What is Health Economics

What is Health Economics

“What is Health Economics”

Health economics involves the implementation of tools, techniques and concepts of the discipline of economics to the topics of health and healthcare. From a scientific perspective, economics is concerned with the allocation of limited resources. The desire of the consumer to be healthy drives the demand for healthcare. The demand for health and healthcare differs from regular goods in the sense that it is simultaneously an investment. The money that consumers spend on being healthy today will also benefit the consumer in the future. The real purpose of Health Economics is an awareness that the resources that society allocate to the healthcare system will never be adequate to meet all demand. Health Economics is important to ensure that the limited resources that are made available are allocated in the most optimal way possible.

"What do Health Economists do?"

Health economists carry out a wide range of tasks. Health economists tend to ask different questions, which generate different predictions. They offer empirical methods for estimating relationships by carrying out statistical and econometric analysis. Health economists develop a theoretical rationale for government intervention to help address market failures. Also, empirical methods can be used for evaluating public policy in areas such as ethics, decision theory demography and epidemiology.

Health Economic Evaluation (HEE)

Over the past few decades, the global population has increased significantly. Alongside this, the ability to provide treatment for an increasingly wide range of diseases has increased with the constant introduction of innovative technologies. The increase in the global population has increased the demand for healthcare services. The increase in demand results in a rise in healthcare costs, which places a considerable financial strain on healthcare systems. Going back to the idea that healthcare resources are limited, i.e. due to financial and infrastructural restraints, not all costs can be met, therefore choices will and must be made. To assist in making these decisions, health economists rely on the use of Health Economic Evaluation. HEE is an imperative tool and consists of methods that are employed to judge the allocation of healthcare resources. The two criteria of interest in an HEE are:

1) Efficiency or Cost Effectiveness
2) Equity

Efficiency or Cost Effectiveness is the allocation of healthcare resources resulting in the maximum possible output in terms of health and/or non-health outcomes that are valued by society. Equity is the allocation of healthcare resources and the distribution of its associated costs and benefits, judged to be just or fair by society. An HEE assists the decision-making process. An HEE allows for resources to be allocated in a way that reflects societal preferences. The three most common HEEs include:

1) Cost-Effectiveness Analysis (CEA), whereby the measurement of costs is in monetary units and the measurement of consequences are presented in natural units i.e. life-years gained and disability days saved.

2) A Cost–Utility Analysis (CUA) also presents a valuation of costs in monetary units but consequences are presented in healthy years in the form of a Quality Adjusted Life Year (QALY).

3) A Cost–Benefit Analysis (CBA) is a method that presents both costs and consequences in monetary units.

CUA presents the consequences of treatment in terms of a generic health outcome, which is comparable across multiple disease areas and thereby can address a broader definition of efficiency.

HEE addresses two types of policy question, each of which considers a specific definition of efficiency. The first question is if the policy/programme/intervention is the most cost-effective way of achieving an objective of interest. The second question looks at whether the policy/programme/intervention is worthwhile when compared with alternative uses of the same resource. 


Admittedly, this blog only scratches the surface when it comes to answering the question of “what is health economics”. However, it does provide a simple understanding of the underlying principles of health economics. It is a fascinating area that is constantly evolving given the wide range of therapeutic areas and public policy concerns.

Keelan Butler

HEOR Intern
CareersTerms and ConditionsComplaints ProcedurePrivacy PolicyCookie Policy

Copyright © 2021.
MAP BioPharma Limited.
All rights reserved.

MAP BioPharma Limited
Upper Pendrill Court, Ermine Street North
Papworth Everard, Cambridge
Cambridgeshire, CB23 3UY
United Kingdom

 +44 (0) 1480 832360


MAP BioPharma Limited is a registered company in England and Wales.
Company Registration Number 08209281

VAT Group Registration Number:
GB 292 8576 52