Definition of Health Economics

Economics is all about how societies allocate scarce resources to meet societal needs. In an era of rising medical costs and concerns about how to reform health care systems to tame costs and cover the uninsured, health economics has become a significant specialty within the larger economic field.

Identification

• People want the best medical services, but have limited means for paying for such services, which are themselves limited in number. Health economics issues allocation of scarce resources in health care.

History

• A 1963 article by economist Kenneth Arrow is often considered the starting point of health economics as a specialty within the discipline of economics.

Significance

• Most health care issues have an economic dimension to them. Examples include types of health care financing, such as a market system vs. government plans such as single payer; the supply and demand for various health care services, and the price of prescription drugs.

Pharmacoeconomics

• Because of concerns about the affordability of pharmaceuticals, pharmacoeconomics is one of the most prominent specialties in health economics.

Considerations

• As a market, health care differs from many economic sectors, in which consumers make decisions based on full information about available options. In health care, however, consumers do not always have adequate knowledge of the types of services or coverage they need, which gives an advantage to medical providers and insurers.