Health policymakers always strive to find a balance among two goals: efficiency and equity
Efficiency
Efficiency means getting the "most" out of scarce resources.
There are broadly two levels of efficiencies:
The first two requirements relate only to production; the third introduces consumption, thereby bringing together the supply and demand sides of the exchange of output.
Technical efficiency: for any given amount of output the amount of inputs used to produce it is minimized. If this condition is not met, then it is possible either to obtain more output through a different configuration of resources, or to release some of the resources to alternative uses without sacrificing any current output. It is also called production efficiency or cost-effectiveness that inputs be combined so as to minimize the cost of any given output. For example, if labour is abundant and inexpensive relative to capital in one economy compared to another, then least-cost production methods will employ relatively more labour in the first economy.
Allocative efficiency: resources be used to produce the types and amounts of outputs which best satisfy people, i.e., which people value most highly. It is possible for an allocation of resources to be both technically efficient and cost-effective but allocatively inefficient if producers are supplying too much or too little of a good or service relative to consumers' wishes.
Allocative efficiency involves value judgements about what criteria will be used to judge whether a particular resource allocation is optimal. The standard criterion in economics comes from a branch of economic theory known as welfare economics. The criterion is known as the Pareto criterion (named after a 19th century sociologist and economist, Vilfredo Pareto), and states that allocative efficiency has been attained when it is not possible to change the allocation of resources to make any one person better off without making at least one other person worse off.
An efficient allocation of resources means that for each good or service produced, the marginal social cost equals the marginal social benefit. Health administers should search for an optimal production technology to maximize the aggregate health outcomes in the society.
Economic evaluation (described in previous chapters) is a tool to assist policymakers in assessing or developing an efficient health care system.
Equity
Equity is not an economics concept. It means a fair distribution of outputs or burden across a population. However, ‘fairness’ is often difficult to define. Policy questions concerning equity tend to be moral and ethical as well as technical in nature. The principles that health analysts use to ensure and assess equity derive from a variety of fields: philosophy, ethics, law, and political science, as well as economics.
Horizontal equity: refer to the distribution of equal amounts of a good among recipients who are similarly-situated according to relevant aspects of their situations. Hence, the funding formula attempts to ensure that those with similar needs and costs receive similar per capita amounts.
Vertical equity: refer to the imperative to distribute unequal amounts among differently situated recipients in proportion to the degree that-they are differently situated. Hence, the formula similarly attempts to ensure that those districts with greater health care needs receive a greater share of the budget.
Economists quantify distributional equity and correspondingly
have developed quite sophisticated methods for assessing equity in the distribution
of resources. A key concept for analyzing distributional equity is incidence
which, in essence, means " upon whom does something fall?"
Economists often distinguish between the concept of statutory incidence and
economic incidence. Statutory incidence refers to who actually makes
the payments while the economic incidence refers to who actually
bears the economic burden, which can differ from the statutory incidence whenever
the organization that formally pays the tax or premium can pass the costs
onto another party, who then bears the economic incidence.
Financing systems in which the contributions of high-income individuals are a greater proportion of their income than are contributions of low-income individuals are called progressive. Otherwise, it is called a regressive system.
Equity analysis investigates these concepts numerically through the use of Gini coefficients, Lorenz curve, concentration curve and Kakwani index.
Reference:
Reinhardt, U.E. 1992. "Reflections on the Meaning of Efficiency:
Can Efficiency Be
Separated From Equity?" Yale Law and Policy Review. Vol. 10: 302-315.
Van Doorslaer, E., A. Wagstaff and F. Rutten. 1993. Equity in
the Finance and Delivery of
Health Care: An International Perspective. Oxford: Oxford University Press.
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