Importance of Economics in Health

It is sometimes claimed that health is primarily a medical issue, free of economic considerations, and thus beyond the scope of economics. However, such issues as universal health coverage and the rising costs of medical services are ideal for economic analysis. Although some issues related to health make it a unique field, economic tools of analysis can help amplify and inform the debate over issues related to health care.

Significance

• Health care reform has been a crucial topic facing businesses and government policymakers for decades, especially in the United States. Health care costs have continued to rise faster than the rate of inflation, and employee health coverage places high costs on businesses. Meanwhile, millions of Americans lack health insurance of any kind, while millions more are underinsured. Debt related to medical expenses is a primary cause of most bankruptcies in the United States.

  Most health-care-related issues have an economic dimension to them. These issues include medical insurance coverage, the overall demand for health care services, and prescription drug prices.

Identification

• The central focus of economics is how society allocates limited resources to meet its needs and wants. Consumers may have unlimited wants, but the resources with which to meet those needs are not limitless. Most economists regard the free market as the best mechanism for allocating resources efficiently to meet people's needs. In the area of health care, people may want all the medical services they require, but means to pay for such services are limited, as are the number of physicians and other medical providers.

  Health economics examines issues of scarcity and resource allocation in the areas of health care. This specialty has its roots in a 1963 article by economist Kenneth Arrow.

Types

• The types of health markets that economists analyze include the market for health care coverage and the market for physician and other medical services. Under the basic model of a market system, health insurers compete for business by offering different types of coverage at different prices. Companies and individual consumers can then select the level of coverage best suited to their employees or themselves, given their means to buy insurance. The basic model of medical services works the same way, with patients choosing the physician, clinic, or hospital they prefer from a range of options.

Considerations

• Economic models of competition assume that consumers act with full information about the range of alternatives available and that this information helps drive their purchasing decisions. Health care markets differ, however, in that consumers do not always have adequate information about the type of insurance coverage or medical services they need. This gives insurers and medical providers an advantage.

  In addition, patients with insurance coverage are less concerned about the actual costs of services than they would be if they had to pay for treatment themselves. The cost of health care services may even lead some people--especially those without insurance coverage--to forgo routine physicals and other preventive services on the chance that they will not become seriously ill.

Health Care Debate

• The debate over health care reform is often informed by political ideologies rather than sound economic considerations. Often the debate centers on conflicting views about the role of government in society, rather than how best to allocate resources in such a way that the greatest number of people benefit.