Value and Consumer preference
The idea that value depends on consumers’ preferences is often considered radical since variety of people attend to health care facilities with different preferences hence very difficult to discuss and come up with a conclusion. Some economic theories that are germane to provision of health services are discussed below.
Willing to Pay (WTP) is founded on what has been termed ‘new welfare economics’ (Enthoven, 2011). Within this paradigm individual preferences are explained by how consumers are assumed to behave in a ‘free’, and perfectly, competitive market. The consumer is assumed to have his own subjective ‘taste’, and to allocate his budget across all commodities in such a way that his utility (overall-wellbeing) is maximized. Importantly, individuals are assumed to be the best judge of their own welfare; the notion of ‘consumer sovereignty’. Social welfare is assumed to be simply a function of these individual utilities, such that when one individual’s utility increases, ceteris paribus, social welfare increases. One important condition for maximizing social welfare is that all commodities for which individuals are prepared to pay the social costs are available in the market (Enthoven, 2011)
In economic point of view major focus is on the willingness to pay, and monetary valuation which are used in to conduct cost benefit analysis. This theoretical background is placed within the framework of the evaluation of health care programs, and in particular the context of priority setting and the concurrent use of cost effectiveness and cost utility analyses. In WTP an individual upon seeking health care facilities he/she is asked the maximum and minimum that he is willing to pay to access the services and the medics assess the affordable services that can be delivering with that much. Cost-benefit analysis does have a strong conceptual basis in welfare economics, whereas other
References: Folland, S., Goodman, A. C., & Stano, M. (2010). The economics of health and health care (Vol. 6). New Jersey: Pearson Prentice Hall. Enthoven, A. C. (2011). Consumer-choice health plan (first of two parts). Inflation and inequity in health care today: alternatives for cost control and an analysis of proposals for national health insurance. The New England Journal of Medicine, 298(12), 650-658. Pelletier, K. R., & Astin, J. A. (2010). Integration and reimbursement of complementary and alternative medicine by managed care and insurance providers: 2000 update and cohort analysis. Alternative therapies in health and medicine, 8(1), 38-9.