Health Production

Functions
Outline

 Measures of Health
 Concepts:
 Health Production Function
 Marginal Product of Health
 Historical Health Production Functions
 Modern Health Production Functions
 Contributions of health care
 Lifestyle & Environment (Pollution)
 Education
Measures of Health Status

What do we want:
A measure of the population’s health status,
that captures those aspects of health that are
meaningful, and can be measured with
accuracy (i.e., quantifiable).
 Two main types mortality and morbidity.
Measures of Health Status:
Mortality Measures
 Popular measures because is
easy to quantify
 know when someone dies and is
regularly recorded information
 Crude death rate
 number of deaths per 100,000
population
 for some time period—usually a year
Measures of Health Status:
Mortality Measures
 Infant mortality rate:
 Number of death of children < age 1 per
1000 live births
 Adjust for age, sex, and race to make more
meaningful
 Not necessary accurate in low-income and
war-torn places
 Under-five mortality rate
 Mortality rate for elderly
Measures of Health Status:
Mortality Measures
 Life expectancy at birth (male and female)
 Cause of death
 In more developed countries, can use the
cause of death to make analysis more
meaningful
 i.e., if studying pollution, may want to look at
deaths due to asthma, or respiratory infections for
infants (< age 1) or small children (< age 5)
Measures of Health
Mortality Measures: Problems

Problems with mortality measures

 Give information on acute problems that lead to
death but don’t provide information on quality of
life (do you live in pain and can you perform the
tasks you want)
 Tend to be used in aggregate data analysis not
individual analysis
Measures of Health
Morbidity
 Morbidity: A statement about the extent of
disability a person suffers as a consequence
of a disease over time.
 Difficult to quantify because no clear end
point and need to asses: duration, severity,
and consequences of a disease.
Measures of Health
Morbidity
 Need to measure the disability which could be
physical, mental, functional, or social.
 Some sources of these types of data are:
 Hospital inpatient discharge records.
 Hospital outpatient discharge records / outpatient
records.
 Survey data: self health assessments, days lost
from work.
Measures of Health
Morbidity
 Typical morbidity measures includes:
 Restricted-activity days due to illness
 e.g. number of working days lost – Table 5.2.
 Incidence rate of certain chronic conditions.
 Self-assessment of health status.
 Measures of mobility or activity (ADLs–activities
of daily living).
 Biomarkers: a characteristic that is objectively
measured and evaluated as an indicator or
normal biologic process. For example: blood
pressure, cortisol (stress measure).
Measures of Health
Morbidity
 Chronic conditions with the highest overall
prevalence in US are:
 Chronic sinusitis
 Arthritis
 Asthma
 Chronic bronchitis
 Diabetes.
Health Production Functions
(Determinants of Health: US Pop.)
Health Production Function: describes the
relationship or flows of inputs and flows
of outputs over a specified period.
 Where output is usual some measure of
health status (HS).
 HS=F(inputs to health)
 What could the inputs be?
 HS=F(health care, environment, education,
lifestyle, genetic factors, income)
 Health Production Functions
Health Status (HS)
Does it make sense the
B curve flattens out, should
it bend downwards again?

A>B : as you increase the number of

health care inputs, the effects on
total health status decrease.

1 2 3 4 5 6
Health Care Inputs (HI)
Marginal Product of Health Care
Marginal Product of Health Care

Marginal Product: Is the increment in health

status caused by one extra unit of Health Care,
A holding all other inputs constant?

HS HS

HI HI
MP is diminishing in size, demonstrating the law
of diminishing marginal returns.

1 2 3 4 5 Health Care Inputs

Marginal Product of Health Care

 Marginal product that is relevant for policy

makers:
 They want to know if I add one billion dollars to
health care, how much will the health status of
the population improve.
 The marginal product might be different for
different types of groups, such as young,
elderly, or poor.
Determinants of Health
Historical View
 To know what factors go into the health
production function (inputs) need to
understand the determinants of health.
 Historical Question: what led to the population
explosion and increase in life expectancy?
Why has mortality declined?
 Big medicine theory
 Antibiotics for infectious diseases
 High-tech treatments for cardiovascular disease
 Economic growth theory
 Nutrition allows one to withstand disease
 Public health theory
 Better sewers, cleaner water and air
 The long reach of early life factors
 Maternal nutrition in utero and fetal development
 What looks like big medicine now could be long-
term effects of better nutrition, public health in the
past
Big Medicine
 Medicine is often a starting point
 Seems logical?
 Many studies show effects of medicine for
specific conditions
 Drug trials
 Cardiovascular care
 Small pox!
 Some better than others
 Difficult to assign an overall contribution
 Readings question role of Big Medicine
Big Medicine
 Big Medicine:Antiobiotics
Influenza and Pneumonia Deaths per 100,000
300

The development of
antibiotics helped, but it
200

came very late in the

process.
100
0

1900 1920 1940 1960 1980 2000

year
Big Medicine: Cardiovascular Disease
Cardiovascular Deaths per 100,000
300 400 500 600 700 800

Medical advance appears

more important for
cardiovascular disease.

1900 1920 1940 1960 1980 2000

year
Economic growth & nutrition
 Fogel: Find direct evidence for economic
growth hypothesis
 Measures of nutrition:
 Height (nutrition as a child, esp. up to age 3)
 Weight (nutrition as an adult)
 Finds
 Taller people live longer
 People at the appropriate weight live longer
 Collected lots of data on weights and heights
over time
Economic Growth Explanation
Heights of British Men

 In 1800, people were 9

8

5 Feet and XX Inches

shorter and below optimal 7
6
5
weight given height. 4
3

 Both heights and weights

2
1
0
18-III 18-IV 19-I 19-II 19-III 20-III
have increased over time.
Weights of British Men
 Fogel: This explains 50 to 180
160
80 percent of mortality 140
120

decline. Pounds
100
80
60
40
20
0
1800 Today
Economic Growth Explanation

 This was a time of exploration and many new

foods were introduced into people diets.
 Agriculture was advancing, new crops, crop
rotation, seed production ….
 Standards of living were increasing as a
result of trade so people had the money to
buy more food.
 Better nutrition results in stronger immune
system
Public Health Explanation
 Preston and Deaton response to Fogel:
 Fogel presents evidence on nutritional status not
availability
 Economic growth not only factor in nutrition
 Interaction between disease and caloric intake
 By 1900, U.S. well-fed  improvement since
then?
 Relationship between income and health
changing
 Example: China is about as rich as the US in 1900, but
has life expectancy fairly close to US today and far
above US in 1900
 Quality of the food matters
The Public Health Revolution
 Modern health practices date from the early
20th century (post germ theory)
 Macro public health: sanitation; clean water;
pasteurized milk
 Micro public health: bathing and hand washing
 Epidemiological studies: specific public health
interventions improve health
 Gap in child mortality by class emerges after
public health information is available
 Upper classes had more information?
The Public Health Revolution
First epidemiological study in public health
 1854 and John Snow Cholera outbreak
 Sept 1854, 600 people living with a few blocks
died of cholera. (thought a low lying cloud caused
cholera)
 Obtain water by signing up with a water supply
company. (there were a couple of companies in
area)
 One company moved to a less polluted part of
Thames–deaths much lower for HH receiving this
water.
 Matter of public health to make sure water coming
from clean areas or to chlorinate the water.
The Long Reach of Early Life

 Are recent mortality reductions due to public health

or nutrition changes long ago?
 Maybe there is much more to play out?

 Almond and Mazumder: Effects of in utero exposure

to flu
 Substantial long-term effects of exposure to flu in utero
during 1918 flu pandemic

 Do other early life factors matter, but less

dramatically?
Effects of in utero flu exposure
Peak of flu pandemic Spike in poor health:
4th quarter of 1918 2nd quarter of 1919
Why has health improved?

 Probably all three mattered

 Contributions differ by time period

1. Economic development/nutrition
• Most important before c. 1880
2. Public health/germ theory
• Most important c. 1880-1960
3. Improved medical care (Big Medicine)
• Most important since 1960
Determinants of Health
Modern Day
1. Contribution of Health Care to Population
Health—which part of the health
production curve are we on.
 Look at elasticity of health status (HS) with
respect to health care expenditure (HE).

% HS
% HE
Determinants of Health
Health Care – Elasticities in the US
Evidence

 First three use mortality as HS, last measures

activity and morbidity.
Determinants of Health
Health Care
 1969 and 82 studies how health exp. has little
impact. A 10% increase in health care
expenditure reduces mortality by at most
1.7%.
 Marginal effect of health care on health status
is small in US – might be on flat part of health
production function.
 Need to think about population effects: may
be small improvement in health status for one
person but summed over the population is a
much bigger effect.
Determinants of Health
Health Care
Do you think the elasticities will be the same in
other countries developed or developing?
Determinants of Health
Health Care
 Heterogeneity: Medicare lead to greater
improvements in the health of black females
than white males.
Determinants of Health
Health Care
Young blacks benefit more than whites
Determinants of Health
Health Care
 WIC: government program designed to improve
nutrition of women and infant and provide prenatal
care.
 BCHS: Bureau of Community Health Services
Projects: i.e., maternal and infant care and community
heath centers
 Able to explain 56.5% of black neonate mortality with
these health interventions.
 But program such as WIC or prenatal care, do more to
reduce mortality than expensive neonatal intensive
care units (but hospitals make a lot of money from
intensive care units).
Determinants of Health
Health Care
Morbidity
 Maybe health care is better at reducing morbidity
(reduction of pain, mobility, etc.).
Evidence:
1. Newhouse and Friedlander (1980) looked at
biomarkers such as blood pressure, cholesterol,
abnormal chest Xrays …
 Found availability of health care was rarely
significantly related to these measures. But better
educated individuals had better health.
 They did not control for the quality of health care, did
these organizations do an adequate job.
Determinants of Health
Health Care
2. Rand Health Experiment
 Controlled experiment in health insurance
 1974-1982, 7,000 individuals
 Randomized into 14 different insurance plans but
one health maintenance organization. (different
price, same quality)
 Co-payments ranged from 0-95% with a maximum
outlay of $1000 dollars per participant.
 Wanted to test the effects of alternative health
insurance policies on the demand for health care
and on the health status.
 Fully insured purchased roughly 40% more health
Rand Health Experiment
 Little difference in health status
Determinants of Health
Health Care
Rand Health Experiment (continued)
Folland, et al. use this as evidence that health
care has little effect on health status.
 How would you criticize the study.
1. Is 40% meaningful (reduce from 2 visits to the
doctor to 1 visit?) might not have been going
enough to the doctor in the first place.
Determinants of Health
Health Care
2. We showed earlier that subgroups mattered. So what
is the effect of greater costs on the poor, on
newborns, infants or on blacks—other studies show
that the poor’s health declined as the amount of
insurance they had to pay increased.
3. Time period of the study, duration of experiment and
length of time till poor health are also important
factors.
Determinants of Health
Health Care

 Folland summarizes that health care is not a

major determinant of health status.
 So what else might be?
Determinants of Health
Environment and Life Style Factors
 Evidence shows that countries whose
citizens have better life-styles (lower
smoking, more exercise, not excessive
drinking…) have better health status.
(difference between US and Europe?)
Determinants of Health
Environment and Life Style Factors
 Fuchs compares average death rates in
Nevada and Utah for 1959-1961 and 1966-
1988.
 Compares these two states because feels they
are similar, same level of income and medical
care, but Utah has Mormons so smoke and drink
less.
 To do this better need to control for as many
observables as you can (income, pollution levels,
% urban population ….)
Determinants of Health
Environment and Life Style Factors

Concludes the lifestyle is an important part of health.

Determinants of Health
Environment and Life Style Factors
 What is a major health problem today and what
type of life-style factors lead to this? What is
being done about it?
 There is a lot of work going on studying the
effects of air pollution (especially particulate
matter) on asthma and other respiratory
disease.
 If you want to look at recent economic studies
look at Chay and Greenstone.
 Drug use/smoking/excessive drinking:
especially crucial for newborn health.
Determinants of Health
Income
 Talked about this for developing countries.
 But just looking in the developed (already
rich world) there is less of a correlation
between health and income. This is partly
because there is just not enough variation in
income.
 Pritchett and Summers (1996) do show that
people with very low incomes in developed
countries have worse health.
Determinants of Health
Education
Two Theories:
1. Education central to health
2. Education not important
Determinants of Health
Education
1. Health important
 Better educated people know how to use
medical and other market inputs and their own
time to produce health care.
 More efficient producer of health status.
 Medicaid, all the confusing paper work, when
are you eligible and when not. Hard for an
uneducated person to figure this out.
 Better educated probably demand more
answers.
 Able to read and understand how to take care
of themselves better.
Determinants of Health
Education
2. Education not important
 Omitted Variable Bias
 Some third factor that is missing that effects
both education and health status (e.g. mother’s
education).
Determinants of Health
Education
Evidence:
 Tends to show that theory 1 is correct. Education
does lead to better health outcomes.
 Miguel article-Health and Development Section
 Lleras-Muney (2002): used timing of compulsory
education laws.
 Birth cohorts from before and after compulsory education
would have had similar experiences but differed in
education.
 Compulsory education led to 1.7 more years of life per
person.
Health Production Functions
Developing Countries
 Van der Gaag and Gertler (1990)
 Interpret as elasticities (log-log relationship).
Van der Gaag and Gertler

 Literacy is a very important factor. (not showing causation like

Miguel is trying to show).
Health Production Functions
Developing Countries
 Link between education and health weakens
when family background variables are
controlled for.
 Correlation between health care expenditures
and health.
 A 10% increase in health exp. is associated with
an increase of 0.6 years of life expectancy, 4.1%
reduction in IMR, 8.7% reduction in child mortality
rate.
Discussion Questions

1. Do you think how health care is practiced

might affect the impact of health care on
health status? What might you change in
the US system?
2. Do you think public and private dollars at
substitutable, i.e., will you buy the same
kind of health care and will it have the same
effect on your health status?