Written by Nikki Mohan, Girl Economics Healthcare Reporter
Hi everyone, I’m Nikki – as you might remember from a previous Girl Economics interview and article. Following Girl Economics’s rebranding I am now head of sector-specific-research, and within this, I will predominantly be reporting on economic developments in healthcare. In today’s article I wanted to outline key concepts in Health economics, quite a niche area, which may be less familiar to some. I think this would nicely prepare us for following articles which will delve into interesting problems & paradoxes, and current case-studies!
So what really is Health economics?
Health economics is a branch of economics concerned with issues related to efficiency, value & behaviour in the production and consumption of healthcare. A great case-study, which we’ve all lived through, was the Covid-19 pandemic and its monumental affect on both the economy and developments in healthcare.
It is important in determining health outcomes and lifestyle patterns through interactions between individuals, healthcare providers and clinical settings.
Health economics is now a term commonly used in public policy documents, in the medical and scientific literature, and in the lay press. There are also very visible signs of change in the health care market. Attention is shifting from the “passive” funding and administration of systems, in which physicians identify and provide appropriate care, to concerns about the resource costs of care and the health outcomes achieved from providing care.
Below is Alan William’s renowned ‘plumbing diagram’ which divides the discipline into 8 key topics.
The principles of health economics consider supply and demand issues and how the two might interact given that the standard market solution generally fails due to problems such as:
• Adverse selection
• Moral hazard
• Asymmetric information – Doctors may have more qualified knowledge about medicine than patients /consumers. Therefore, the individual may not be the best judge of his/her own interests, the doctor acts as an agent of the patients demand.
• Supplier induced demand
Generally, I think Health economics links well to topics in science, behavioural economics as well as requiring quantitative analysis. Inserted below is a timeline I’ve created on the history of Health economics.
“Allowing people to choose in the marketplace results in the best of all possible economic worlds” – Thomas Rice.
However, in ‘The Economics of Health Reconsidered’ Rice argues that traditional theory ignores cognitive dissonance – and that consumers are not actually ‘rational’ (which had been presumed in his previous argument) in making decisions to maximise their welfare. Consumers (patients) are unlikely to be in a position to appreciate the full range of possibilities available to them and so need expert help to guide them. This is particularly true as many situations affecting health are likely to produce cognitive dissonance. If utility is relative, then, this suggests that society would be better off with some form of universal provision rather than one based on individual health care purchases.
By utilising the principles of Health economics, we can see how it causes global development in healthcare. Can we use economics to reduce healthcare inequality? If so, how, and where has it been done before? Should there be a free market for healthcare, or is it better governed by the state? Do stay tuned for case studies regarding these questions.
