Health economics: a prognosis

Is established thinking in economics up to the challenges presented by healthcare provision? Geoffrey M. Hodgson conducts and examination.

“Health economics would seem to be a perfect topic for heterodox dissent … health economics is a field which must make the average neoclassical economist squirm because it challenges his or her standard assumptions at every turn.” Mark Blaug (1998)

The economics of healthcare is of ever-growing importance, partly because health services are taking up a steadily increasing proportion of spending of national incomes. OECD figures show that the percentage of GDP devoted to healthcare in 2016 was 9.7% in the UK and 17.2% in the US, and in both cases on a steady upward trend.

But this does not mean that health outcomes are better in the US. On the contrary, life expectancy is slightly higher in the UK than it is in the US, despite much lower healthcare spending. Evidence suggests that it not simply the amount spent that matters, but how the healthcare system is organised. It is the responsibility of healthcare economists and other social scientists to advise on this. Such advice is guided by assumptions about human motivation and how outcomes are to be valued.

The standard neoclassical approach to economic welfare assumes that individuals seek to maximise their utility, and the individual is the best judge of whether his or her utility is maximised. But these welfare criteria are so unsuited for health policy that many mainstream health economists are inclined to adopt alternative normative yardsticks, focusing on measures of health and healthcare needs rather than of utility. But mainstream health economics does have other limitations.

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Geoffrey Hodgson

Geoffrey Hodgson is Editor-in-Chief of the Journal of Institutional Economics, published by Cambridge University Press. He has written 16 books, over 140 articles in academic journals, and over 80 articles …

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