Economics of Health Care
Welcome
Health care is one of the largest and most complex sectors of the U.S. economy. Understanding it requires economics: how resources are allocated, how incentives shape the behavior of patients, providers, insurers, and policymakers, and how these choices affect health and spending.
This book introduces the core ideas of health economics, focusing specifically on issues related to the delivery of health care (sometimes referred to as “supply-side” health economics). Each topic is motivated by theoretical models and paired with policy applications and data. The material is aimed at advanced students with prior training in microeconomics.
What’s inside
Part I Health Insurance
How insurance contracts work, why people buy coverage, and what adverse selection does to premiums and coverage once we move from one person to a market.
Part II Physicians
Physician agency, payment models from fee-for-service to capitation, and why practice patterns vary so much across and within markets.
Part III Hospitals
Hospital history and ownership, pricing in single-price and two-price markets, bargaining with insurers, and mergers.
Part IV Prescription Drugs
The institutional details of the drug market, brand-name and generic pricing, and current policy and the prospects for reform.
How to read this book
Key terms appear in shaded definition boxes, and several figures are interactive, with sliders that let you change the parameters of a model and watch the result. Most chapters end with a short set of questions you can use to check your understanding; the answers unfold when you click. Use the search box in the sidebar to find a term anywhere in the book, and the toggle beside it to switch between light and dark reading modes.
Two boundaries are worth noting. First, this book is intentionally U.S.-centric. I draw on international comparisons only for context, and those interested in detailed cross-country analysis should consult the Peterson-KFF Health System Tracker and the Commonwealth Fund, among many other excellent resources. Second, I do not cover health care labor markets such as nurse wages or physician specialty choice, important though they are.
By the end of this book, you should be able to:
- Explain the structure and history of the U.S. health care system.
- Model adverse selection in health insurance and connect theory to data.
- Analyze physician incentives using agency models and empirical evidence.
- Describe how hospital pricing and insurer negotiations work, and distinguish between charges and prices.
- Use hospital data to assess the effects of real-world policies.