Economics of Health and Medical Care

Economics of Health and Medical Care

Provide detailed discussion, computation with steps and properly labelled graphical illustration (if applicable) to get full credits.


  1. Consider the costs and benefits of the following public projects shown in the table.
Costs ($) Project A Project B Project C
Year 1 6000 8000 10000
Year 2 7000 6000 6000
Year 3 4000 4000 N.A.


Benefits ($) Project A Project B Project C
Year 1 N.A. 3000 N.A.
Year 2 10000 9000 6000
Year 3 8000 11000 10000


  • For a discount rate of 5%, comment on the assessment of the above projects using benefit-cost ratio of cost-benefit analysis (CBA).
  • If there is only $17500 for conducting the projects, what would you recommend?
  1. Malaria remains a major cause of morbidity and mortality among children under 5 in African countries. Despite the presence of interventions such as artemisinin-based combination therapy (ACT) and insecticide-treated bednets, failure to prevent malaria deaths is found. The main reason is that children with fever do not access effective interventions or assess them at a late stage.

The deployment of community health workers (CHWs) has been seen as a promising strategy to deal with the issue. CHWs are volunteers recruited from the community. They would be trained to perform a malaria rapid diagnostic test (mRDT) in diagnosing children and treat children with (ACT). Such attempt is expected to be more effective than presumptive clinical diagnosis by CHWs.

The mRDT with ACT is plan for 6 months. CHWs are trained to recognize signs and symptoms of malaria and how to administer antimalaria treatment to children under 5. Half of the CHWs would receive an additional one-day training in mRDT and to give an ACT only after a positive test result. The following table presents the resources and their costs involved in the interventions.

Resources Used Costs (US$)
Basic training for all 30 CHWs 300
Additional training related to mRDT 45
mRDT (per child) 2.5
Drugs and other medical consumables (per child) 5.8
Treatment cost at public health centre (per patient) 12.6
Treatment cost of ACT (per patient) 29.7

Each CHWs is expected to visit the community once every 2 weeks working for 3 hours. On average the income per hour is US$3 according to the GDP per capita per day.

A total of 30 CHWs recruited to patriciate in the two interventions with half of them in the mRDT arm. There are 152 children being reached out by CHWs for doing the mRDT and 50 identified cases of the children are sent to public health centre. The earlier detection of malaria results in 12 of them requiring ACT treatment. Four of them died, unfortunately.

For the traditional case, it involves 15 CHWs and 20 out of 172 identified cases are sent to public health centre. Sixteen of them end up with ACT treatment. Twelve of them treated with ACT died.

  • Compute the cost (per case) for each intervention: Standard procedure and mRDT.
  • Identify the outcome measure(s) for the intervention.
  • Conduct a cost-effectiveness analysis for the interventions according to the outcome measure(s) stated in part (b) above.
  1. Two different insurance agents present you two health insurance policies as follows.

AIA: It covers at most 10 outpatient visits with maximum reimbursement of 80%.

For specialty, the policy would not be effective until your expenses exceed $2000. Each claim receives $800 for a maximum of 10 claims.

HSBC Life: For outpatient visits, a maximum 20 visits are covered with the first 5 visits are of co-insurance rate of 80% and the next 15 visits are subject to 60% coinsurance rate. For specialty, you are allow to claim at most 5 with each claim capped at $1000.

Your health care services consumed are as follows:

Outpatient visits of 12 with each costs $300; Specialty of 3 with each costs $2500.

Which agent’s policy would you prefer? Explain.

  1. Amy’s utility level (𝑈) depends on the amount of wealth (W) she possesses and it can be represented by 𝑈=3𝑌0.5. At good state, Amy’s wealth is $6,250,000 while at bad state, the wealth drops to $4,840,000.
  • What is the difference in Amy’s utility level if she goes from a good state to a bad state?
  • For a probability of illness of 15%, would Amy buy health insurance to protect herself against any loss of wealth? Explain.
  • How much would Amy be charged for a health insurance (i.e. What is the pure premium)?
  • Compute the risk premium for the case of Amy.
  • Graph your solutions to parts (a) to (d) in one diagram.


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