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What is Health Economics?

Health Economics is the application of various microeconomic tools, such as demand or cost theory, to health and health care issues and problems. The goal of health economics is to better understand the economic aspects of health and health care in order to design better health interventions, programs, systems and policies.

Why is there an entire branch of economics devoted to health and healthcare?

The health care sector has a number of unique features, including:

  • Uncertainty: There is a high level of uncertainty at all levels of decision-making: patient, provider, payer, policymaker
  • Asymmetry of Knowledge/Information: physicians (and other providers) possess a great deal of knowledge that they cannot easily impart to patients (the consumers of health care) or insurance companies (often the payers for health care)
  • Externalities: actions on the part of some individuals impose costs (or, sometimes, benefits) for others (e.g. contagious diseases)
  • High Level of Government Involvement: public funds (Medicare, Medicaid, other government funds) pay for 46.5% of all personal health care expenditures (2008 data)

Last Published: Jan 4, 2019