Health and Medical Care: an Economic Perspective

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The term “health” can be viewed by many in different terms. Health is defined by the Mosby Medical Encyclopedia as “a state of physical, mental and social well-being and the absence of disease or other abnormal conditions” (C. V. Mosby). Many other world organizations that work on the betterment of health have a similar meaning to the word. However, when it comes to an economist’s viewpoint, it is totally different. Economists, in contrast, take a radically different approach by viewing health as a durable good, or type of capital, that provides services to an individual. A person is given a stock of health, and as time passes on the stock of health depreciates. Also, the initial stock of health varies from person to person, for example, if a child was born with a birth defect, its initial health stock will be lower than other children. The stock is only not also affected by time, but also by the environment around the person, the lifestyle of that person, and the amount of medical care they have received. Health can be defined in many terms but will not have a precise measurement since there is a lot of factors that contribute to good or bad health. Health depends on the quantity of life as much as the quality of life, but new issues have come into making health better such as new medical technology. In this essay, I will discuss the following: how utility is analyzed, how medical care is hard measure, how good health is produced, and evidence on the production of health in the United States.

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As said earlier, since health is a durable good, it can generate many different types of services. When these services produce satisfaction, it is known by economists as utility. Health is wanted for consumption and investment purposes. When someone looks at it from a consumption point of view, it is when people are feeling better because they are in a good state of health. At an investment point of view, the relation to health and time is what’s important. The investment purpose can explain some of the different lifestyles and choices that make people take. For example, the textbook states, “A person who puts a high value on future events is more inclined to pursue a healthy lifestyle to increase the likelihood of enjoying more healthy days than a person who puts a low value on future events”. An example of a person who puts a high value in future events is someone who would order a salad over a cheeseburger because he or she knows that eating the salad will benefit them more over time than a fatty food. The relation of utility and a person’s stock of health is view on a graph where H, is the quantity of health, is measured on the horizontal axis, and the level of utility, is represented as U, which is on the vertical axis. According to the textbook, “The shape of the curve is particularly important because it illustrates the fundamental economic principle of the law of diminishing marginal utility”. So, when there is an increase in a person’s stock of health, it directly enhances the total utility which makes the slope of the curve positive. Meaning, whenever the stock of health increases the total utility also increases.

Medical care has countless of different goods and services that can improve or better a person’s health. For example, hip replacement surgery or even prescription drugs are examples of medical care. Since medical care is hard to measure, and that services are the most represent than products, according to Berkowitz et al., “medical care exhibits the four Is that distinguish it from a good: intangibility, inseparability, inventory, and inconsistency”. The first characteristic listed, intangibility, says that a medical service cannot be assessed by the five senses. So, that means a person cannot see, smell, taste, feel, or hear a medical service. The second characteristic, inseparability, means that consumption and production of a medical service takes place at the same time. The third characteristic, inventory, relates to inseparability. Since production and consumption of a medical service happens at the same time, this causes for health care providers to be unable to maintain an inventory of medical services. The last characteristic, inconsistency, means that the quality of medical services and composition will be different. The example the textbook gives says, “Although everyone visits a physician at some time or another, not every visit to a physician is for the same reason”. For example, a person will go to their general physician for a routine check-up, but another person my visit an oncology office to determine the best course of treatment with their cancer. As mentioned earlier, medical care is often hard to measure, and according to Donabedian, “Quality differences are reflected in the structure, process, and/or outcome of a medical care event”. The structural quality is the physical and human resources which includes facilities, medical equipment, personnel, and administration. The process quality is the actions health care providers take on their patients. Lastly, the outcome quality is the impact of the care on the patient, and their satisfaction level. With a lot of classifications or characteristics, this shows why it is difficult to measure medical care. Researchers also measure medical care differently from availability to use, but it depends on what they are trying to find.

Health maintenance and creation is involved in a production process which is view by economists. The medical care inputs and outputs can be put into something called a production function. The textbook states that a health production function, “indicates the maximum amount of health that an individual can generate from a specific set of health-related inputs in a given period of time”. So, health, which is the level of output, is depended on the number of different health inputs. The relation of medical care to the production of health is the main focus, and to focus on the relation, it is assumed that everything is constant. When a person’s level of health is positively related to the amount of medical care, it is the implication of the total product curve. The shape of the curve reflects the law of diminishing marginal productivity. The definition given by the textbook is, “This law implies that health increases at a decreasing rate with respect to additional amounts of medical care, assuming other health-related inputs are held constant”. An example can be if an individual goes constantly to a physician for a specific condition. The condition will most likely not be solved in the first visits but will later be more impactful over the course of time. Since the relation of health and medical care can be viewed by a marginal perspective, a change in any of the inputs that are health related in the production function can alter the position of the curve. An example of an input changing can be new medical technologies. It can be beneficiary because as medical care goes up, that means health goes up and the total product curve is also higher. However, an input that can bring down the total product curve can be the individual’s profile. An example that the textbook gives deals with cancer and it states, “For example, an individual’s genetic makeup may make that person a candidate for cancer”. This example can bring down the total product curve because the overall health has decreased even with all the medical care that has been taken. Age and lifestyle are two other variables that can bring down the total product curve. Education is viewed to be a variable that can bring a positive impact on health but is viewed to be complicated when coming up with a relation with health. Income and physical environments are also known to affect the total product curve. Overall, health production has a lot of factors that can affect the total product curve which were an individual’s profile, environment, medical care, lifestyle, and the state of medical technology.

Health economists have been finding evidence of production of health in the United States from three main age groups which are nonelderly adult, children, and the elderly. However, the main focus will be on nonelderly adults since there are more factors. Medical care and health evidence for nonelderly adults has shown that medical care has only had a small quantitative impact on their health. Studies by Enthoven led him to, “point to the small marginal impact of medical care services on the health status of adults as “flat-of-the-curve” medicine”. This meant that the normal adult will use medical services to the point where the total product curve is near zero. Others have noticed that the impact of health insurance could affect their health status. The relation between health and education is positive with nonelderly adults. Lleras-Muney in particular, “finds that one more year of schooling decreases the probability of dying within 10 years by 3.6 percent”. Like education, income is also shown to have a positive connection with health. However, there is a negative correlation if an individual does not have higher education. The textbook states that, “people with less than a high school education and incomes below $10,000 are between two and three times more likely to have functional limitations and poorer self-rated health than their more advantaged counterparts”. The relation of the macroeconomy and health has shown to be two sided. Economists on one hand see, “as an economy emerges from a recession and the unemployment rate begins to fall, overall health should improve”. On the other hand, as the economy improves, the overall health might be poor. As people who have jobs continue to work, there is less time to do health producing things such as eating healthy. Stress is also another factor of working which can bring down the overall health. In the United States, there also seems to be an income inequality which affects health negatively. There are a lot of things in the United States that affects people, negatively that we are not fully in control of, but we do have control over the type of lifestyle a person lives by. Negative behaviors such as smoking, drinking too much alcohol, or eating poorly are factors that can lower health. These behaviors are known to lower the life expectancy of a person’s age, and also make the person spend more on average for medical care. The country also has a problem with its environment. The relation between the environment and health are hard to relate; however, they come to terms when the topic is pollution. Pollution impacts health negatively, especially our bodies on the inside, and Kampa and Castanas state, “pollutant is impacting the respiratory system, the cardiovascular system, the nervous system, or the urinary system”. The last variables that can contribute to health are age and marriage. Married adults have more support and because of this they are healthier than their unmarried counterparts. According to Kravadal, he finds that, “married people have a higher chance of survival from 12 common forms of cancer in Norway than their unmarried counterparts”. Married people will have more support and not only is an emotional way but by income as well. They can also have better health coverage depending where the spouse is employed.

Overall, health has many of variables in the economy and many factors that make up it. Every person is given an initial stock of health and it is affected over the course of life and other facts might improve it or decrease it. Health is used for consumption and investment purposes because people want to be in a good state of health. Medical care is the reflection of good and services that either help maintain or improve a person’s health. There are four main characteristics that distinguish it from a good which are inseparability, inventory, intangibility, and inconsistency. Medical care is also hard to measure because there are many parts to it. Health production comes from medical care because it the total amount of care or health inputs in a certain amount of time. There are more things that can affect the amount of health produced by many other factors. Lifestyles, gender, medical technologies and genetic make-up are some examples that can affect the health production function. Evidence of health production from nonelderly adults is very diverse and many factors are taken into place to see if there is some sort of production. Medical care with nonelderly adults sometimes depends on the health coverages for certain people because there are some who are insured and others who are not. Education among nonelderly adults is important for good health because there is evidence that people who do aim for higher education have also shown to have good health. Income can vary in how health is affected, but those with higher income can experience more health. It is also shown that those with higher income can also experience a lot of stress and health can go down. The environment and a person’s lifestyle can also negatively affect the health stock. Health production and medical care overall have many factors that change an individual’s stock of health. It can be viewed from many different angles since it is hard to measure and because of the many factors.

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