What Is Health Economics? Definition, Examples, and Impact

Health care is one of the most important aspects of human life and well-being. The health care sector employs 14 percent of American workers, approximately 22 million people, according to the 2019 census [1]. In the US, where health insurance is often linked with an individual’s job, it is considered a source of sociopolitical tension because the nation spends more than other countries on health care but lacks better health outcomes [2]. 

Health economics examines the factors that influence the industry’s costs and quality of care. How do patients, health care providers, insurance companies, and the government influence how health care is distributed—and in what ways can it be improved?

In this article, you'll learn more about health economics, including what it means, what it looks like in the real world, and who should consider studying it.

Health economics definition

Health economics is an applied field of study that examines and finds systems-based solutions to make health care more equitable, accessible, and affordable for all. Health economists seek to understand the role that a broad range of stakeholders (such as health care providers, patients, insurance companies, government agencies, corporations, and public organizations) play in health care spending.

Health economists are curious about what affects health outcomes. In their research, they’ll ask questions like [2]:

• How do we put a value on health?

• What factors influence health besides health care?

• What influences the supply and demand for health care? 

• Behaviors of health care providers vs. those seeking care

• What are some alternative approaches to health care production and delivery?

• How can we improve the ways in which we plan, budget, and monitor health care?

Example: health economics in the real world

According to Harvard Medical School faculty, health care economics can be approached from six key areas: (1) spending growth, (2) the role of the patient, (3) the role of the health care provider, (4) risk and insurance impact, (5) benefits design, and (6) payment reform [3]. 

Taking the concept of payment reform as an example, doctors can be compensated in different ways than traditionally existed. In recent years, value-based care models such as episode-based payment, fee-for-service, and population-based payment models have contributed to more equitable health care. Payment reform affects health care providers, insurance companies, and patients. 

Quality over quantity

Value-based care focuses on health care being delivered on the basis of quality over quantity. It is driven by data because providers report specific metrics like hospital or clinic readmissions, patient engagement, and more, to demonstrate health improvement [4].

The Value-Based Care specialization from the University of Houston provides an applied learning experience to understand this area of health economics deeply.

Why is health economics important?

Health economics is important because it focuses on how the economic behavior of stakeholders and recipients affects the quality and cost of medical care. It includes how people pay for care, how their payments are processed, and how health systems worldwide can be restructured and improved. Tackling any systemic issue at the root cause can prevent the same problems from arising again.

In examining the questions listed above, health economists address global issues such as migration and displacement, climate change, pandemics and vaccine access, disorders, obesity, and more. They apply economic theories to inform both the public and private sectors on cost-effective solutions to improve equity in health care.

For example, a health economist might research disparities in the quality of health and income in West Africa by evaluating the average cost of health care and insurance in the region. Potential solutions include employing digital technologies to provide health care directly through a mobile phone or laptop. 

Similar to public health and population health, approaching society’s health and well-being from a bird’s-eye macro perspective and drilling down to research specific populations can have a positive impact. Health economics can deliver insights that inform solutions to some of the world’s most pressing issues surrounding health care and well-being.

Read more: What Can You Do with a Master’s in Public Health (MPH)?

Who should study health economics?

Understanding how economic behavior factors into health and health care decisions can benefit anyone interested in this field. However, the following groups of individuals may benefit most from the study of health economics:

• Medical providers: Doctors, nurses, and assistants can evaluate new treatments, technologies, and services to determine ways to deliver value-based care. Medical providers benefit from understanding the economics behind these developments.

• Administrators: Health care administrators process insurance copayments and manage financial metrics for health care providers. Learning the intricacies of health care economics can provide the necessary context as they liaise with insurance providers and use new technologies to process payments.

• Policymakers or public health officials: Those who are in charge of policy decisions at the local, state, federal, or international levels benefit from understanding the economic relationship between stakeholders and the general public.

• Business leaders: Because many Americans receive private insurance, health care becomes a major expense for employers. Business leaders must understand the health economics outlook to appease their employees, shareholders, and even their customers.

Explore health economics on Coursera

Dive into the exciting field of health economics and contribute to the future of health care. In the University of Pennsylvania's Business of Health Care Specialization, you’ll develop the skills you’ll need to successfully navigate the quickly evolving landscape of this fast-growing field. Through the University of Houston's Value-Based Care Specialization, meanwhile, you'll learn the fundamentals and real-world application of value-based care that has become integral to improving outcomes in health care.