Scandinavian Working Papers in Economics

HERO On line Working Paper Series,
Oslo University, Health Economics Research Programme

No 2001:9: Efficient use of health care resources: The interaction between improved health and reduced health related income loss

Michael Hoel ()
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Michael Hoel: Department of Economics, Postal: University of Oslo, P.O. Box 1095 Blindern, NO-0317 Oslo, Norway

Abstract: Cost effectiveness is a criterion that is often recommended for prioritizing between different types of health care. A modified use of this criterion can be justified as the outcome of a choice that is made “behind a veil of ignorance”. Reduced health will in many cases also gives an income loss that is shared between the patient and society at large. In the special case where the marginal utilities of health status (measured by QALYs) and income are independent of the health state, an efficient allocation of health resources is characterized by net marginal costs per QALY being equalized across different types of health care. Net marginal costs are equal to gross marginal costs minus the reduction in health related income losses due to treatment. In the general case where marginal utilities depend on the health state this rule must be modified.

Keywords: Health management; cost effectiveness; social security; QALY

JEL-codes: D61; D63; H42; I18

19 pages, June 30, 2009

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