Question

What are some confusing concepts about the economics of healthcare?

Answer 1

The study of health economics (HE) will stimulate anyone who believes that seeking to improve human health is worth using up some of the world's scarce resources. Indeed, many non-health goods (services and products) and activities can be enjoyed and produced more effectively by healthy people than by unhealthy ones.

Healthcare has always been an economic activity; people invest time and other resources in it, and they trade for it with each other. It is thus amenable to economic analysis—understanding the demand for it, its supply, its price, and their interrelationship. Economic analysis, of course, does not merely discern what the supply, demand, and price for healthcare in private or public markets are. It also attempts to understand why they are what they are: What behavior on the part of suppliers affects the demand for healthcare? How does a particular insurance framework affect supply and demand? And so on. Moreover, economic analysis is indispensable in the larger attempt to improve healthcare—to make it more efficient, for example, so that people can accomplish more with their investment in healthcare, or more in life generally with their resources.

Because there are many possible goods and services that different combinations of resources could produce, the opportunity cost of using resources in a particular way is defined as the benefits that would have resulted from their best alternative use. Costs in economics usually means opportunity costs.

The goal of any health care intervention is to improve health with available preventive measures, treatments, and medical procedures. Health economics is a branch of economics that examines as well as evaluates issues related to efficiency, effectiveness, and value of resources in health and health care.

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. In broad terms, health economists study the functioning of healthcare systems and health-affecting behaviors such as smoking.

Overall Economy Rapidly rising health care spending is considered to lower the rate of growth in GDP and overall employment, while raising inflation. However, some economists view increases in health care spending as a neutral, if not positive, impact on the economy.

The economics of healthcare, in fact, has grown into an established specialty within professional economics. Though virtually every good is in some sense an economic good, economists have been quick to notice some differences with healthcare. Final demand seems to be more supplier-created in the case of healthcare than it is with most goods; both the shape of health services and their price are very directly influenced by providers. Other forms of what economists call market failure occur in healthcare—for example, when people with a considerable demand for healthcare do not receive services because their high risk to insurers drives prices for even the most basic insurance to unaffordable levels.

As people have become increasingly concerned about rising cost, economic concepts have gained greater general currency in society's consideration of healthcare. Price is seldom no object, and the search for efficiency is vigorous. This entry on economic concepts in healthcare will:

1.     Clarify the differences between two important forms of efficiency analysis in healthcare;
2.     Articulate some of the difficulties in devising and using a common unit of health benefit;
3.     Examine the monetary evaluation of one health benefit, life extension;
4.     Focus on some of the fundamental moral difficulties that the demand for efficiency poses for clinical practice; and
5.     Briefly explore the notions of externality and public good and their role in health policy.

Many other economic concepts apply to healthcare, but these are some that obviously raise ethical issues and are therefore most appropriate to include in this volume. Throughout, however, it will be important to keep in mind that economists, qua economists, usually think of their primary task as describing the world, not saying what it ought to be.

One should also note that although many economic concepts may appear to be more at home in capitalist than in centralized, collectivist, or socialist economies, they virtually always have a role to play in those other economies, too. For example, cost-effectiveness and cost-benefit analysis are used at least as much in socialist as in more capitalist healthcare systems. While the economic concepts developed here may not be ideology-free, they are hardly confined to free-market frameworks.