UNCERTAINTY & THE WELFARE ECONOMICS OF MEDICAL CARE

Presented by:

Dr. S.M. Yasir Arafat

MBBS (DMC), MBA, FCPS (P1)

Psychiatry,

MD Phase A Resident Psychiatry,

BSMMU.

MPH, Batch-11, ID: 14-2-42-0004

ASA University Bangladesh, Dhaka.

Uncertainty & The Welfare Economics of Medical Care

Kenneth J. Arrow, December 1963

The American Economic Review

Reproduced by permission of the American EconomicAssociation

Bulletin of the World Health Organization|February2004, 82 (2)

Introduction: Scope & Method

Explorative & tentative study of medical care as an object of normative economics

Comparison between medical care industry with welfare economics

Subject is medical care industry not the health

Scope & Method: Complexities

Causal factors in health are many, but the provision of medical care is only one

Complex services that centered about the physician, private & group practice, hospitals & public health

Focus of the discussion is the difference from the norms

The Norms in Competitive Model

Market equilibrium

Open market situation

Economic efficiency

Competitive Model

Competitive equilibrium

Marketability of all goods & services

Nonincreasing returns

Medical Care Market, Competitive & Welfare Model

The risk and uncertainty

Failure of competitive preconditions as not for welfare

Societal role in market failure

Special structural characteristics of medical care market to overcome the differences

Characteristics of Medical Care Market

Nature of Demand- Irregular & unpredictable

Expected Behavior of Physicians- Not as like a

sales man at all

Product Uncertainty- Incidence, Treatment

options, Recovery, Outcome, level of knowledge

regarding services all are uncertain

Supply Conditions- High entry barrier

Pricing Practices- Extensive discrimination

Medical Care Market & Under Certainty Competitive Model

Nonmarketable Commodities- Epidemic, Government funding, Donation

Increasing Returns- Allocation of resources (low density, low income)

Entry: High entry barrier

Pricing: Extensive discrimination, collective monopoly

Medical Care Market & Under Uncertainty Competitive Model

Introduction:

Comparison between Medical Care & other uncertain market conditions

Welfare economics of uncertainty: loss & risk can be insured

Nonexistence of suitable insurance for such conditions

Problems of Insurance

The moral hazard Funding-Govt., NGO

Health policy

Professional relationship

Alternative methods of insurance payment Prepayment

Fixed schedule

Pooling of unequal risk- redistribution of income

The concepts of trust and delegation

Licensing and educational standards