 • Interpret as elasticities (log, log relationship). • Literacy is a very important factor. (not showing causation like Miguel is trying to show). • In some studies the link between education and health weakens when family background variables are controlled for. • Population density, proxy for overall living conditions (could be proxy for city and availability of safe water and hospitals). – important for children. • Correlation between health care expenditures and health. • A 10% increase in health exp. is associated with an increase of 0.4 years of life expectancy, 4.1% reduction in IMR, 8.7% reduction in child mortality rate.

Discussion Questions • Do you think how health care is practiced might affect the impact of health care on health status? What might you change in the US system? • Do you think public and private dollars at substitutable, i.e., will you buy the same kind of health care and will it have the same effect on your health status?

Health Economics