Santerre Chapter 3: Health Production Functions
The Production of Good Health
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Production functions
– How the level of output depends on quantities of various inputs
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Health production functions
– Maximum amount of health that an individual can generate:
• From a specific set of health-related inputs
• In a given period of time
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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
• Environment - Air and water quality and public health measures
– 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
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Marginal product of medical care
– Incremental improvement in health brought about by each successive unit of medical care
consumed
MPq = ΔH/Δq
• MPq - marginal product of the last unit of medical care services consumed
– Law of diminishing marginal productivity
• Marginal product of medical care diminishes as the individual acquires more
medical care
• Marginal product curve - Negatively sloped
Theoretical Health Input Effects: change in any of the health inputs changes the level of “good”
health and the marginal product of health care
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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
• Newer medical technologies result in:
– Treatment expansion
– Treatment substitution
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Age affects health as well as the marginal product of medical care – both decrease as age
increases
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Personal habits impact the production of health
• Adoption of healthier lifestyle causes the total product curve to shift and rotate
upward
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Improved socioeconomic conditions
• An educated individual is a more efficient producer of health
• Reverse effect: health influences education
– Poor health conditions during childhood may result in a less healthy adult
with moderate levels of education
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Fuchs (1979), argues that the acquisition of education and health depends
on the value people place on future events
Increased income health effects
– Indirect impact on health
• Consume more medical care
• More educated, healthier lifestyle, and live in a safer environment
• Improved health
– 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 & relative income hypotheses
• An individual’s absolute income is positively related to health
• An individual’s income relative to some social group average
impacts overall health
• One’s social position in the income distribution impacts health
• The distribution of income itself directly impacts health
Adjustment in physical environment affects the level of health, e.g., cleaner physical
environment means less exposure to allergies and ailments
Evidence from Health Production Functions for Nonelderly Adults
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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
– 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
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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
Income and health - positive connection
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Increases in income
• Enhance both mental and physical health
People with less than a high school education and incomes below $10,000
• 2-3 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
• 1% drop in unemployment rate – 0.5-0.6% increase in total mortality rate
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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
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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
• 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
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Environment and health
– Relation between environmental factors and health is very complex in terms of types of
pollution and their impacts on health
• One study reveals that "reductions in air pollution accounted for as much as 15 percent
of the overall increase in life expectancy
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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
Evidence from Health Production Functions for Children
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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
– Healthier parents tend to have healthier children
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Environmental factors also impact children’s health
Expansion of Medicaid eligibility impacts infant mortality
The Determinants of Health among the Elderly
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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
The Role of Public Health: An Historical Approach
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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
– 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
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
Empirical Evidence on the Production of Health: A Summary
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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
• 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
The elderly
Medical care – important at the margin
Nonmedical factors also play an important role
Policy implications
– Any public policy initiative aimed at improving health should also consider:
• Raising education levels
• Reducing the amount of poverty
• Encouraging improved lifestyles