Purchasers of healthcare, such as national health services or insurance companies, have a limited budget and therefore may use health economics to optimise how they allocate their resources.
Every decision within a budget-constrained healthcare system reallocates resources, so health economics means comparing the costs and effects of such reallocation to ensure that gains are likely to outweigh losses in another area. One of the more frequent applications of health economics is cost-effectiveness analysis.
Topics in health economics include, for example:
- Producing and delivering health goods and services,
- Measuring health states and performing economic evaluations,
- Undertaking health technology assessments,
- Predicting health behaviours, and
- Defining health insurance reimbursement schemes
Health economics originated in the United States with the publication of Kenneth Arrow’s article “Uncertainty and the Welfare Economics of Medical Care” in 1963. The discipline subsequently developed in various countries, leading in the United Kingdom to the creation of the National Institute for Health and Clinical Excellence (NICE) in 1999.