The Determinants of Health among Children

Numerous studies have investigated the factors that influence health among children. This body of literature is important because it illustrates the lasting impact of childhood health into adulthood. For example, Case et al. (2005) fi nd that childhood health has a long-term impact on adult health, education, and social status. Such information is valuable when crafting public policies aimed at improving overall health.

Employing county-level data, Corman and Grossman (1985) regress the neonatal mortality rates for blacks and whites on a host of factors including education of the mother, the prevalence of poverty (a measure of income), and the availability of public programs. Some of the public programs included in the analysis are the existence of neonatal intensive care facilities, the availability of abortion services, organized family planning, and Medicaid. Overall, the results are robust and enlightening. Lack of schooling and the existence of poverty are found to raise the neonatal mortality rate for both white and black infants. Together, they account for an increase in neonatal mortality rates by 0.950 and 0.786 per 1,000 live births for whites and blacks, respectively. Access to health care also plays a role, as the presence of neonatal intensive care has caused the neonatal mortality rate to fall by 0.631 and 0.426 per 1,000 live births for white and black infants, respectively. Moreover, the results indicate that various government programs are associated with a reduced mortality rate for black as well as white infants. For example, Medicaid accounts for a decrease in the mortality rate by 0.632 per 1,000 live births for white children and 0.359 per 1,000 live births for black children.

Two recent articles point to the significance of environmental factors on infant health. Chay and Greenstone (2003) use county data from 1981–1982 to estimate the impact of total suspended particulates (TSPs) on infant mortality. TSPs are minute pieces of dust, soot, dirt, ash, smoke, liquid vapor, or other matter in the atmosphere that can cause lung and heart disease. The authors find that a 1 percent reduction in TPS causes the infant mortality rate to fall by 0.35 percent at the county level. Currie and Neidell (2005) find that reductions in carbon monoxide also impact infant mortality. In particular, they find that reductions in carbon monoxide in California throughout the 1990s saved approximately 1000 infant lives. These studies are part of a growing body of literature that illustrates the importance of environmental factors in determining health. Case et al. (2002) focus on the impact of socioeconomic status on children’s health.

To no one’s surprise, the authors find a strong positive relation between the education of the parents and the health of their children. For example, the health of children is positively related to the education of mothers for children living with a mother. Education, in this case, is measured by whether the mother did not complete high school, had a high diploma, or had more than a high school education. The education of fathers is also found to positively contribute to improved health among children, implying that parental education positively impacts the production of a child’s health at all age levels.

The study also finds that household income is a strong predictor of children’s health.

More specifically, the authors find that when household income doubles, the probability that a child 3 years old or younger is in excellent or very good health increases by 4 percent. Comparable improvements for children between ages 4 and8, 9 and 12, and 13 and 17 are 4.9 percent, 5.9 percent, and 7.2 percent, respectively. Just as interesting, the authors find that permanent income is a strong determiner of children’s health. In particular, they find that family income before a child is born is positively related to the child’s health

Finally, the authors find that healthier parents tend to have healthier children. Why that is the case, however, remains to be determined. However, the authors do estimate a series of equations for children with adoptive and biological parents and find that the impact of income on health is not signifi cantly different across the two populations. While this evidence is not definitive, it does suggest that genetics may explain only part of the reason why healthier parents have healthier children. Could it be that the production of health takes place at the household level and that healthier parents are simply more efficient producers of health for all members of the household? Clearly, more research needs to be done before we fully understand how parental behavior coupled with socioeconomic factors impacts children’s health.

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The Determinants of Health among Nonelderly Adults

Medical Care and Health To no one’s surprise, the literature has found the consumption of medical care has a positive impact on the production of adult health. However, the results also indicate that quantitatively, the impact is relatively small. For example, Hadley (1982) finds that a 10 percent increase in per capita medical care expenditures results in only a 1.5 percent decrease in the adult mortality rate. His result confirms those of an earlier study conducted by Auster et al. (1969), who estimate that a 10 percent increase in medical services leads to a 1 percent drop in the age-adjusted mortality rate. Sickles and Yazbeck (1998) find that a 10 percent increase in health-related consumption leads to about a 0.3 percent improvement in health as measured by a comprehensive health index that considers a number of quality-of-life variables. Finally, based upon a random assignment of households to different health plans, Newhouse et al. (1993) find that households in low coinsurance plans received more medical care yet possessed virtually the same level of health as those households in high coinsurance plans, ceteris paribus. Enthoven (1980) has referred to the small marginal impact of medical care services on the health status of adults as “flat-of-the-curve” medicine.

Education and Health The positive relation between education and health is well documented in the literature. For example, Elo and Preston (1996) find that education had a significant impact on mortality for both men and women in the United States during the early 1980s, with the impact of education greater for men and those of working age than for women and the elderly. Lleras-Muney (2001) finds a significant relation between education levels and health. In particular, she finds that one more year of schooling decreases the probability of dying within 10 years by 3.6 percent. More recently, Cutler and Lleras-Muney (2006) estimate that an additional year of education increases life expectancy by between 0.18 and 0.6 years.

Income and Health Empirical studies have also documented a positive connection between income and health. Ettner (1996) finds that increases in income enhance both mental and physical health, while Lantz et al. (2001) find that income and education are both associated with improved health. More specifically, they find that people with less than a high school education and incomes below $10,000 are between two and three times more likely to have functional limitations and poorer self-rated health than their more advantaged counterparts.

While the positive relation between income and health is well established in the literature, a question remains concerning how temporary changes in the macro economy impact health. In other terms, what is the relationship between cyclical changes in the macro economy and overall health? Your first inclination is to assume that a procyclical relationship holds between the state of the economy and health. In other words, as an economy emerges from a recession and the unemployment rate begins to fall, overall health should improve. You might argue that higher per capita incomes should translate into improved health as people have more discretionary income to spend on medical care. In addition, as more people acquire jobs with employer-financed health insurance, the out-of-pocket price of medical care should drop, causing people to consume more health care. An improved economy may also be associated with healthier lifestyles because as unemployed workers find employment, stress levels are likely to fall along with alcohol consumption and smoking.

Ruhm (2000, 2003) argues that just the opposite may occur: an improved economy may be linked to poorer health. He cites three reasons why health may decline during a cyclical economic expansion. First, the opportunity cost of time is likely to increase with an improved economy. As workers find employment, the amount of leisure time they have to perform what Ruhm refers to as health-producing activities (such as exercise and eating right) diminishes. Second, the act of work may adversely impact the production of health. As the economy improves and more workers find employment, the number of work-related accidents and work-related stress cases increases. Third, an economic expansion may cause an increase in other causes of mortality such as traffic fatalities, homicide, and suicides.

To test the relationship between cyclical conditions and health, Ruhm estimates the impact that various economic indicators such as unemployment and personal income have on a number of health indicators. The author utilizes a state-based data set for the years 1972 through 1991 and estimates a number of equations utilizing a variety of health measures. Among the measures of health included in the analysis were overall mortality rates, age-based mortality rates, and deaths due to specific causes such as cardiovascular diseases, chronic liver disease and cirrhosis of the liver, motor vehicle accidents, and suicide.

The results are illuminating and suggest an inverse relationship between the strength of the economy and health in the short run. Overall, Ruhm finds that a 1 percent drop in the unemployment rate, relative to the state historical average, results in an increase in the total mortality rate of between 0.5 and 0.6 percent. In addition, Ruhm finds that the impact of changes in the unemployment rate on mortality rates appears to concentrate among the relatively young, between ages 20 and 44. This makes intuitive sense given they are the ones likely to be hit hardest by temporary changes in economic conditions.

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What Is Medical Care?

Medical care is composed of myriad goods and services that maintain, improve, or restore a person’s health. For example, a young man might have shoulder surgery to repair a torn rotator cuff so that he can return to work, an elderly woman may have hip replacement surgery so she can walk without pain, or a parent may bring a child to the hygienist for an annual teeth cleaning to prevent future dental problems. Prescription drugs, wheelchairs, and dentures are examples of medical goods, while surgeries, annual physical exams, and visits to physical therapists are examples of medical services.

Because of the heterogeneous nature of medical care, units of medical care are difficult to measure precisely. Units of medical care are also hard to quantify because most represent services rather than tangible products. As a service, medical care exhibits the four Is that distinguish it from a good: intangibility, inseparability, inventory, and inconsistency.

The first characteristic, intangibility,means that a medical service is incapable of being assessed by the five senses. Unlike a new car, a steak dinner, or a new CD, the consumer cannot see, smell, taste, feel, or hear a medical service.

Inseparability means that the production and consumption of a medical service take place simultaneously. For example, when you visit your dentist for a checkup, you are consuming dental services at the exact time the dentist is producing them. In addition, a patient often acts as both producer and consumer. Without the patient’s active participation, the medical product is likely to be poorly produced.

Inventory is directly related to inseparability. Because the production and consumption of a medical service occur simultaneously, health care providers are unable to stockpile or maintain an inventory of medical services. For example, a dentist cannot maintain an inventory of dental checkups to meet demand during peak periods.

Finally, inconsistency means that the composition and quality of medical services consumed vary widely across medical events. Although everyone visits a physician at some time or another, not every visit to a physician is for the same reason. One person may go for a routine physical, while another may go because he needs heart bypass surgery. The composition of medical care provided or the intensity at which it is consumed can differ greatly among individuals and at different points in time.

The quality of medical care is also difficult to measure. Quality differences are reflected in the structure, process, and/or outcome of a medical care provider. Structural qualityis refl ected in the physical and human resources of the medical care provider, such as the facilities (level of amenities), medical equipment (type and age), personnel (training and experience), and administration (organization structure). Process qualityreflects the specific actions health care providers take on behalf of patients in delivering and following through with care. Process quality might include access (waiting time), data collection (background history and testing), communication with the patient, and diagnosis and treatment (type and appropriateness). Outcome qualityrefers to the impact of care on the patient’s health and welfare as measured by patient satisfaction, work time lost to disability, or postcare mortality rate. Because it is extremely diffi cult to keep all three aspects of quality constant for every medical event, the quality of medical services, unlike that of physical goods, is likely to be inconsistent.

As you can see, medical care services are extremely difficult to quantify. In most instances, researchers measure medical care in terms of either availability or use. If medical care is measured on an availability basis, such measures include the number of physicians or hospital beds available per 1,000 people. If medical care is measured in terms of use, the analyst employs data indicating how often a medical service is actually delivered. For example, the quantity of office visits or surgeries per capita is often used to represent the amount of physician services rendered, whereas the number of inpatient days is frequently used to measure the amount of hospital or nursing home services consumed.

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Why Good Health? Utility Analysis

As mentioned earlier, health, like any other durable goods, generates a flow of services. These services yield satisfaction, or what economists call utility. Your television set is another example of a durable good that generates a flow of services. It is the many hours of programming, or viewing services, your television provides that yield utility, not the set itself.

As a good, health is desired for consumption and investment purposes. From a consumption perspective, an individual desires to remain healthy because she or he receives utility from an overall improvement in quality of life. In simple terms, a healthy person feels great and thus is in a better position to enjoy life. The investment element concerns the relation between health and time. If you are in a positive state of health, you allocate less time to sickness and therefore have more healthy days available in the future to work and enhance your income or to pursue other activities, such as leisure. Economists look at education from the same perspective. Much as a person invests in education to enhance the potential to command a higher wage, a person invests in health to increase the likelihood of having more healthy days to work and generate income.

The investment element of health can be used to explain some of the lifestyle choices people make. A person who puts a high value on future events is more inclined to pursue a healthy lifestyle to increase the likelihood of enjoying more healthy days than a person who puts a low value on future events. A preference for the future explains why a middle aged adult with high cholesterol orders a salad with dressing on the side instead of a steak served with a baked potato smothered in sour cream. In this situation, the utility generated by increasing the likelihood of having more healthy days in the future outweighs the utility received from consuming the steak dinner. In contrast, a person who puts a much lower value on future events and prefers immediate gratification may elect to order the steak dinner and ignore the potential ill effects of high cholesterol and fatty foods.

Naturally, each individual chooses to consume that combination of goods and services, including the services produced from the stock of health, which provides the most utility. The isolated relation between an individual’s stock of health and utility is captured. Where the quantity of health, His measured on the horizontal axis and the level of utility, U, is represented on the vertical axis. The positive slope of the curve indicates that an increase in a person’s stock of health directly enhances total utility. The shape of the curve is particularly important because it illustrates the fundamental economic principle of the law of diminishing marginal utility. This law states that each successive incremental improvement in health generates smaller and smaller additions to total utility; in other words, utility increases at a decreasing rate with respect to health.

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What Is Health?

The Mosby Medical Encyclopedia (1992, p. 360) defines health as “a state of physical, mental, and social well-being and the absence of disease or other abnormal condition.” Economists take a radically different approach. They view health as a durable good, or type of capital, that provides services. The flow of services produced from the stock of health “capital” is consumed continuously over an individual’s lifetime. Each person is assumed to be endowed with a given stock of health at the beginning of a period, such as a year. Over the period, the stock of health depreciates with age and may be augmented by investments in medical services. Death occurs when an individual’s stock of health falls below a critical minimum level.

Naturally, the initial stock of health, along with the rate of depreciation, varies from individual to individual and depends on many factors, some of which are uncontrollable. For example, a person has no control over the initial stock of health allocated at birth, and a child with a congenital heart problem begins life with a below-average stock of health. However, we learn later that medical services may compensate for many defi ciencies, at least to some degree. The rate at which health depreciates also depends on many factors, such as the individual’s age, physical makeup, lifestyle, environmental factors, and the amount of medical care consumed.

For example, the rate at which health depreciates in a person diagnosed with high blood pressure is likely to depend on the amount of medical care consumed (is this person under a doctor’s care?), environmental factors (does he or she have a stressful occupation?), and lifestyle (does the person smoke or have a weight problem?). All these factors interact to determine the person’s stock of health at any point in time, along with the pace at which it depreciates.

Regardless of how you define it, health is a nebulous concept that defies precise measurement. In terms of measurement, health depends as much on the quantity of life (that is, number of life-years remaining) as it does on the quality of life. Quality of life has become an increasingly important issue in recent years due to the life-sustaining capabilities of today’s medical technology. The issue gained national prominence in 1976 when, in a landmark court decision, the parents of Karen Ann Quinlan were given the right to remove their daughter, who was in a persistent vegetative state, from a ventilator. Because the quality of life is a relative concept that is open to wide interpretation, researchers have wrestled with developing an instrument that accurately measures health.

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Amount of Medical Care Spending

Amount of Medical Care Spending

Only someone living in entire seclusion, perhaps a World War II Japanese soldier hiding somewhere on a Pacific island or someone raised in a nuclear fallout shelter of the 1950s, would be unaware of the situation involving medical care costs in the United States.6Indeed, it seems that not a day goes by without a radio, television, or popular press commentator pointing, with much alarm, to the high and continually rising costs of health care. There is certainly no need to dispute those facts. United States spent $2.1 trillion on health care or slightly over $7,000 per person in 2006. Compare that to the similar figures of $26.9 billion and $141 dollars in 1960.

There are potentially alarming because trade-offs may be involved. That is, the PPC tells us that high health care costs translate into lower amounts of other goods produced and consumed. Certainly, high health care costs could reflect more and better medical care, but high spending may also involve the sacrifice of other equally important goods and services like food, clothing, and shelter. However, the productive capacity of the U.S. health economy has changed over time—the situation may not be as bleak as the statistics show. For example, the economy may now possess more labor and capital resources and productivity-improving technologies. Thus, the PPC has likely shifted out and therefore more of one good or service can be produced without sacrificing the others.

One way of controlling for differences in the underlying productive capacity of an economy or economies is by dividing, in this case, the amount of health care spending by GDP. Greater productive capacity, resulting from higher amounts of resources and better technology, generally means a larger level of GDP and therefore more goods and services in general.

Policy makers continue to debate the cause and desirability of rising health care costs in the United States and in other countries. Some argue that the U.S. health care system contains a lot of production inefficiency that can and should be squeezed out. Others point out that the benefits from health care more than compensate for the costs.

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Taking the Pulse of the Health Economy

A health economy, like a macro economy, involves the production and consumption of goods and services and the distribution of those goods to consumers. A health economy differs from a macro economy because it distinctly considers production, consumption. Another difference concerns the way in which economists take the pulse of the macro economy and health economy. While economists are really concerned with efficiency and equity, the unemployment, inflation, and gross domestic product growth rates are also considered when gauging the performance of a macro economy. If you recall from ECON 100, gross domestic product (GDP) captures the total market value of all goods and services produced in an economy during a particular period.

For a health economy, the analogous performance indicators are the components that make up the so-called three-legged stool of medical care: costs, access, and quality. Again, although health economists are more concerned about efficiency and equity, many often use some variation of the three-legged medical stool to gauge the performance of a health economy. We discuss and provide some historic and contemporary data for each of these components in the following sections. The discussion not only introduces the various legs of the medical stool, but also motivates and acts as a roadmap for the remaining material in this article

Medical Care Costs

Although the topic of medical care costs is taken up more formally, recall from our earlier discussion that medical care resources, like resources in general, are scarce at a given point in time. It follows that an opportunity cost, or a price, is associated with each and every medical care resource because of scarcity. Thus, we can think of medical care costs as representing the total opportunity costs when using various societal resources such as labor and capital to produce medical care rather than other goods and services. Each year since 1960, actuaries at the Centers for Medicare and Medicaid Services (CMS) have collected and reported data on the uses, sources, and costs of medical care in the United States. The data can be compared across various industries in the health care sector, like hospital, physician, and nursing home services, examined in a particular year, or tracked over time. Funding sources including consumers, insurers, or government can also be examined for various types of medical care, and over time. Hence, the CMS data yield important insights with respect to how health care funds are used, where the funds come from, and how much money in total is spent on medical care in the United States.

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