Health economics studies the allocation of health care resources.
Issues of universal health care coverage, rising medical costs and government regulation of the health care industry have stoked economists' interest in health issues. Since the publication of a seminal article on the topic in 1963, health economics has become a specialty within the larger field of economics, complete with its own associations, conferences and peer-reviewed journals.
Identification
Economics studies how societies allocate scarce resources to satisfy their needs. Health economics applies the principles of economics to the study of human health and health care. People want to be healthy and want all the medical care they require to maintain long lives; however, medical providers, hospitals and the means to pay for their services are limited.
History
The field of health economics has its beginnings in a 1963 article in the American Economic Review by economist Kenneth Arrow. The article examined health insurance markets, physician-patient relationships and the role of government in health care. These issues have remained central topics in health economics, as well as various measures of health status, such as average lifespan and infant mortality rates.
Significance
Most health care issues, such as medical costs, prescription drug prices and the methods of financing medical care, have economic dimensions to them. In the United States, health care costs have risen at higher rates than inflation overall. This results in higher health insurance premiums, which poses burdensome costs on individuals and businesses. In addition, many Americans lack health insurance coverage. These and other issues have fueled calls for the U.S. to adopt a system of universal health care coverage, such as those in Canada and Western Europe. Opponents, however, contend that such action will harm the quality of U.S. health care by giving the government too much control over it.
Features
Health economics study a wide range of issues related to health and medical care. These topics include supply and demand for medical care, the role of government in a health care system and health care financing.
Health care markets differ in many ways from the traditional competitive markets studied by economists. Competitive models assume that consumers act with full information about the products from which to choose and select from a wide range of providers. In health care, patients may not have sufficient information to understand the type of treatment they need, which gives physicians and insurers an advantage. In addition, barriers to entry in health insurance financing limit the number of insurers from which consumers may choose.
Considerations
In some ways, health insurance coverage distorts the functioning of the health care market. Insured people have less concern about the costs of treatment because their insurer pays most of the bills for service. Meanwhile, the price of medical services may lead people who lack coverage to forgo basic preventive care. This may subject them to more serious illnesses, which require longer, more expensive treatment.
Expert Insight
Health economics often examines various health-related outcome measures, such as infant mortality rates, average lifespan, rates of infection by various diseases and obesity levels. In his 1963 essay, however, Arrow pointed out that many factors besides medical care affect people's health.
Tags: health care, health insurance, medical care, health care, Health economics, average lifespan
