• Fresh Perspectives

    The (Micro) Economics of Health

    To recap, I am pursuing a master’s degree in public health during my first years as an attending. It is difficult but oh so educational. Given that I think family doctors are perhaps the physicians best equipped to enact public health changes in our communities, I have been distilling the M.P.H. classes I take into digestible “useful to the family medicine doc” bits. Today, I bring you part six, in which we talk about microeconomics and health.

    analytics chart, calculator, stethoscope

    Microeconomics may not sound like an obvious place to find practice pearls for the average family physician, but I encourage you to think about it like a precursor to behavioral economics – namely, how people make decisions.

    Intro to microecon is a lot like intro to physics. It is math to explain observable phenomena (apples fall, and people buy things they like within a budget), and the equations you learn are useful mostly in the abstract. In physics you need more classes to learn how to apply wind resistance and air speed and humidity to your equations, whereas in microecon you need to learn how to collect and interpret real data rather than use the easiest of round numbers to illustrate a point. (No one prefers pizza to burritos in an exact 2:1 ratio, right?)

    However, here are the things that are mathematically true and remarkably applicable.

    People have utility curves, which means bundles of goods that are essentially equal in terms of desirability to the person. To someone who likes pizza twice as much as burritos, six pizzas and four burritos is as “useful” (6 x 2 + 4 x 1 = 16 “usefulness units”) as 12 burritos and two pizzas (12 x 1 + 2 x 2 = 16 “usefullness units”), so if the price is the same they don’t care which of those two food combinations they get. The takeaway here is that people will always maximize utility (read: usefulness or benefit) within their budget (hopefully). The things that add up to that utility are part universal (calories, nutrition), part individual (taste preferences) and part random (lactose intolerance?).

    Much of microeconomics is predicting the equilibrium point between supply and demand curves. Given perfect information about the upsloping supply curve and downsloping demand curve (which requires perfect info about fixed costs, variable costs, preferences etc.), the supply side will know exactly how much of a thing to produce to maximize profit at the price the demand side is willing to buy.

    That equilibrium point is where the supply and demand curves cross. In real life, all we get is approximations of perfect information, but this is how producers decide how much of a thing to make. The point I want to make is that events like natural disasters or taxes can shock the supply and demand curves, forcing a change that would not have otherwise happened. This creates what is known as a market disequilibrium, or an inefficient market.

    In economic terms, welfare is the combination of consumer surplus utility and producer surplus utility and is always maximized at the market equilibrium. When you have market disequilibrium you end up with what is called deadweight loss, which is the lost welfare caused by a mismatch of supply and demand.

    Now, I know what you might be thinking. Deadweight loss sounds pretty bad, and things look bad for government intervention, even if it’s on behalf of public health, right? Well, wait until you hear about externalities.

    Externalities are things besides supply and demand that matter but are not immediately obvious in supply and demand curves. Externalities can be negative (like pollution or tobacco) or positive (like herd immunity or economic equity). Negative externalities are harms besides costs and positive externalities are benefits besides preferences. The role of the government in policy is at least partially to make sure that producers bear some of the burden of any the harms associated with the thing they are producing, and conversely to also allow producers to capture some of any benefit. This will ideally allow the market to find equilibrium at a point called the social equilibrium as opposed to the “competitive market equilibrium,” and as the math ends up showing, overall welfare (as economically defined above) is always higher at the social equilibrium compared to the market equilibrium. The trick is finding the right lever to pull to get to that point without over- or undershooting and creating a whole new slew of unexpected externalities.

    OK, so microeconomics makes sense now, right? At least philosophically?

    Obviously, in creating policy to try to regulate markets, a huge amount of data collection, modeling and math goes into choosing the right type and amount of tax or subsidy to limit or promote the right supply side changes to settle at the predicted social equilibrium, and it can be hard to get it right. But what is so powerful about this is that on an individual, day-to-day basis, each of us is making these calculations for ourselves based on our preferences and how we feel instead of slopes and equations.

    So how do we apply this to medicine?

    I’ll offer two ideas.

    First, when deciding whether to take a prescription (of medication, exercise or food), patients will inevitably weigh the pros (benefits) versus the cons (costs). Often, the cons of a treatment course are obvious, like side effects, bad taste, having to inject oneself, the expense of good nutrition, the time needed to exercise or the actual expense of a medication. I would encourage you to make clear the pros when making a prescription. For conditions that have symptoms, that pro might be obvious: “The gabapentin makes my legs no longer hurt, so it is worth the $12 per month and the annoyance of taking three extra pills per day.” For conditions that may not have noticeable symptoms, like hyperlipidemia, hypertension or early type 2 diabetes, the benefit is less obvious subjectively, so we have to make it obvious in our prescribing practices.

    Faced with a rash of people who stop taking medications between visits because of a variety of perfectly reasonable cons, I have started to highlight which medications are purely for symptomatic relief (pain meds, restless leg syndrome treatments, etc.) and can thus be stopped whenever the subjective experience isn’t worth it, versus medications that are meant to save your life (hypertension meds or blood thinners) that may be worth continuing despite subjectively obvious cons.

    Second, when discussing policy changes at a local, state or national level, it is helpful to remember that our role is to make clear the health-related externalities for the positions in question. This is obvious when discussing things like tobacco laws, but less obvious when discussing things like housing regulations, criminal justice reform or education. In advocacy, we must be fiercely aware of health externalities and make policymakers aware of them whenever possible. Remember, there is health in all policy, and the economics word for it is “externality.”

    So, how has this class affected my practice?

    First, as I mentioned, I’ve been highlighting to patients which of their medications are for control of symptoms only, meaning if the side effects/costs outweigh the subjective benefits, they can stop them (but should tell me that they do so), and which are life savers, so they should talk to me about their concerns before just stopping those medications.

    Second, I pull up the online atherosclerotic cardiovascular disease calculator whenever I talk about cholesterol, blood pressure, tobacco, exercise, diets or diabetes so I can show them how much of a risk-point decrease each proposed change will earn them. Using actual numbers makes the daily calculus of prescription adherence more predictable.

    Finally, I find the language of economics to be more successful when talking to politicians. Although not everyone knows what an externality is, if you start talking about supply and demand, even the politicians most tuned out to our “health in all policy” refrain start perking up.

    Stewart Decker, M.D., is a family physician practicing in southern Oregon. He focuses on the intersection of public health and primary care.


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