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By Khushi, Aditi and Aadya

The release of Victor R. Fuchs's "Who Shall Live" 37 years ago sparked a great deal of interest in applying economics to healthcare issues. The book’s major themes cover the fundamental aspects of economics within healthcare: the basic problem of scarce resources and the role of non-medical factors in driving healthcare choices (World Scientific Publishing). Taking the discussions of this book further, healthcare is a pivotal aspect of sustaining life with medicinal practices constantly evolving and increasing the quality of life. Whether it be in the form of policies or perhaps a more recently surfaced concept, Behavioural Economics, economics proves versatile in meeting societal needs. In this essay, we explore loss aversion, nudges, and subsidies as ways in which societies can use economics to ensure citizens make better healthcare choices.

To engage effectively in any healthcare setting, citizens need to comprehend, analyze, and assess medical information. In the US, over 80% of patients aged 60 years or older have inadequate health literacy (Hanoch and Rice, “The Economics of Choice: Lessons from the U.S. Health-Care Market”). This results in misinformed healthcare choices as patients find themselves unsure about their diagnostic details, the probability of treatment success, and the advantages linked to different treatment choices. Here, knowledge itself becomes a valued commodity (Hanoch and Rice, “The Economics of Choice: Lessons from the U.S. Health-Care Market”). In his prominent article, ‘Uncertainty and the Welfare Economics of Welfare Care’, Kenneth Arrow asserted that the healthcare market cannot be approached just like any other conventional market. When trying to influence individuals’ healthcare choices, it is pivotal to understand what impacts their decisions. 

Loss aversion describes a phenomenon in which a prospective loss is viewed as psychologically or emotionally more impactful than an equivalent gain (Liberto). This is prevalent in a healthcare scenario as patients often make decisions based on perceived risks without giving sufficient weight to the potential benefits or disadvantages of not pursuing a certain course of action. Consider a patient diagnosed with a chronic condition such as diabetes facing 2 treatment choices: an established treatment that has been effective but accompanied by discomforting side effects and a newer treatment that is not well understood due to the limited time it has been on the market but suggested to be more effective by some studies. Due to loss aversion, the fear of losing the stability and comfort associated with the current treatment may outweigh the perceived benefits of the new medication. This bias could lead the patient to stick with the familiar treatment, even if the rational decision might be to consider the new option.

Nudges are particularly pronounced in the healthcare industry, especially among elderly patients' Osteoporosis medication (Gary A Emmett). This medication is paramount in aiding the health of the ageing population's bone strength and preventing fractures. While it is mostly effective, it is known that 1 in 50,000 patients develop severe side effects that induce worse health conditions. Due to loss aversion and the tendency to fixate on the negative aspect, individuals are dissuaded from considering the medication as the loss influences their emotions more than the possible gain. This scenario can be applied to any medical treatment and how healthcare professionals inform patients about treatment and influence their decisions by using positive/negative connotations. Accordingly, loss aversion can be used as an advantage rather than a disadvantage. 

Additionally, nudges, involving altering default options, is a theory that guides individuals toward the desired outcome through indirect methods such as a convenience option for a form. An example of how society can use this to ensure citizens make better healthcare choices is by utilising opt-in vs opt-out options. An opt-out option increases the default option chosen and can be beneficial for governments and the healthcare industry to employ. 

When implemented in the past in organ donation forms, opt-out systems dramatically increased participation. It not only eliminated the waiting list allowing individuals in dire need of a transplant to access it but also prevented facilitating the black market trade which is estimated to generate around 1.2 billion USD per year. This strategy was applied in a study across European countries in the form of a natural experiment and has yielded promising results. According to PNAS, (Davidai et al., “The Meaning of Default Options for Potential Organ Donors”), Opt-out surveys yielded an astonishing average of 90% success rate while opt-in surveys have a meagre yield of 15%.

Furthermore, Covid-19 sparked controversies regarding the vaccine. Governments turned to nudges to promote the consumption of the vaccine and prevent hesitant individuals from delaying their vaccination process and jeopardising the safety of their nation. According to PubMed, governments did this by sending out pre-scheduled vaccine appointments to reluctant adults. With this slight inclination towards receiving the vaccine, successful vaccinations shot up by 32%, proving that nudging is an effective method (Tentori et al.). Moreover, the Singaporean government implemented restrictions for anti-vaxxers who failed to meet the number of shots required by prohibiting entering public and social spaces such as malls and denying travel plans. This meant that to sustain a normal lifestyle, a vaccine was needed, therefore making it the default option and incentivizing individuals to get vaccinated. These examples illustrate how nudges ensure that citizens make better healthcare choices. 

Lastly, fiscal interventions such as subsidies can be implemented to protect and persuade citizens towards healthier choices. CNBC reports nearly 1 in 4 Americans are skipping medical care because of the cost (Leonhardt), highlighting the need for providing subsidies to medical institutions to subsequently reduce their cost of production and thus reduce the price of the medical treatment they provide. This may also solve issues like “unnecessary” and “too much” spending for consumers (especially the ones belonging to lower-income households) who refrain from purchasing medical treatments that are vital for their health due to the high prices. The ‘Community Health Assist Scheme’ (CHAS) in Singapore enables all Singapore citizens to receive subsidies for medical and dental care regardless of their income levels. Households with a monthly income per person $1200 and below can receive up to $18.50 subsidy per visit for common illnesses whereas households with a monthly income between 1,201-2000 can receive only up to a $10 subsidy (MOH). Governments can execute such schemes not only to ensure that citizens make the right choice and seek the necessary treatment but also to ensure the protection of lower-income households.

Building on, health concerns linked to diets such as heart disease and diabetes are leading causes of death, with on an average of more than 2,200 Americans losing their lives to cardiovascular diseases every day (Institute of Medicine). Subsidies may be applied to products like fruits and vegetables, encouraging consumers to choose these over unhealthy options. In these ways, economics can be used to ensure that citizens make better healthcare choices, both directly and indirectly. 

In summary, the dynamic interplay between economics and healthcare underscores the importance of understanding human behaviour in making better healthcare choices. As discussed, loss aversion can prove beneficial rather than detrimental, and nudges by default option can be implemented to give citizens a gentle push toward the optimum health choice. Finally, subsidies can be granted by the government to improve the costly aspect of healthcare and make the healthier options more favourable in the eyes of consumers. As societies continue to adapt, the integration of economic principles offers a powerful toolkit to shape policies that prioritise individual well-being and collectively contribute to a healthier, more informed populace.