The word ‘health’ has a deeper connotation to the modern world than just being referred to as freedom from illness, disease or disability. Health or being healthy indicates both physical and mental well being. This well being ensures higher productivity for a longer period. Thus health is an important aspect of human capital. Without soundness of body and mind, good quality human capital cannot be created. No wonder, ‘Health Economics’ has emerged as a popular branch of Economics in the last few decades. As a sub discipline it has gained immense importance in recent times. The Journal of Health Economics and Health Economics are the two international journals devoted to the study of health economics. Apart from that there is the International Health Economics Association catering to the professionals in the field of health economics. With the spread of the study of health economics, we can now even find economic terms being included in medical jargon. Health Economics have also been included in the undergraduate course of study. (Culyer & Newhouse, 2000).
Health economics has both microeconomic and macroeconomic dimensions. It is the duty of the modern welfare state to ensure the physical and mental wellbeing of its citizens. The state also endeavors to take care of the sick and the disabled. The public provision of healthcare is an important policy objective and a part of economic planning. From microeconomic point of view, individuals are prospective buyers of healthcare as well as health insurance. The medical centers and medical personnel constitute the supply of health care products and services. Both the buyers and sellers are players in the market for healthcare services determining the price, quantity and quality of health care in the economy. The healthcare sector is thus a complex interplay of buyers, sellers of product and services, the government bodies, the suppliers of medicine and medical equipments and also buyers and sellers of medical insurance. The Government has a very important role in quality control and in ensuring reliability of the healthcare sector. In this paper we attempt to trace the origin of the study of Health Economics and its emergence as a separate discipline under the purview of economics, followed by a brief description of the trend in healthcare expenditure.
The importance of economics in medical affairs became evident when the American Medical Association (AMA) formed the AMA Bureau of Medical Economics way back in 1931. In around the same time Milton Friedman had studied the difference in income among various medical professions. His study was primarily based on econometric analysis and rested little on the interaction between healthcare and economics. From the end of the 1950s and the beginning of the ‘60s health issues started making their entry into the study of Economics. The earliest work in this respect is the paper “Toward a Definition of Health Economics” in 1958 by Selma Mushkin. Mushkin concentrated on the cost related issues that emerged with the advancement of medical technology. Mushkin stressed the fact that Health Economics is a broader discipline that deals with the optimum use of scarce resources to provide quality medical care to the elderly, disabled and the sick and make the right choice in the use of these resources which have alternative uses.(Rebelo, 2007). Mushkin further contends in her “Health as an Investment” (1962) that human development is brought about by investment in health and education. Development of human capital involves future returns. This contention was corroborated by Grossman in 1972. (Rebelo, 2007). However, the recognition of Health Economics as a sub-discipline is attributed to Kenneth Arrow, following the publication of his article “Uncertainty and the Welfare Economics of Medical Care”. In his article Arrow uses the Rational Choice theory to the study of healthcare. (Rebelo, 2007; Culyer & Newhouse, 2000).
Viewing healthcare in terms of economics, we can term the demand for healthcare as a derived demand as it is an input in the production of ‘health’. Studies have also shown that the income elasticity of demand for healthcare is quite high. This indicates that healthcare is a luxury good. (Gredtham & JÖnsson,2000). Healthcare is often termed as ‘bad’. This is because people won’t prefer to consume healthcare as that would mean one has to fall ill. But in times of illness it is a ‘good’. (Hurley, 2000).
Public Expenditure on healthcare is a strategic policy objective. A study across countries would reveal a wide variance in health expenditure as a percentage of GDP. Attempts have been made on the part of the governments of different countries to increase the cost effectiveness of health expenditure so that it doesn’t become a growing burden on the exchequer in the years to come. A 1997 study shows that the per capita health expenditure in terms of purchasing power parity ranged from $1000 to more than $2500.
Health Economics, as a sub discipline has entered the academic arena about the same time as educational economics. With time this branch of economics emerged as a separate discipline by itself. In recent years we have seen a surge of studies in the area health economics. It has made its contributions in healthcare planning at the policy making level. The private sector provision of healthcare is also highly dependent on the analytical studies of health economics.
References:
Culyer, A.J. & Newhouse, J.P. (2000). Introduction: The State and Scope of Health Economics. In Culyer & Newhouse(eds.) Handbook of Health Economics. Elsevier. Netherlands, 2000.
Gredtham, U. & JÖnsson,B. (2000). International Comparisons of Health Expenditure: Theory, Data and Econometric Analysis. In Culyer & Newhouse(eds.) Handbook of Health Economics. Elsevier. Netherlands, 2000.
Hurley,J.(2000). An Overview of the Normative Economics of the Health Sector. In Culyer & Newhouse(eds.) Handbook of Health Economics. Elsevier. Netherlands, 2000.
Rebelo, L.P. (2007). The Origins and the Evolution of Health Economics: A Discipline by Itself? Led By Economists, Practitioners or Politics?. Working Papers, 16/2007, Universidade CatÓlica Portuguesa (Porto).
