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(c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license.

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Presentation on theme: "(c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license."— Presentation transcript:

1 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Production of Good Health Production function –How the level of output depends on quantities of various inputs Health production function –Maximum amount of health that an individual can generate: From a specific set of health-related inputs In a given period of time

2 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Production of Good Health Short-run health production function Health = H (Profile, TECH, environment, SES, lifestyle, medical care) –Profile Individual’s mental, social & physical profile Includes uncontrollable factors—age, race and gender –TECH State of medical technology

3 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Production of Good Health Short-run health production function –Environment Air and water quality and public health measures –SES Effect of social and economic factors –Education, income and poverty –Lifestyle Set of health-related choices (diet, exercise) –Medical care Quantity and quality of medical care consumed

4 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Figure The Total Product Curve for Medical Care Medical care (q) Health (H) Total product The law of diminishing marginal productivity accounts for the bowed shape of the curve. This law is a fundamental principle of production theory and it implies that health increases at a decreasing rate when additional units of health care are consumed, holding all other inputs in the health production process constant. The total product curve is upward sloping and indicates that as an individual consumes more medical care, overall health improves. The positive intercept term represents the individual’s level of health when no medical care is consumed and is a function of other factors such as lifestyle and the environment.

5 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Production of Good Health Marginal product of medical care –Incremental improvement in health brought about by each successive unit of medical care consumed MP q = ΔH/Δq MP q - marginal product of the last unit of medical care services consumed

6 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Production of Good Health –Law of diminishing marginal productivity Marginal product of medical care diminishes as the individual acquires more medical care Marginal product curve - Negatively sloped

7 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Figure The Marginal Product Curve for Medical Care Medical care (q) Marginal product (MP q ) The MP q curve establishes the relation between the marginal product of medical care and the amount of medical care consumed. The curve is downward sloping because the marginal product of the last unit of medical care consumed decreases as the individual consumes more medical care, reflecting the law of diminishing marginal productivity. MP

8 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Production of Good Health Change in any one of the health-related inputs in the production function –Alters the position of the total product curve Shift Rotate –Because the marginal productivity of medical care has changed in response to the change in the other factors

9 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Better Medical Technology New medical technology –Development of sophisticated medical devices –Introduction of new drugs –Application of innovative medical and surgical procedures –Use of computer-supported information systems

10 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Better Medical Technology Newer medical technologies result in: –Treatment expansion –Treatment substitution

11 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Figure The Effect of Technological Change on the Total Product Curve for Medical Care Medical care (q) Health (H) TP 0 A movement from point A to point C depicts the case in which the new medical technology has no impact on health but results in less consumption of medical care. TP 1 The total product curve shifts upward with the development and application of new medical technology because of an increase in the marginal product of medical care. q0q0 q1q1 q2q2 H1H1 H0H0 A movement from point A to point B illustrates the case in which a new technology results in a simultaneous increase in the amount of medical care consumed and improvement in health. B A C

12 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Better Medical Technology Movement from point A to point B Represents treatment expansion Movement from point A to point C Represents cost saving technology Increase in marginal product Marginal product curve shifts to the right

13 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Change in Profile Variable –Depends on a person’s genetic makeup, mental state, age, gender, and race/ethnicity as of a given point in time –Affects the intercept term and slope of the health production function –Causes a downward shift or rotation of the total product curve –Causes the marginal product curve for medical services to shift to the left

14 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Figure A Shift in the Total Product Curve for Medical Care Medical care (q) Health (H) TP 0 The graph illustrates what happens to the total product curve when an individual gets an illness such as cancer for a reason other than improper medical care. The curve shifts downward because at each level of medical care consumed the individual is less healthy than previously was the case. The curve also rotates downward and becomes flatter, reflecting the likelihood that the now ill individual is going to respond less favorably to a given amount of medical care consumed, such as an office visit, than previously was the case when she was healthy. TP 1

15 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Effect of Age Age affects health through the profile variable –Health and marginal product of medical care are likely to fall –Rate at which health depreciates over the period is also likely to increase –Total product curve shifts downward and flattens out –Marginal product curve shifts left

16 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Lifestyle Variables Personal habits impact the production of health –Adoption of healthier lifestyle causes the total product curve to shift and rotate upward

17 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Socioeconomic Conditions Improved socioeconomic conditions –Increase intercept term and marginal product –An educated individual is a more efficient producer of health Total product curve shifts upward –Higher the level of education more efficient the utility of each unit of medical care Total product curve steepens and marginal product of medical care increases

18 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Socioeconomic Conditions Reverse effect: health influences education –Poor health conditions during childhood may result in a less healthy adult with moderate levels of education Fuchs (1979), argues that the acquisition of education and health depends on the: –Value people place on future events

19 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Socioeconomic Conditions Income gradient –“…health improves with income throughout the income distribution” (Deaton, 2002) Increase in income –Indirect impact on health Consume more medical care More educated, healthier lifestyle, and live in a safer environment Improved health

20 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Socioeconomic Conditions Increase in income –Direct impact on health Employed in a safer work environment –Slim risk of a work-related accident Employed in a more stressful occupation –Adversely impact health Absolute income hypothesis –An individual’s absolute income is positively related to health

21 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Socioeconomic Conditions Relative income or deprivation hypothesis –An individual’s income relative to some social group average impacts overall health Relative position hypothesis –One’s social position in the income distribution impacts health Income inequality hypothesis –The distribution of income itself directly impacts health

22 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Environment Adjustment in physical environment affects the total product curve –Cleaner physical environment means less exposure to allergies and ailments –Total product curve - shift and rotate upward

23 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Determinants of Health among Nonelderly Adults Medical care and health –Households in low coinsurance plans Received more medical care; same level of health as those households in high coinsurance plans, ceteris paribus. –“flat-of-the-curve” medicine Small marginal impact of medical care services on the health status of adults

24 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Determinants of Health among Nonelderly Adults –Studies reviewed, consistently show that health insurance: Increases physician and preventive services Improves self-reported health status Lowers mortality conditioned on injury and disease –Surveyed studies offer no direct estimates of the magnitudes of the marginal productivity of medical care among nonelderly adults

25 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Determinants of Health among Nonelderly Adults Education and health –Positive relation exists between education and health –One more year of schooling Decreases the probability of dying within 10 years by 3.6 % –An additional year of education Increases life expectancy between 0.18 and 0.6 years

26 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Determinants of Health among Nonelderly Adults Income and health - positive connection –Increases in income Enhance both mental and physical health –People with less than a high school education and incomes below $10, times more likely to have functional limitations and poorer self-rated health –In the short run, an inverse relationship exists between the strength of the economy and health

27 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Determinants of Health among Nonelderly Adults 1% drop in unemployment rate – % increase in total mortality rate Income inequality and health –Studies indicate significant support for the absolute income hypothesis –Some studies support the hypothesis that greater income inequality worsens health outcomes at the state level

28 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Determinants of Health among Nonelderly Adults Lifestyle and health –Risky lifestyle behaviors – negative impact Smoking, excessive alcohol consumption, lack of physical activity, and poor diet –Heavy smokers between the ages of 50 and 54 »Males - expected to live 2 years less compared to nonsmokers »Females - expected to live 1.44 years less compared to nonsmokers

29 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Determinants of Health among Nonelderly Adults Obesity - same impact on health as 20 years of aging Adverse lifestyles cause the total product curve for medical care to shift downward and possibly flatten

30 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Determinants of Health among Nonelderly Adults Environment and health –Relation between environmental factors and health is very complex in terms of: Types of pollution and their impacts on health –A study reveals that "reductions in air pollution accounted for as much as 15 percent of the overall increase in life expectancy"

31 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Determinants of Health among Nonelderly Adults Other determinants and health –Age –Marital status Married adults experience better health –Spouse augments the production of health within the home –Altering preferences for risky behavior

32 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Determinants of Health among Children Childhood health –Long-term impact on adult health, education, and social status –Parental education positively impacts the production of a child’s health at all age levels –Family income before a child is born is positively related to the child’s health for all ages

33 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Determinants of Health among Children –Healthier parents tend to have healthier children –Environmental factors also impact children’s health –Expansion of Medicaid eligibility impacts infant mortality

34 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Determinants of Health among the Elderly Medicare –Utilization of ambulatory and inpatient care increases sharply at age 65 –Less time in bed; reduced probability of dying –Relatively large marginal productivity when applied to elderly population –Associated with more medical spending and procedures –Reduction in the mortality rate of the elderly

35 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Role of Public Health: An Historical Approach Public health interventions –Development of clean water in the U.S. during the first half of the twentieth century Improvements in nutrition and public health Significant decrease in infectious-disease mortality rates Public investments in clean water technology

36 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Role of Public Health: An Historical Approach –Development of a polio vaccine Number of reported polio cases fell by approximately 90 percent within a span of 2 years of the inception of the vaccination program

37 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The 10 Major Causes of Death in the United States in 2010 Over the course of a year, more than 2.4 million individuals died in the U.S. –75% succumbed to the ten most common causes of death Heart diseases account for 24% of all deaths More than 80 percent of all lung cancer deaths can be attributed to smoking Lifestyle choices, socioeconomic status, and environmental factors play critical roles in disease incidence and deaths

38 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Table The 10 Leading Causes of Death in the U.S. in 2010 CauseNumber of Deaths 1. Diseases of the heart 2. Malignant neoplasms 3. Chronic lower respiratory diseases 4. Cerebrovascular diseases (stroke) 5. Unintentional injuries 6. Alzheimer’s disease 7. Diabetes mellitus 8. Nephritis, nephritic syndrome, and nephrosis (kidney disease) 9. Influenza and pneumonia 10. Intentional self-harm (suicide) 595, , , , ,043 83,308 68,905 50,472 50,003 37,793 TOTAL2,465,932 SOURCE: National Center for Health Statistics.

39 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Empirical Evidence on the Production of Health: A Summary Practical economic perspective –Important to know which factors contribute more to improved health at the margin So cost-effective policies can be designed Adult health –Medical care matters but nonmedical factors also play an important role in maintaining wellness Better lifestyle and improved socioeconomic and environmental conditions

40 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Empirical Evidence on the Production of Health: A Summary Infants –Low birth weight and greater infant mortality have been linked to adverse maternal lifestyle behaviors –Medical care also appears to be important at the margin for the health of infants Especially for low-income infants 40

41 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Empirical Evidence on the Production of Health: A Summary The elderly –Medical care – important at the margin –Nonmedical factors also play an important role 41

42 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Empirical Evidence on the Production of Health: A Summary Policy implications –Any public policy initiative aimed at improving health should also consider: Raising education levels Reducing the amount of poverty Encouraging improved lifestyles

43 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Implications of the Patient Protection and Affordable Care Act (PPACA) of 2010 Health of the U.S. population is expected to improve with the PPACA –As long as capacity constraints are absent in the medical care production process PPACA may impact the production of health through its emphasis on wellness and prevention

44 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Implications of the Patient Protection and Affordable Care Act (PPACA) of 2010 Grants and technical assistance to employers will be provided to establish wellness programs for workers

45 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Implications of the Patient Protection and Affordable Care Act (PPACA) of 2010 Chain restaurants and food sold in vending machines will be required to provide information regarding the nutritional content of each item sold Establishment of accountable care organizations may help to replace the fragmented health care system with a more integrated one

46 (c) 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Co pyr igh t by the Fo un dat ion of the A me ric an Col leg e of He alt hc are Ex ec uti ves Once marginal effects estimated, resources can be allocated to maximize the improvement in health status by compare MB/MC of differing strategies


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