Health economics is a field of economics that focuses on the ‘analysis and understanding of efficiency, effectiveness, values and behaviours involved in the production and consumption of health and healthcare’. Health economists are interested in the efficient design of healthcare systems (including insurance systems), the economic evaluation of health technologies, health-related behaviours and the impacts of incentives, financial and otherwise, to modify these behaviours. Kenneth Arrow, a founding father of health economics, pointed out in 1963 that health and healthcare differ from other areas of the economy in that there is extensive government intervention, a great deal of uncertainty in several dimensions, asymmetric information, barriers to entry, externalities and the presence of a third-party agent (physician). As a result purchasing decisions are made without direct reference to the price of the product or service. Therefore, the economics of health and healthcare contains some unique characteristics. In particular economic evaluations of health technologies tend not be cost-benefit analyses (in which resources used and benefits obtained are monetized) but cost-effectiveness analyses, which are rooted in ‘extra-welfarist’ principles set out by Culyer and others, and rely on methods and principles drawn from clinical trials, health services research and epidemiology. Health technology assessment draws mostly on the methods of economic evaluation in healthcare, but other aspects of health economics and econometrics (analytical techniques) may be used to inform healthcare policy and design of public and private health care systems.

How to cite: Health Economics [online]. (2016). York; York Health Economics Consortium; 2016. https://www.yhec.co.uk/glossary/health-economics/

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