As healthcare as a government policy involves quite a number of economical issues to be resolved, it can be considered as economical task for solving which certain economic theories must be applied. The authors mention the following principles of economic theory.
1. Cost shifting: coverage for those who don’t have health insurance is ultimately paid for by those who do, causing all kinds of financing and incentive problems. Thus there is very good reason to subsidize coverage to try to minimize the number of uninsured.
2. Adverse selection: markets in which one party knows much more about the value of the deal than the other are markets that work badly. Health insurance markets work much better when what is insured is a group with statistically-predictable risks than an individual with idiosyncratic risks difficult for the insurer to discover.
3. Moral hazard: when insurance companies rather than patients bear the marginal costs of treatments, there is an incentive to overtreat–except where treatment has public-health external benefits, and except where the insurer has written the contract to control utilization.
4. Coase theorem: Whenever informed and knowledgeable parties have reached agreement on the terms of a contract (i.e., comprehensive health insurance), do not presume that the government is doing anybody any favors by reaching in and monkeying with the contract terms.
5. Transaction costs: pointless churning of industry structure can be very expensive indeed.
Also cost-effectiveness, and cost-utility, analyses have historically been the most widely used
techniques of economic evaluation applied to the evaluation of health care programs. However,
in recent years there has been renewed interest in the use of cost-benefit analysis, which requires
the assessment of programme benefits in monetary terms.
