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Understanding Health Economics

At its core, economics is the study of how people, businesses, and governments make choices about the things they want or need, considering the limited resources available.
Economic analysis magnifying glass and coin - REAL Supply

Every society, at every level, must make choices about how to use its resources. From daily decisions about what to buy to government policies - economics helps us make sense of it all. 


Because resources are essentially limited, choices need to be made about how they are to be used. Economics is concerned largely with how we make these choices in the context of scarcity - ie having unlimited wants and needs with only limited resources available to fulfil them - and the resulting tradeoffs (or sacrifices) from these choices.

  • What is Health Economics?
    Economics is about understanding human behaviour. Virtually every major problem facing the world today, from global warming, to world poverty, to the conflicts around the globe, has an economic dimension. Economics can play a crucial role in solving those problems. Health economics is a sub-discipline of economics that focuses specifically on how choices affect health and care outcomes, analysing how individuals, healthcare providers, and policymakers make decisions to maximise health outcomes with limited resources. Health economic research acts as the compass to guide health and care policy makers and ensure that their decision making takes all consequences fully into account. They explore how resources are used to keep people well, how healthcare services are provided, and how we pay for it all. From the NHS, to social care, to public health initiatives, economic principles underpin the choices that impact your health. Your well-being and the economic choices shaping our world are all connected.
  • What do we mean by 'population health'?
    Population health refers to the overall health of a group of individuals within a particular geographic area, community, or demographic. Instead of focusing on the health of individuals in isolation, population health looks at the health outcomes of a whole population and the social, economic, environmental, and behavioural factors that influence those outcomes. This could include things like access to education, employment opportunities, air and water quality, lifestyle choices, and community support. It's like taking a big-picture view of the health of everyone in a community. Going beyond just healthcare, population health considers the well-being of everyone in a specific group, be it a community, city or country. It's concerned with understanding and improving the health of the entire community, rather than just looking at individual health issues.
  • What are health inequalities, and how do we tackle them?
    Health inequality is the differences in health between groups of people e.g. male and female or rich and poor. This means that people from different social groups can expect to have different quality of life and can expect to die at different ages. In the UK, research has shown that some people face health challenges more than others. People with lower incomes often have poorer health and live shorter lives than those more wealthy. Ethnic disparities also exist, with certain ethnic groups facing higher risks of specific health conditions. Where you live can also affect your health with people in the south of England living longer on average and with more years in good health than those living further north. The field of health economics is crucial for addressing health disparities across the whole of society. By understanding how economic factors influence health outcomes (things like income, education and where people live), we can work towards creating an inclusive healthcare system that prioritises everyone's well-being, regardless of socio-economic status. By considering issues of equity, health economists can help ensure that healthcare is distributed fairly and that vulnerable populations have access to necessary services.
  • What is economic evaluation?
    An economic evaluation is a calculation of the costs and consequences that would arise from different decisions about which health and care services to provide. The process can be conducted on health interventions or policies that already exist in the health and care system or on those that may be introduced in the future. There are ever increasing costs of healthcare across all countries. The purpose of an economic evaluation is to guide decision-makers on the best course of action to take - ie what is and what is not worth doing to maximise population health. Health economists can help decision makers decide on whether to invest in an intervention or policy change by identifying its opportunity cost.
  • What do we mean by opportunity cost?
    Opportunity cost is a concept that helps us understand the value of the choices we make. It refers to the potential benefits or value that you give up when you choose one option over another - i.e. the cost of forgoing the next best alternative when you make a decision. Let's break it down with two examples: Example 1 Imagine you have a free afternoon, and you're deciding between two ways of using your spare time to be as healthy as possible. Do you: Have a nap to ensure you get enough rest Prepare yourself a healthy meal to support your overall health If you decide to have a nap, the opportunity cost would be the time and effort you could have invested in preparing a healthy meal. Conversely, if you choose to cook a nutritious meal, the opportunity cost would be the rest and relaxation your body might have benefited from having a nap. In this case, opportunity cost prompts you to consider the trade-off between rest and nutrition. It highlights that choosing one activity comes at the expense of the potential benefits of the other. This simple example illustrates how opportunity cost can be a factor in everyday health decisions, encouraging individuals to weigh the value of different health-related activities based on their preferences and priorities. Example 2 Imagine you're a healthcare leader responsible for allocating funds with a limited healthcare budget. You have a choice between investing in two options: Building a new hospital to improve access to healthcare in an underserved area Investing in health awareness programmes such as vaccination campaigns, health education, and disease prevention initiatives. If you decide to allocate the budget to building a new hospital, the opportunity cost would be the potential health improvements and cost savings that could have been achieved through investing in health awareness programmes. Conversely, if you choose to invest in health awareness programmes, the opportunity cost would be the improved access to health care services that a new hospital could have provided. In this scenario, the concept of opportunity cost highlights the trade-off involved in the decision-making process. It prompts decision-makers to consider not only the benefits of the chosen option but also what is sacrificed by not choosing the next best alternative. This understanding can be crucial in making informed decisions about resource allocation in healthcare, where budgets are often limited, and choices have significant implications for public health outcomes. Opportunity cost is not always about money - it's about the value of what you give up in terms of your time, resources, or enjoyment when you choose one option over another. It helps us think about the trade-offs involved in decision-making and encourages us to consider what we might be missing out on when we make choices in our daily lives.
  • How does economic analysis work?
    Health economists are always trying to answer the question of how a system can maximise population health with a limited budget. Here’s how they normally do it: Define a research question relevant to specific context Identify or generate relevant evidence to answer this question This usually means estimating what the state of the world would look like with and without the policy being evaluated. Outcomes with the policy - these are the health and care outcomes we expect to see with the policy in place. It could be based on observation if the policy is in operation. If the policy is not in operation, it could be based on mathematical prediction from what we know about how the same types of policy work, either historically or in different settings. Outcomes without the policy - these are the health and care outcomes we expect to see without the policy. This could be based on observation before the policy is in operation, or on outcomes in a different setting where the policy is not in place Determine which differences between the outcomes can be attributed to the policy. If we compare outcomes over time, or across different settings, there will be other things besides the policy that can cause changes in the outcomes we observe. Various estimation methods have been developed to adjust for these other causes so that the remaining difference can be attributed more confidently to the effects of the health or care policy. Make suggestions for resource allocation or policy change. How can healthcare professionals and the general public help health economists? By helping define research questions Help provide and collect data to answer the question Identify and provide access to existing data sets to answer questions Understanding the impact and relevance of research results Disseminating the results to the general public
  • How do we make economics accessible?
    Most economic concepts are not complicated, but often use words to describe them which mean something technical and specific to an economist and something quite different to another person. Our mission is to make health economics accessible to all. Whether you're a healthcare professional or simply curious about the factors shaping your health, we aim to empower you to navigate the complex world of health economics and the profound impact it can have on society. Engage with us about health economics in the UK and help us uncover and answer the big questions which need answering to build a fairer and more effective health and care system in the future that meets the needs of everyone. Your questions, thoughts, and insights can help build a collective understanding that can drive positive change in our society so get in touch with us.
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