Health economics is one of the many branches in economic. Most of the concepts surrounding this branch are both the micro and macro economics placed in the context of efficiently and effectiveness in the production and services delivery in the health sector industries. The concept of health economics can be explained in layman language as the study of economical functioning of health care system in an economy. It involves matters affecting the health of individuals in a society. An example of application of the health economics is the study of cigarette smoking and its effects on the economy from the health expenses perspective. Economics bills have been introduced to curb smoking related expenditures and health care.
Kenneth Arrow is credited to have been the founding father of health economics by writing an article that set it differences from other branches of economics. The distinguishing factors which Kenneth pointed out were; the huge government intervention in this economy different from the other type of economics where market forces are left to take cause on market direction. Health economics is also characterized by monopoly that discourages barriers to entry, a lot of externalities and information present is only known to a few groups of individuals. Health economics also allows for middlemen to act between the buyers and the sellers. Under health economic the health specialist is the one making the decision. His/her decision is restricted by prices of the products or the services. The physician should thus make a decision that maximizes the output and minimizes the total cost of that service. The decisions to be made by the health specialist are to prescribe medication or ordering a lab test. A health economist evaluates several financial information regarding costs, charges and expenditures. The knowledge gaps between the health specialist and demand for such services creates an advantage for the physician called the market information asymmetry.
Demand in health economics is derived from demand for health. Demand for health care is a bit different from the other goods since households choose to allocate scarce resources to consume and produce health. Most economists view the households or individuals as consumers and producers in the health sector. Health is capital investment and can degrade over time if proper investments are not put in place. Health has a direct satisfaction and follows the laws of diminishing marginal utility. It increases productivity up to a certain limit were it starts to go down. Huge focus on health economics is evaluation micro economics concepts of each individual. Governments in different countries have various economics techniques for appraising new and existing medical equipments. Economic techniques evaluation methods are cost minimization analysis, Cost effectiveness analysis and cost utility analysis. Health economics can be divided into several sub categories. The sub categories are medical economics, mental and behavioral economics. Medical economics deals with the application theory of economics to the health markets. It is used in cost benefits analysis of medical products and treatments. It often uses models in decision making process. Behavioral economist is still in its infant stages.