Economics: Public Policy in Health and Social Care - Essay Example

ECONOMICS: PUBLIC POLICY IN HEALTH AND SOCIAL CARE Introduction Mainstream economics Mainstream economics is concerned with orthodox approaches to solving economic problems. It’s opposed to heterodox economics. Though it’s neither a branch of economics nor a school of thought as such, it seeks to align itself with neo-classical economics. More recently it has sought to apply a broader theoretical and conceptual tradition of economic thought by placing emphasis on neo-classical synthesis – a combination of neo-classical economics and Keynesian economics. 2. Conservative economics Conservative economics is based on Milton Friedman’s teachings and therefore is more concerned with supply-side economics. Friedman’s main argument is that tax cuts and little or no intervention by the government in regulating private enterprise would help entrepreneurs to produce more at a lower cost. Thus consumers would benefit from plenty of cheaper goods. However conservative economics has acquired a newer dimension in that the absence of concern among conservative economists for environment related problems is changing for better. 3. Marxian economics Karl Marx, the German political thinker, is better known for his ideological premises expressed in his treatise Das Kapital. Marxian economics is based on these thoughts, though most of his teachings are basically centered on the perpetual conflict between the bourgeoisie and the proletariat. His economic thoughts though aren’t substantial are concerned with how working classes are able to run the country’s economy with fair play and social justice. When all productive resources are controlled by the proletariat a comparative cost/benefit analysis is not possible. Analysis This paper takes the free market appraoch as the point of refernce for comparative analysis. Market forces, demand and supply, move in opposite directions with respect to price changes. When the price of a good is high the demand for it is less while the supply of it is greater. This is economic sense but nevertheless this positive economic statement about the predictable behavior of the consumer does not hold true when the demand patterns for Giffen and inferior goods are factored in. For instance when income, of the individual consumer, rises his demand for inferior goods such as potatoes, would rise. This is because the consumer’s purchasing power increases when his real income increases. Consumer sovereignty principle illustrates the fact that in a free market economy the consumer is free to consume what he wants. However, the consumer’s sovereignty does not have meaning if he/she is unable to buy what he/she wants. This paradox is solved through government intervention in the provision of those merit goods such as health care and education. 1. Mainstream economists advocate both private and public provision of essential services like healthcare. However, even within mainstream economics the dichotomy between neo-classical theory and Keynesian economics cannot be ignored. In the health and social care industry this becomes more complex because insurance companies come into the picture as a third party. In a health care organization this is apparently the relationship between the hospital staff including paid managers and the shareholders. Decisions taken by managers to increase efficiency and profitability would negate the desires of customers but would benefit shareholders. Apparently there is no need for managers to please customers by being more favorable to them in decision making. However, acting in their own interest hospital managers would more likely suppress information flow to shareholders and take riskier decisions bordering on strategic competitive response to rivalry. For example price cutting decisions to increase volumes might jeopardize cash flow thus increasing operating costs in the short run. Coupled with inadequate knowledge about demand elasticities – price, income and cross – the consumer might more likely make the wrong decisions. Information available to customers is still less in the health care industry (McGuire,1987). For instance they might not know as to how a certain surgical procedure ends and the related costs of after-surgery treatment would rise. Basically as the following diagram illustrates there is a mismatch between demand for and supply of healthcare services at any given time in the market. A persistent mismatch would distort market trends in the long run to produce market failure. Being a merit good it’s priced at P1 where the quantity Q1 is sold and bought. This is where Keynesian economics might be helpful because it advocates government intervention in macroeconomic decision making process. Thus health care is both underconsumed and underproduced. If the government intervenes thus ignoring free market forces and gives a subsidy to the producer, a new supply curve, i.e. S2-S2 would shift onto the right. Now at the lower price of P2 the higher amount Q2 would be supplied and demanded. That would increase the amount of social welfare as shown by the triangle marked abc. Public policy choices demand government intervention only to such extent that taxation as an inevitable fund raising alternative would not hinder private investment levels. Neo-classical theory supports private provision of healthcare and argues that market efficiency can be achieved when price mechanism is allowed to play a free role by matching demand against supply. In other words resources would be allocated and reallocated when and where they are most needed and most efficiently employed. Thus according to neo-classical economists the demand for and supply of healthcare services must be left to free market forces or price mechanism. Keynesian economics does not deny a role for price mechanism though it does not agree with increasing supply by bringing down interest rates. It advocates demand management policies where aggregate demand can be controlled by increasing taxes on goods. However then it would reduce the amount of social welfare arising from a greater level of consumption of healthcare service. The extent to which mainstream economists support such welfare outcomes associated with the impact of public policy decisions can be known only with a reference to social costs and benefits. According to them if social benefits were greater than costs the outcome would be positive and therefore healthcare provision which naturally has better benefits must be carried out by both the government and the private enterprise in a competitive environment where a more comprehensive regime of regulations exists. 2. On the other hand according to conservative economists healthcare services can be provided more efficiently with the government not imposing taxes on private enterprise. In other words the government as Friedman advocated would be a passive onlooker while all important public policy decisions would be made by private entrepreneurs. According to Friedman’s supply-side theory aggregate supply would match aggregate demand without any intervention by the government. Further conservative economists don’t agree with mainstream economists on the need for corrective action by the government. The only corrective action by the government according to the former is that interest rates can be controlled to a certain extent by the government in order to control inflation. In other words money supply can be controlled in order to prevent rampant inflation in the economy from wreaking havoc on price mechanism. Conservative economists also argue that public policy measures like the provision of healthcare must be left to the private enterprise but they don’t agree with neo-classical economists who argue that such provision must be subject to regulations. Social welfare in health care is bound to increase as producers tend to produce more as a result of the subsidy while consumers tend to consume more because some of the benefits of the subsidy are passed on to consumers by producers (Hazlitt, 1988). Health outcomes associated with the above action of the government can be measured in conformity with a number of positive effects. For instance a series of positive outcomes including a healthier nation, greater productivity, longevity and a bigger Gross Domestic Product could add to incremental values by increasing the relative effectiveness of intervention by the government. If the free market forces of demand and supply are allowed to operate freely, shortages could persist in the long run. In the first place suppliers have no tendency to increase supply when consumers demand less due to their inability to pay free-market determined price. Positive spill-over effects associated with subsidies to health care industry are many. While the subsidy would reduce the price paid by the consumer by a percentage determined by the very price elasticity of demand for health care, there is no hard and fast rule which tells what percentage the producer should keep and what percentage he should pass on to the consumer. However every free market economy tends to operate optimally at least in theory thus maximizing consumer and producer surpluses defined as the amount of benefit above the price paid and below the price received respectively by the two (McCrone, 1998). “Cost-effectiveness analysis is the primary tool for comparing the cost of a health intervention with the expected health gains” and can best be described as a tool in itself preferred by conservative economists (www.dcp2.org). Such an intervention is basically carried out with resources such as human and capital equipment in order to achieve organizational outcomes such as the reduction in incidence of diseases, disease control and total cure programs. The following shows how the Cost-Effectiveness ratio is defined and illustrates possible outcomes in the field of health care. The sum total of all benefits is divided by the sum total of all costs. For example let’s look at constant efforts of medical staff to increase the life expectancy rate among heart patients. A very simple and less costly treatment method is the prescription of aspirins and beta blockers to the patient. A more expensive but equally more effective method of treatment involves not only continuous medication but also a combination or single use of angioplasty/by-pass surgery/stents/cardiac catheterization and so on. As the table illustrates the cost effectiveness is determined by the incremental marginal effectiveness or benefit. The table is based on the Primer on the Cost-Effectiveness Analysis: Effective Clinical Practice, published by the American College of Physicians (Primer on Cost-Effectiveness Analysis, 2000). The writer of this paper altered it to give a more realistic cost representation. Despite its deviation from the above formula the health outcomes as measured in the table convincingly prove the systematic rise in costs and equally fast improvement in health outcomes. Conservative economists argue that despite a rise in costs there are gains to be made through the adoption of such a public policy choice. Source: www.acponline.org However it must be noted that according to the above formula all benefits are divided by costs. But nevertheless benefits cannot be quantified in any other way other than by calculating the number of years the patient is likely to live after surgery. Thus it’s practically feasible to calculate the Cost-Effectiveness ratio as shown in the table (Pizzi, 2005,). If we assume that there is another alternative before simple treatment is adopted, then it would be to have no treatment at all. This might as well prove why government intervention is essential. In other words conservative economists are to be doubted. 3. Marxian economists prefer a total government control over every public choice decision and therefore healthcare provision must be a government prerogative. However the question how such public provision of healthcare can be funded is not answered by them. Social welfare is their sole aim but nevertheless a health system requires to be efficient. In order for it to be efficient there must be some competition. Since there are no consumer or producer surpluses, at least in theory, in Marxian economics there cannot be any competition. In the absence of consumer and producer surpluses cost effectiveness isn’t a considered parameter. Prioritizing the use and adoption of CEA in the health sector of the country requires a series of qualifying data. An effective CEA should have the capacity for adaptability to the practical treatment environment. In other words isolated or/and disconnected CEA cannot have the desired results in a completely practical treatment environment where programs tend to be associated with cost and benefits alone. The psychological impact on the patient apart, there can be an attendant divergence of opinion among the health care staff as to what constitutes moral and non-moral aspects of prioritizing. Marxian economists place emphasis on professional ethics but fail to notice the impact of healthcare provision costs on the economy. According to health care planners and specialists who emphasize the need for prioritizing the use of CEA in the health care industry setting, there are a number of associated strategic choices available to the administrator and planner to quantify the effectiveness or benefits arising from such CEA prioritizing, which in turn is determined by efficiency criteria and equity criteria. Cost-Effectiveness of the intervention program. Horizontal equity which refers to equality between the need and the treatment irrespective of the ability/inability of the patient to pay for it. Vertical equity which refers to those patients with worse health conditions either benefiting or not benefiting from such intervention. Vertical equity which refers to those benefits which are directly addressed to meet the needs of the poor or not. The resource constraint criterion which refers to both opportunity cost and direct benefit of intervention to an individual. The criterion for the strategic choice to intervene such as when and on what conditions such intervention would be decided. The need is just one such condition. These efficiency criteria for prioritizing CEA in a health care environment have received greater attention from both specialists and laymen. However Marxian ideologues perceive any attempt at calculating costs against effectiveness as a bourgeoisie practice. The first rule tells that the cost-effectiveness must be determined first. For instance a patient with no hope of recovery being put on the life support system simply because euthanasia is not allowed by law is not a practical measure. Since efficiency here refers to the optimum level of societal well-being, there is very little freedom for the planner or administrator to decide otherwise . The horizontal equity principle in prioritizing CEA in health care intervention environments has acquired a new dimension recently. The ability of the patient to pay the medical bill or affordability maters in every health care establishment whether it’s run by the private sector or the government sector. Especially in a free market economy this is essential. However in a totalitarian economy as Marx envisaged there is no need for the patient to pay the bill. However, health insurance mostly obviates the need to apply this principle on the assumption that every patient would have the means to meet his or her medical cost. Finally the most debated efficiency criterion with regard to prioritizing CEA in a health care environment is based on the vertical equity principle, i.e. whether do those who need medical care the most because their health conditions are worse, get such attention or not. Connected with this there is the next criterion if the poor people get medical attention irrespective of their ability to pay. All in all these efficiency parameters in prioritizing CEA health care environments significantly reorient the available resources towards meeting the contingency requirements to a greater extent. Again Marxian dialectics are opposed to this principle. Social welfare policy debates have been raging all over the world about all variety of topics though the current debate on healthcare provison by a Connunist government is known to have been a typical exception due to many reasons (Anchorage Daily News, 2009). In the first instance its detractors have carried out one litmus test after the other to discredit both the notion if the proletariat controlling national resources and their distribution and the government getting involved in public affairs that were hitherto managed by private enterprise. Secondly the economic debate over how would the money be raised to implement the policy. Thirdly how far the tax payer would go in accepting the government’s proposal for a more comprehensive health care system, is yet uncertain. Finally arguments have been evolving into a frenzy of illogical caricaturing both in the mass media and in private discussion over the ill-informed decision making by a Communist regime. On the other hand the opponents of welfarist communism have more or less been banking their hopes for a successful outcome of the debate in their favor on the classical dichotomy of opinion among those who are opposed to the government becoming a mammoth octopus-like public corporation. Those who believe in a Communist government involvement in the provision of health care are not many though they have been able to win over support of the most unlikely groups over the years simply because the opposition is not sure whether there is real substance to the argument put forward by the politicians in the opposing camp. Conclusion All in all the three public policy related economic appraoches – mainstream econmics, conservative econmics and Marxian economics – in solving the healthcare provision problems of a country would have their own policy-based decisions. For instance mainstream econmists would have us believe that non-heterodox appraoches are more likely to solve the problem thus increasing the probability of increasing efficiency by reducing marginal costs.On the other hand conservatives argue that government should not be involved in providing heralthcare to the nation at all. However they believe that the government ought to control money supply so that costs can be controllled. Finally there are Marxian economists who would advocate a socialist approach in which provison of healthcare is not only free to the end beneficiary but also available in plenty. But both are practically impossible. REFERENCES 1. McCrone, P. 1998, Understanding Health Economics: A Guide for Health Care Decision Makers (Health care management), Kogan Page Ltd, London. 2. McGuire, A., Henderson, J., and Mooney, G. 1987, Economics of Health Care, Routledge, New York. 3. Primer on Cost-Effectiveness Analysis, 2000, Effective Clinical Practice, Vol.5, pp253- 255. 4. Pizzi, L. 2005, Economic Evaluation in U. S. Health Care: Principles and Applications, Jones & Bartlett Pub, London. 5. Whittington, R. 2008, Introduction to Health Economics Concepts - a Beginners Guide (Spiral-bound), Rx Communications Ltd, Flintshire, 6. Seymour, E. H. ,2005, The New Economics: Keynes Influence on Theory and Public Policy, USA: Kessinger Publications. 7. Anthony, E. ,1997, Neoclassical Microeconomic Theory: The Founding Austrian Vision (Routledge Foundations of the Market Economy), UK: Routledge Pulications. 8. Ernest, U. (2009), Marxist Economics: A Popular Introduction to the Three Volumes of Karl Marxs Das Kapital, Florida: Red and Black Publications. 9. Claude, G. & Louis-Philippe, R. ,2006, Post-Keynesian Principles of Economic Policy :New Directions in Modern Economics, UK: Edward Elgar Publishing. 10. Cost-effectivens table adapted from www.acponline.org on November, 1 2010. 11. Definition of Cost-effectiveness analysis retrieved from (www.dcp2.org) On November, 1 2010. Top of ForBottom of Form Read More