For many of you, this article
provides your first exposure to the study of health economics. Perhaps the
ongoing controversy regarding health care reform or the prospect of a career in
the health care field motivated you to learn more about health economics. Or
perhaps you need only three more credits to graduate. Whatever the reason, we
are sure you will find health economics to be challenging, highly interesting,
and personally rewarding.
The study of health economics
involves the application of various microeconomics tools, such as demand or
cost theory, to health issues and problems. The goal is to promote a better
understanding of the economic aspects of health care problems so that
corrective health policies can be designed and proposed. A thorough understanding
of microeconomic analysis is essential for conducting sound health economics
analyses. If you lack a background in microeconomics, don’t worry. This article
is intended to help you learn and apply basic microeconomic theory to health
economics issues. Before long, you will be thinking like a health economist!
The tools of health economics
can be applied to a wide range of issues and problems pertaining to health and
health care. For example, health economics analysis might be used to investigate
why 25 of every 1,000 babies born in Turkey never reach their first birthday,
whereas all but 3 of every 1,000 babies born in Japan live to enjoy their first
birthday cake. The tools of health economics analysis might also be used to
examine the economic desirability of a hotly contested merger between two large
hospitals in a major metropolitan area. The burning question is: Will the
merger of the two hospitals result in lower hospital prices due to overall cost
savings or higher prices due to market power?
Health economics . . .
studies the supply and demand of health care resources and the impact of health
care resources on a population.
Notice that health economics
is defined in terms of the determination and allocation of health care
resources. This is logical, because medical goods and services cannot exist
without them. Health care resources consist of medical supplies, such as
pharmaceutical goods, latex rubber gloves, and bed linens; personnel, such as
physicians and lab assistants; and capital inputs, including nursing home and
hospital facilities, diagnostic and therapeutic equipment, and other items that
provide medical care services. Unfortunately, health care resources, like
resources in general, are limited or scarce at a given point in time, and wants
are limitless. Thus, trade-offs are inevitable and a society, whether it
possesses a market-driven or a government-run health care system, must make a
number of fundamental but crucial choices. These choices are normally couched
in terms of four basic questions, discussed next.
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