Health Economic Principles - Week 1

Vocabulary flashcards covering foundational health economic principles, market failures, provider incentives, and macroeconomic concepts.

Oikonomos

The Greek origin of the word economics, meaning 'the one who manages the household.'

Health Economics

The branch of economics concerned with efficiency, effectiveness, value, and behaviour in the production and consumption of health and health care, aimed at maximizing health gains from limited resources.

Scarcity

The condition of having finite resources (such as land, labour, and capital, or ICU beds and staff) that cannot satisfy all societal desires, necessitating choice and allocation.

Opportunity Cost

The value of the best alternative forgone when making a choice; represents the true cost of an item or action (e.g., purchasing an MRI machine at the expense of roughly 10,000 vaccinations).

Marginal Thinking

Evaluating decisions based on comparing the additional marginal benefit against the additional marginal cost of one more unit of an intervention (such as an extra day of antibiotics).

Technical Efficiency

Producing health services or outcomes using the least amount of inputs; characterized as 'doing things right.'

Allocative Efficiency

Directing limited resources toward the mix of health programs, services, and interventions most valued by society; characterized as 'doing the right things.'

Fee-for-Service (FFS)

A provider payment method where clinicians are paid per individual service delivered, providing the strongest economic incentive to increase service volume.

Capitation

A provider payment mechanism where a fixed payment is made per enrolled patient over a defined time, creating an economic incentive for cost containment and doing less.

Trade-offs in Health Policy

The necessity of compromising one objective to achieve another due to resource constraints, such as balancing prevention versus treatment, or breadth versus depth of coverage.

Williams (1987) Framework

A structural mapping of health economics into eight distinct interrelated domains (Boxes A through H), spanning definitions of health, determinants, demand, supply, market analysis, economic appraisal, planning, and whole-system evaluation.

Kenneth Arrow (1963)

The economist who established health economics as a distinct discipline in the seminal paper 'Uncertainty and the welfare economics of medical care,' arguing that uncertainty is the defining characteristic of the health economy.

Demand Uncertainty

A market characteristic where consumers cannot predict the timing, nature, or financial cost of becoming ill.

Supply Uncertainty

The unpredictability in healthcare delivery where physicians cannot guarantee a specific treatment outcome or cure due to biological variability.

Product Uncertainty

The condition where patients cannot easily judge the necessity or clinical quality of the medical advice and treatments they receive.

Information Asymmetry

A market imbalance where one party has more knowledge than the other, particularly where a healthcare provider has significantly more clinical information than the patient.

Principal-Agent Relationship

A structure in which the patient (principal) lacks knowledge and delegates diagnostic and treatment choices to the physician (agent), who controls the menu of services.

Supplier-Induced Demand (SID)

A market phenomenon where providers exploit information asymmetry to stimulate patient demand and provide care beyond what is clinically necessary to protect or increase their income.

RAND Health Insurance Experiment

A landmark empirical study demonstrating that patients consume less medical and mental health care as out-of-pocket coinsurance rates rise, disproving the myth that healthcare demand is driven solely by clinical need.

Health Expenditure Share Formula

The mathematical representation calculating national health spending as a proportion of total economic output: $\text{share} = \frac{\text{total health expenditures } (\text{price} \times \text{quantity})}{\text{total GDP}}$.

Health Externalities

Benefits or harms experienced by third parties as a result of an individual's health decisions, such as infectious disease control or herd immunity from vaccination.

Reayah Cancer Insurance

A Jordanian coverage program set for 2026 covering 4.1 million people at King Hussein Cancer Center (KHCC), targeting individuals aged 60 and older, youth under 19, and National Aid Fund beneficiaries at an estimated cost of ~JD 132.5 million.

Health System Equilibrium

A state in which the behaviors of patients and providers adjust until no participant can make themselves better off by altering their actions (such as specialist waiting times stabilizing).