Health economics

Health economics is a specialised field of economics that focuses on the “analysis and understanding of efficiency, effectiveness, values, and behaviors involved in the production and consumption of health and healthcare.” Health economists investigate the efficient design of healthcare systems (including insurance models), as well as the economic evaluation of health technologies, health-related behaviors, and the impact of various incentives on these behaviors. Kenneth Arrow, a founding father of health economics, articulated in 1963 that health and healthcare differ from other areas of the economy due to extensive government intervention, pervasive uncertainty across multiple dimensions, assymetric information, barriers to market entry, externalities, and the presence of third-party agents (such as physicians). Consequently, purchasing decisions in healthcare are often made without direct reference to the price of the product or service. These unique characteristics shape the economics of health and healthcare.
Economic evaluations of health technologies in this field tend to be cost-effectiveness analyses (CEAs) rather than cost-benefit analyses, where both resources and benefits are monetised. CEAs are rooted in “extra-welfarist” principles set out by Culyer and others, drawing methods and principles from clinical trials, health services research, and epidemiology. While health technology assessment largely relies on the methods of economic evaluation in healthcare, other aspects of health economics and econometrics also contribute to informing healthcare policy and the design of public and private healthcare systems.