health economics health economics health economics is a branch of economics concerned with issues related to efficiency, effectiveness, value and behavior in the production and consumption of health and healthcare. health economics is important in determining how to improve health outcomes and lifestyle patterns through interactions between individuals, healthcare providers and clinical settings. in broad terms, health economists study the functioning of healthcare systems and health-affecting behaviors such as smoking, diabetes, and obesity. world health expenditure as share of global gdp. how much did the uk spend on healthcare in 2012? part of a series onpublic health outline subfields community health dental public health environmental health epidemiology health economics health education health promotion health policy health politics mental health occupational safety sexual and reproductive health sanitation world health (global health - international health) prevention disease surveillance health promotion (behavior change) health indicators lists and categories terminology journals national public health agencies medicine portal society portal part of a series oneconomics history outline index branches and classifications schools of economics mainstream economics heterodox economics economic methodology economic theory political economy microeconomics macroeconomics international economics applied economics mathematical economics econometrics jel classification codes concepts, theory and techniques economic systems economic growth market national accounting experimental economics computational economics game theory operations research middle income trap industrial complex by application agricultural behavioral business cultural demographic development digitization ecological economic geography economic history economic planning economic policy economic sociology economic statistics education engineering environmental evolutionary expeditionary feminist financial happiness economics health human capital humanistic economics industrial organization information institutional knowledge labour law managerial monetary natural resource organizational participation personnel public economics public / social choice regional rural service socioeconomics solidarity economy urban welfare welfare economics notable economists françois quesnay adam smith david ricardo thomas robert malthus john stuart mill karl marx william stanley jevons léon walras alfred marshall irving fisher john maynard keynes friedrich hayek arthur cecil pigou john hicks wassily leontief paul samuelson more lists glossary economists publications (journals) business and economics portal money portal one of the biggest difficulties regarding healthcare economics is that it does not follow normal rules for economics. price and quality are often hidden by the third-party payer system of insurance companies and employers. additionally, qaly (quality adjusted life years), one of the most commonly used measurements for treatments, is very difficult to measure and relies upon assumptions that are often unreasonable. a seminal 1963 article by kenneth arrow is often credited with giving rise to health economics as a discipline. his theory drew conceptual distinctions between health and other goods. factors that distinguish health economics from other areas include extensive government intervention, intractable uncertainty in several dimensions, asymmetric information, barriers to entry, externality and the presence of a third-party agent. in healthcare, the third-party agent is the patient's health insurer, who is financially responsible for the healthcare goods and services consumed by the insured patient. health economists evaluate multiple types of financial information: costs, charges and expenditures. uncertainty is intrinsic to health, both in patient outcomes and financial concerns. the knowledge gap that exists between a physician and a patient creates a situation of distinct advantage for the physician, which is called asymmetric information. externalities arise frequently when considering health and health care, notably in the context of the health impacts as with infectious disease or opioid abuse . for example, making an effort to avoid catching the common cold affects people other than the decision maker: vii–xi or finding sustainable, humane and effective solutions to the opioid epidemic. scope the scope of health economics is neatly encapsulated by alan williams' "plumbing diagram" dividing the discipline into eight distinct topics: what influences health? (other than healthcare) what is health and what is its value? the demand for healthcare the supply of healthcare micro-economic evaluation at treatment level market equilibrium evaluation at whole system level planning, budgeting and monitoring mechanisms. the development of health economics in the third century bc, aristotle, an ancient greek thinker, once talked about the relationship between farmers and doctors in production and exchange. in the 17th century, william petty, a british classical economist, pointed out that the medical and health expenses spent on workers would bring economic benefits. nowadays, modern health economics has developed into a leading interdisciplinary science, which bridges the gap between economic theory and health care practice, and the wide diversification in various sub-disciplines and research fields has been clearly visible. few would argue that the actual cradle of this knowledge was the academic tradition of the u.s. the american medical association (ama) was created in 1848, having as main goals scientific advancement, creation of standards for medical education, launching a program of medical ethics, and obtaining improved public health. yet, it was only in 1931 that economic concerns came to the agenda, with the creation of the ama bureau of medical economics, established to study all economic matters affecting the medical profession. after the second world war, amid the rapid improvement of the level of medical research technology, the modernization of diagnosis and treatment means and health facilities and equipment, the aging of the population, the sharp increase of chronic diseases, and the improvement of people's demand for health care and other reasons, medical and health expenses increased significantly. for example, total u.s. health expenditures steadily increased as a share of gross domestic product (gdp), demonstrating the increased importance that society placed on health care relative to other non-health goods and services. between 1960 and 2013, health spending as a share of gdp increased from 5.0 to 17.4 percent. over the same period, the average annual growth in nominal national health expenditures was 9.2 percent compared to nominal gdp growth of 6.7 percent. at the same time, the expenditure on health care in many european countries also increased, accounting for about 4% of gdp in the 1950s and 8% by the end of the 1970s. in terms of growth rate, the proportion of health care expenditure in gnp (gross national product) in many countries increased by 1% in the 1950s, 1.5% in the 1960s, and 2% in the 1970s. this high medical and health expenditure was a heavy economic burden on government, business owners, workers, and families, which required a way to restrain its growth. in addition, the scale of health service increased, technical equipment became more advanced, and division of labor and specialization saw increases, too. the medical and health service developed into a "healthcare industry" which occupies a considerable amount of capital and labor and occupies an important position in social and economic life. the research on economic problems of the health sector became an important topic of economic research. selma muskin published "towards the definition of health economics" in 1958 and, four years the, "health as an investment." at that time, health was broadly regarded as rather a consumptive branch of the economy. muhkin's analysis was the first understanding that health investment had long-term beneficial consequences for the community. probably, the single most famous and cited contribution to the discipline was kenneth arrow's "uncertainty and the welfare economics of medical care," published in 1963. after the 1960s, research in health economics developed further, and a second academic seminar on health economics was held in the united states in 1962 followed by a third in 1968. in 1968, the world health organization held its first international health economics seminar in moscow. the convening of the three meetings showed that health economics had boarded an academic forum as an independent discipline, which also marked the official formation of health economics. after the 1970s, the health economy entered a period of rapid development and nursing economics gradually emerged. in 1979, paul feldstein, a famous american health economist, first used the principles of economics to discuss the long-term care market, registered market, and other nursing economy issues, laying the foundation for the emergence of nursing economics. in 1983, nursing economic magazine was founded in the united states, and its main research content included nursing market development, nursing cost accounting, policies related to nursing services, nursing economic management, etc. the magazine's publication was a mark of the formal formation of nursing economics. in 1993, the university of iowa cost research center conducted a systematic nursing cost study, simply the nic system. the specific practice consisted of establishing a special research institution equipped with full-time researchers, sorting out the nursing cost accounting content, and, finally, identifying 433 items in 6 categories. at the same time, the center adopted computer technology to carry out nursing cost management, including cost assessment, reasonable budget, decision making, etc., which played a crucial role in improving the efficiency of nursing management and alleviating the nursing management crisis. healthcare demand the demand for healthcare is a derived demand from the demand for health. healthcare is demanded as a means for consumers to achieve a larger stock of "health capital." the demand for health is unlike most other goods because individuals allocate resources in order to both consume and produce health. the above description gives three roles of persons in health economics. the world health report (p. 52) states that people take four roles in healthcare: contributors citizens provider consumers michael grossman's 1972 model of health production has been extremely influential in this field of study and has several unique elements that make it notable. grossman's model views each individual as both a producer and a consumer of health. health is treated as a stock which degrades over time in the absence of "investments" in health, so that health is viewed as a sort of capital. the model acknowledges that health is both a consumption good that yields direct satisfaction and utility, and an investment good, which yields satisfaction to consumers indirectly through fewer sick days. investment in health is costly as consumers must trade off time and resources devoted to health, such as exercising at a local gym, against other goals. these factors are used to determine the optimal level of health that an individual will demand. the model makes predictions over the effects of changes in prices of healthcare and other goods, labour market outcomes such as employment and wages, and technological changes. these predictions and other predictions from models extending grossman's 1972 paper form the basis of much of the econometric research conducted by health economists. in grossman's model, the optimal level of investment in health occurs where the marginal cost of health capital is equal to the marginal benefit. with the passing of time, health depreciates at some rate δ . the interest rate faced by the consumer is denoted by r . the marginal cost of health capital can be found by adding these variables: m c h k = r + δ =r+\delta \,} . the marginal benefit of health capital is the rate of return from this capital in both market and non-market sectors. in this model, the optimal health stock can be impacted by factors like age, wages and education. as an example, δ increases with age, so it becomes more and more costly to attain the same level of health capital or health stock as one ages. age also decreases the marginal benefit of health stock. the optimal health stock will therefore decrease as one ages. beyond issues of the fundamental, "real" demand for medical care derived from the desire to have good health (and thus influenced by the production function for health) is the important distinction between the "marginal benefit" of medical care (which is always associated with this "real demand" curve based on derived demand), and a separate "effective demand" curve, which summarizes the amount of medical care demanded at particular market prices. because most medical care is not purchased from providers directly, but is rather obtained at subsidized prices due to insurance, the out-of-pocket prices faced by consumers are typically much lower than the market price. the consumer sets m b = m c out of pocket, and so the "effective demand" will have a separate relationship between price and quantity than will the "marginal benefit curve" or real demand relationship. this distinction is often described under the rubric of "ex-post moral hazard" (which is again distinct from ex-ante moral hazard, which is found in any type of market with insurance). health technology assessment main article: health technology assessment economic evaluation, and in particular cost-effectiveness