Duke 2008 | ASHE | Equity and Efficiency in Health and Healthcare

In this paper, we consider several health input allocation policies including one that eliminates health disparities consistent with Healthy People 2010 objectives and one that maximizes societal health. Most previous discussions of these issues have acknowledged the impediments to defining a fair allocation that are introduced by heterogeneity both in endowed or “accumulated” health stock and in the health production process itself. However, we are not aware of systematic efforts to examine the impact of different sources of heterogeneity in health endowment and production on individual allocation preferences or how this might inform societal and particularly ethical evaluations of fairness. We use a general health production model that allows health endowments or accumulated health stock and the ability to produce health to differ between individuals. We then systematically vary the sources of health heterogeneity and examine the efficiency and equity aspects that result from each allocation policy. We demonstrate that variation in source(s) of heterogeneity alter preference orderings for different allocation policies. We also demonstrate that in the presence of heterogeneity in health production regardless of source there can be no unambiguous preferred allocation. Equal allocations of health inputs lead to more of the limited resource being distributed to the less healthy (those whose ability to convert health inputs into health is limited) than what would be allocated if the health of the entire population were maximized. Elimination of health disparities leads to even more of the health input being allocated to less healthy individuals than would be allocated if societal health were maximized, while the health maximizing solution results in more health input being allocated to healthier individuals. The policy that eliminates health disparities can impose large losses on potentially healthier individuals which at some magnitudes may raise other fairness considerations. The results provide insight into necessary tradeoffs as well as ethical dilemmas that result from the conflict between efficiency and equity.