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Economics and Global Health: The Basics

Kevin Chan, MD, MPH, FRCPC, FAAPAssistant Professor of Pediatrics and Fellow, Munk Centre for Global Studies, University of Toronto and Pediatric Emergency Physician, Hospital for Sick Children

November 2010

Figure 1

Prepared in collaboration with the Global Health Education Consortium.www.globalhealtheducation.org

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Overview

• Explain why health is important and different than other goods and services in terms of economics

• Discuss challenges in financing health care priorities and how it can be done

• Identify future challenges to health care financing

Figure 2

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Economics and Global Health

• As countries become richer, health care rises

• Global health economy is growing faster than the global GDP

• In 2007, US $5.3 trillion dollars worldwide with 59 million health care workers according to the WHO

% of GDP

Year

8.2%

8.7%

9.2%

2000 2007 2015

Source: World Health Organization, World Health Statistics 2009 http://www.who.int/whosis/whostat/EN_WHS09_Full.pdf

Figure 3

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Health and Wealth: A Bi-Directional Relationship

Strong Economic Performance

Higher Individual Incomes

Purchasing of health

promoting goods and

services

Improved Health

Good healt

h

Human Capital Increas

es

Individual

Productivity

Increases

Overall Economic Growth

Rate Increases

Economics to Health

Health to Economics

Figure 4

Source: Pritchett, L and Summers, L. , Wealthier is Healthier, Journal of Human Resources, March 1996.

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HIV/AIDS: How Health May Affect Wealth

• Decreases investment in human capital

• Downward “death spiral”• Affects economic and

intellectual elites– Health workers infected in

similar proportions to rest of population

• Impacts demographic dividend

• Affects working age individuals

• Destroys social network, thus slowing down growth

Figure 5

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Drivers of Supply vs. Drivers of Demand

Drivers of Supply•Health Care Providers •In-patient Beds •Equipment (CTs, MRIs,

dialyses, etc.)•New Technologies

Drivers of Demand•Population Demographics

•Age Structure•Total Population

•Health Status•Health Behavior•Education

Figure 6

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What Makes Health Different From Other Goods and Services?

4 Key Differences:• Government is involved• Uncertainty around patient’s health and what

providers will do• Asymmetric knowledge between various groups• Externalities

Figure 7

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Government Intervention

– Funds and pays for certain health care services– Creates guidelines for private and public health sectors– Measures competency and qualifications of providers– Encourages investment in prevention– Drives economic behaviors amongst providers - setting prices, specifying practice

locations– Helps finance education (e.g., student scholarships)– Conducts and sponsors research (e.g., NIH, Canadian Institute of Health Research)

Figure 8

Government has a special role as steward of the health sector …• Examples of Government Intervention

• Political Structure Will Play a Role

• Supply and Demand

• Balancing Resources and Finances

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Uncertainty

• Patient Level– Patients often enter the health system uncertain

about their current state of health

• Provider Level– Chosen interventions used for a specific illness can

vary widely depending on the provider and their preferences

Figure 9

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Asymmetric Knowledge

• Patient – Health Care Worker Relationship– Knowledge around treatment decisions

• Provider-Supplier Relationship– Knowledge about real cost of supplies

• Consumer – Insurer Relationship– Moral hazard– Adverse selection

Figure 10

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Externalities

• The costs and benefits which arise from an individual’s action has an effect on other people

• Positive Externalities – Impose benefits on others

• Negative Externalities – Impose costs on others

Source: Pan American Health Organization, WHO, http://www.paho.org/English/DPI/categ05.htm

Figure 11

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Financing Health Care

Source: WHO World Health Statistics 2010, http://www.who.int/whosis/whostat/EN_WHS10_Full.pdf

Figure 12

Composition of World Health Expenditures (World Spent US $5.3 Trillion on Health in 2007)

• General Tax Collection— Government expenditure

• Social Insurance— Compulsory— Inclusion of targeted individuals— Targeted to health

• Private Insurance— Voluntary— Advantage in technological

advancement— Change of high administrative costs

• Out-of-Pocket — Direct payment

• Other— Aid from other countries

or charitable organizations

Government Expenditure

35%

Out-of-Pocket 18%

Other 4%

Private Insurance18%

Social Insurance25%

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Key Factors to Finance Health Care

Available Financial Resources Stage of Economic Development

Administrative Capacity

Political Will

Figure 13

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Economics and Global Health: Wide Variation in Investments in Health

Figure 14

The boundaries and names shown and the designations used on this map do not imply the expression of any opinion whatsoever on the part of the WHO concerning the legal status of any country, territory, city or area of its authorities, or concerning the delimitation of its frontiers or boundaries. Dotted lines on maps represent approximate border lines for which there may not yet be full agreement.

Data Source National Health Accounts series, WHO Map Production: Public Health Information and Geographic Information Systems WHO

Health Spending Around the World, 2006From the World Health Organization

< 3

3.1 - 5

5.1 - 8

8.1 - 10

10.1 - 13

> 13

Data not available

Share of Gross Domestic Product, %)

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Challenges in the Future

• Epidemiological Transition: – From more communicable diseases to non-

communicable disease• Aging Population:

– Higher medical costs and resources– Need for more long-term care services and facilities

• Population Growth:– 75 million people added every year (mostly in the

poorest countries)

Figure 15

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Low Income Lower-Middle Income

Upper-Middle Income

High Income0%

20%

40%

60%

80%

100%

50%

16% 15%7%

40%

73% 75%

87%

9% 11% 10%6%

Epidemiological Transition

• Movement from communicable (infectious disease) to non-communicable disease (chronic illness, cancer)

• Affects needed skills and resources

• Increase population and community-oriented interventions

• Target high-risk groups

• Coordinate interventions with other sectors

Source: Mathers et al., 2003, as cited in Suhrcke, 2006

Figure 16

Communicable, Maternal, Perinatal, and Nutritional Conditions

Chronic or Noncommunicable Diseases

Injuries

Worldwide Share of Deaths by Causes and World Bank Income Category (2002)

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Aging Population

Source: UN-DESA: World Population Prospects, 2004, as cited in NIH: Why Aging Matters, 2007

Young Children and Older People as a Percentage of Global Population • Aging populations reduces

revenues

• Increases demand for

long-term care services

• Greater need for prevention

and primary care

Figure 17

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Population Growth

• The world is growing at a rate of 80 million people/year– ~99% growth in low and

middle income countries

• Other global challenges (i.e. climate change) also affect health

• Adds pressure on resources, including health care resources

Source: United Nations Department of Economic and Social Affairs/Population Division, World Population to 2300

Figure 18

Estimated World Population, 1950-2000, and Projections 2000-2050

High

Medium

Low

Popu

latio

n (B

illio

ns)

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Additional Resources

• WHO’s information on Health Financing: http://www.who.int/topics/health_economics/en/

• World Economic Forum’s work on health: http://www.weforum.org/en/initiatives/globalhealth/index.htm

• Kaiser Family Foundation’s Global Health Gateway: http://globalhealth.kff.org/

• United States Agency for International Development (USAID): http://www.usaid.gov/

• United States President’s Emergency Plan for AIDS Relief – Global Health Initiative (PEPFAR): http://www.pepfar.gov/ghi/index.htm

Figure 19

This tutorial was prepared in collaboration with the Global Health Education Consortium.For more information about the organization, visit: www.globalhealtheducation.org