Health Economics

- Overview 

Health economics is a branch of economics concerned with issues related to efficiency, effectiveness, value and behavior in the production and consumption of health and healthcare. Health economics is important in determining how to improve health outcomes and lifestyle patterns through interactions between individuals, healthcare providers and clinical settings. In broad terms, health economists study the functioning of healthcare systems and health-affecting behaviors such as smoking, diabetes, and obesity. 

Healthcare economics is a term used to describe the various factors that converge to influence the healthcare industry’s costs and spending. As a field of study, healthcare economics seeks to understand the role that individuals, health care providers, insurers, government agencies, and public and private organizations play in driving these costs. 

- The Methods of Health Economic Evaluation

It is undeniable that there is an increasing trend in the healthcare expenditure worldwide due to various factors. Despite this fact, there is limited resource for healthcare and the sustainability is questionable. In line with this, a number of measures have been developed to ensure the health care resources are allocated and distributed efficiently. One of the measures to ensure the efficient resource allocation is by assisting policy makers in decision making through health economic evaluation. The health economic evaluation methods include cost minimisation analysis, cost-effectiveness analysis, cost-benefit analysis and cost-utility analysis. However, the decision to conduct these analyses depends on many factors and researchers should be well versed with the characteristics, strengths and limitations of each method.

- The Perspectives of Healthcare Economics

Healthcare economics can be approached from several perspectives depending on the specific challenge you’re facing. For example,  

• Spending growth
• The role of the patient
• The role of the provider
• The impacts of risk and insurance
• Benefits design
• Payment reform

- The Scope of Health Economics

The scope of health economics is neatly encapsulated by Alan Williams' "plumbing diagram" dividing the discipline into eight distinct topics:

- The Hurdles of Healthcare Economics

One of the biggest difficulties regarding healthcare economics is that it does not follow normal rules for economics. Price and Quality are often hidden by the third-party payer system of insurance companies and employers. Additionally, QALY (Quality Adjusted Life Years), one of the most commonly used measurements for treatments, is very difficult to measure and relies upon assumptions that are often unreasonable. 

A seminal 1963 article by Kenneth Arrow is often credited with giving rise to health economics as a discipline. His theory drew conceptual distinctions between health and other goods. Factors that distinguish health economics from other areas include extensive government intervention, intractable uncertainty in several dimensions, asymmetric information, barriers to entry, externality and the presence of a third-party agent. In healthcare, the third-party agent is the patient's health insurer, who is financially responsible for the healthcare goods and services consumed by the insured patient.  

Health economists evaluate multiple types of financial information: costs, charges and expenditures. Uncertainty is intrinsic to health, both in patient outcomes and financial concerns. The knowledge gap that exists between a physician and a patient creates a situation of distinct advantage for the physician, which is called asymmetric information.  Externalities arise frequently when considering health and health care, notably in the context of the health impacts as with infectious disease or opioid abuse.