Economics and Heath care

Health economics is a branch of economics concerned with issues related to scarcity in the allocation of health and health care. Broadly, health economists study the functioning of the health care system and the private and social causes of health-affecting behaviors such as smoking.

A seminal 1963 article by Kenneth Arrow, often credited with giving rise to the health economics as a discipline, drew conceptual distinctions between health and other goals. Factors that distinguish health economics from other areas include extensive government intervention, intractable uncertainty in several dimensions, asymmetric information, and externalities. Governments tend to regulate the health care industry heavily and also tend to be the largest payer within the market. Uncertainty is intrinsic to health, both in patient outcomes and financial concerns. The knowledge gap that exists between a physician and a patient can prevent the patient from accurately describing his symptoms or enable the physician to prescribe unnecessary but profitable services; these imbalances lead to market failures resulting from asymmetric information. Externalities arise frequently when considering health and health care, notably in the context of infectious disease. For example, making an effort to avoid catching a cold, or practicing safer sex, affects people other than the decision maker.

The scope of health economics is neatly encapsulated by Alan William's "plumbing diagram" dividing the discipline into eight distinct topics:

§                     What influences health? (other than health care)

§                     What is health and what is its value

§                     The demand for health care

§                     The supply of health care

§                     Micro-economic evaluation at treatment level

§                     Market equilibrium

§                     Evaluation at whole system level; and,

§                     Planning, budgeting and monitoring mechanisms.

Consuming just under 10 percent of gross domestic product of most developed nations, health care can form an enormous part of a country'seconomy. In 2008, health care consumed an average of 9.0 percent of GDP across the OECD countries with the United States (16.0%),France (11.2%), and Switzerland (10.7%)being the top three spenders.

The United States and Canada account for 48% of world pharmaceutical sales, while Europe, Japan, and all other nations account for 30%, 9%, and 13%, respectively. United States accounts for the three quarters of the world’s biotechnology revenues.