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Applying Economic Tools to Health Care Setting

  • Date Submitted: 08/14/2012 03:06 PM
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Applying Economic Tools to a Health Care Setting
Health care is a controversial topic in the United States today.   Some of these discussions involve the impact of the cost to the consumer, will the benefits out-weigh the costs, are the dollars being spent the most efficient use and what are the alternatives to manage health care costs.   To assist in understanding all of these subject matters without alluding to a fix to the issues in this country, below is an overview of three methods of evaluating or using economic tools to apply to the health care industry and the usefulness to the individual.
Cost Benefit Analysis
Cost benefit analysis, (CBA) is an appraisal technique that tries to place monetary values on all benefits originating from a project and then compares the total value with the project’s total cost (Riley).   (Folland & Allen, 2004) explain that CBA makes the assumption that a project or policy will improve social welfare if the benefits associated with it exceed the costs.   The benefits and costs include not only those directly imputed to the project but also any indirect benefits or costs outside of the project or other third-party effects.   The benefit to an individual of a service or intervention is defined as that individual’s maximum willingness to pay for the service or intervention.   The benefit to society for the intervention is the sum of each individual’s willingness to pay (Bala et al., 1999).
An example would be to assume that your well-being or utility depends on your income and health.   Also, that a treatment is introduced that moves your health status from a specific disease state to full health.   Your willingness to pay is the maximum amount of money you would pay for the treatment which restores you to full health and at the same time maintaining the same level of overall well-being or utility.   If you had to pay more than this maximum value, the loss of income would more than offset the gain in well-being due to the health...


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