Economics behind Health


Health economics is the discipline of economics applied to the topic of health care. Broadly defined, economics concerns how society allocates its resources among alternative uses. Scarcity of these resources provides the foundation of economic theory and from this starting point, three basic questions arise:

  • What goods and services shall we produce?
  • How shall we produce them?
  • Who shall receive them?

Health economics addresses these questions primarily from the perspective of efficiency—maximising the benefits from available resources (or ensuring benefits gained exceed benefits forgone). Equity concerns are also recognised—what is a fair distribution of resources. Considerations of equity often conflict with efficiency directives. However, due to the contested nature of this area and the difficulties in quantifying equity dimensions, this element has not been a major focus of health economist’s work.

Importance of Health Economics:

The importance of the economic model is that it provides useful insights into how health care can be organised and financed and provides a framework to address a broad range of issues in an explicit and consistent manner. Organisational changes such as the development of the National Institutes for health care and the devolution of decision making to primary care organisations have led to an increasing interest in the subject and its influence on health care organisation and decision making.

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Journal of Health Policy & Management.

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