Health Economics has grown into one of the important branches in Economics today. Today, health economics deals with the scarcity of allocation of health and health care. A doubt might arise as to why health has a relevant role to play in economics. When we observe closely we can see that health economics is the study of scarce allocation of health and health care resources. We can not that economics the study of scarce resources. A resource can not only be a tangible product but also an intangible service such as high quality health care.
Health Care Expenditure or HCE has risen considerably in many advanced industrial as well as in developing economies, not only in absolute figures but also the share in GDP has been increasing drastically ever year from 1960s to the present date.
The share of Health care in GDP is close to or above 10% of the total GDP in many industrialized economies. The health care industry has been providing incomes to many people and the amount of money being spent by people. These are some of the reasons for Economists’ interest in the subject of health-related economics.
Public regulation of health services: Another important factor of consideration is that in many developed countries the health care system is under the direct control of the government. The compulsory health insurance in many countries, the fixing of fee schedules for medical services, where almost all care is provided by public employees.
Ethical significance: Finally health and everything related to it is an extremely emotional issue. This fact poses a particular challenge to economists, who are called upon to devise rules for allocation doing justice to the specific character of health wants. Often there is a conflict between the economic and the ethical way of looking at the allocation of scarce resources, both within health care and between health and other goods.
The health care ‘cost explosion’ should not have become an obsession. We are dealing with a changing group of goods over time, so that the term ‘cost explosion’ is not appropriate anyway and we should rather speak of a growth is in expenditure instead. Second, from a welfare point of view, the problem is not much the development of expenditures of health care, but rather their structure. The economic principle generally requires that a given degree of satisfaction of one’s needs be achieved with the minimum amount of scarce resources. Thus, the demand in the services sector during recent studies – causing expenditure devoted to it to strongly increase in spite of perfect efficiency in the use of the resources. Conversely, the shrinking of an industry does not imply an increase in efficiency.
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