5.1 An introduction to health economics

A key part of economics is the study of decision-making under conditions of scarce resources.

Financial budgets are invariably constrained, so this is often the focus in health economics. However, other resources – such as time, labour and equipment – can also be considered. Health economists often consider both the health and cost consequences of decisions.

There are many different types of health economic analyses, but you will only focus on two types in this course (Turner et al., 2021):

• Costs of illness or burden of disease estimates aim to quantify or estimate the financial or health impacts of a disease over a defined period of time. These estimates can also be used to estimate the costs or burden in the future, based on estimates of future incidence – the economic estimates in the O’Neill report discussed earlier in the course would fit in this category. Importantly, these analyses do not estimate the impact of any interventions, and the extent to which these costs or burdens may be reduced.
• Cost-effectiveness analyses are a form of comparative economic analysis that consider two or more policies – a new intervention compared to current practice, for example – and estimate the costs and outcomes associated with each approach. As such, these analyses can inform which approaches represent the best value for money and can guide the efficient use of healthcare budgets.