Health Economics

Abstract

There is a growing awareness worldwide that the resources available to maintain and improve health are finite, whereas the demands made on these resources appear to be virtually infinite. Consequently, many are looking to economics-the science of making choices in situations of scarcity-for assistance. This chapter explains what economics is and, equally importantly, what it is not. The emphasis throughout is on how economics does not deal with problems that are uniquely ‘economic’ but instead addresses common issues from a different perspective. Economics is about the allocation of resources to production and the distribution of those outputs to society. The way in which this is done in unregulated markets is explained in the first part of the chapter, followed by a discussion of what might make healthcare differ from other market goods. Problems in the allocation and distribution of services in non-market situations, such as with the UK National Health Service, are examined with particular emphasis on the difficulties that arise when healthcare is given according to people’s needs rather than their ability to pay (demand). The second part explains the cost-benefit approach; this being defended through a return to the basic economic principle of scarcity, the fact that choice always involves sacrifice and the importance of being explicit about the criteria on which inescapable choices are made. Efficiency is defended as a criterion for choice on the basis that it seeks to maximise the health that can be achieved from whatever level of resources available. There is an explanation of the three key techniques of economic appraisal: cost-benefit, cost-effectiveness and cost-utility analyses. It is emphasised that these tools ought to be employed only with a firm understanding of the principles upon which they are based. The chapter ends with a case study exploring how economic evidence was used to inform a policy decision regarding the treatment of obesity.