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Economic Terms and Health Care History


Health care economics is an economics division that concerns itself with matters that regulate the scarcity in the provision of health and health care services. In other words, health care economics is the universal term this is considered to be the study of health care system operation and private and social-behavioral triggering health sources such as smoking (Phelps, 2003).

The first most appraised article that elevated health economics to a higher discipline was that by Kenneth Arrow of 1963, from this article certain health care objectives were able to be distinguished from other objectives (Drummond, 2005). Some of the objectives that discern health care economics that were outlined by the article include various intricate ambiguity facets, broad political interference, externalities, and symmetric knowledge.

Health Care Economics History

The first universal health care system was used in Germany in 1883 during the invention of social legislation. This invention followed the development of the Health Insurance Bill which made most people have access to medical cover which eventually increased levels of the health status of applicants who took the insurance and also the community at large. Later in 1884, the Insurance Bill was developed to cover even accidents which were later upgraded to incorporate an Insurance Bill which encompasses the aged who are disabled. Health care systems have been improving since then to financial dependent schemes which are profitable.

The act was later replaced with the National Health Service Act in 1948, this new amendment oversaw that the entire population was covered by the health care bill amended (Wise, 2009).

Dranove (2002) states that in America health care was formalized back in the year 1880 up to 1930 when most of the medical care establishments were established. This era also witnessed the creation of health insurance which was later fully implemented in the 20th century as a health care repayment means and this oversaw the taking over the reign in the medical market by the American Medical Association (AMA).

Health Care Economics Evolution

Several factors have influenced the evolution of health care economics; the main ones are the cost and the coverage. Following the end of the Second World War when most of the system of universal health care was under deliberate reforms implementation that would make health care is available to everyone. This prompted the signing of Article 25 of the Universal Declaration of Human Rights of 1948, every country contributed to this agenda. However, until recently the United States did not endorse the fragment that concerns itself with social and economic civil liberties which are featured in article 25 until recently (Dranove, 2002).

Supply and Demand

The cost of health has been a major factor of evolution this is mostly because the health care expenses have reached $830 billion up to 1992 and are estimated to reach $1.5 trillion in the year 2000. These high prices are elevating in a rate that has been worrying the residents most of the United State until recently when the health bill was passed by Barrack Obama the current president of America (Phelps, 2003).

There is said that the competitive market has been the major driving force that has caused an evolution in the economics of health care. This has been due to the regulation that has been set by the government and political interference also institution interdependencies of insurances and medical organizations (Wise, 2009). This has also affected the patient and the doctor’s relationship making it chaotic and filled with litigations because of the legislation and regulations which underlie behind the scenes.


Universal healthcare systems usually fluctuate in the provision of care and health insurance when there are government interferences. This has seen a lot of changes due to these factors in most countries like Italy, the UK, and Spain, in these nations majority of the regulation is overseen by the government. This has seen health care take angles that are either effective or delaying in the provision of health care. In other states, the health care system is regulated through a pluralistic delivery system which is dependant on insurance rates about the salary or income from the beneficiaries and employers who are the founders of this venture. Unlike before where health care was provided directly from the physician induction of the insurance has seen great change in the history of health economics (Arrow, 1993).


According to Arrow (1993), the government in the majority of cases and mostly on all occasions usually mandates and regulated the health care systems, this is because they are the biggest financiers in this segment. In the system of health care ambiguity is usually a natural norm in both the areas of financial and patient outcome apprehension. There usually arise disagreements wherever there is consideration of health and health care, this usually occurs in the cases involving contagious sickness. This is in the creation of certain awareness like the common cold and the effects it has on people.

Health Care Funding

There is mixed and numerous method that have been derived when funding health care universally. Every nation has its model mechanism that oversees this funding of the health care systems. The primary source that is responsible for funding in the majority of the nations is general taxation revenue. The majority of the country that practices this mode as the chief funder also incorporate specific levies to supplement the revenues (Drummond, 2005). Private payment in minority cases is also included to support in this agenda directly or through optional insurance, this is mostly tailored for the services that fall beyond the public system.

Macroeconomics and Microeconomics

All the European system has incorporated both the private and the public system to fund health care systems. Other countries in this region use tax as the only primary financer and others induce a multi-player system to supplement the financing of this system. However, the system of private financing is usually regulated through aids by the workforce and employers on illness finances which usually have no revenue returns. The salary is the main varying option that determines the contributions which are obligatory to the workforce (Dranove, 2002). Some of the common means of funding are single players, public, compulsory insurance, and private insurance.

Single payer-this is mostly practiced in the U.S which is considered to be the funding model that is generated from a single source the medical care bills. The government is usually the chief funder and sometimes there are is the incorporation of the public-private scheme in this model.

Public-most of the Nordic and European countries uses this model of financing health care from tax revenue directly alone. Social security is also financed through tax for nations with an insurance-based model for those who cannot afford to insure themselves (Phelps, 2003).

Compulsory insurance-this are legislation enforced that makes it mandatory for all working and permanent resident to acquire insurance. However, in particular cases the governance usually grants insurance.

Private insurance-this usually applies in nations that have universal coverage. However, most private insurance usually proscribes most health conditions that require a lot of funds in treatments that the state health cannot cater for.


Health care economics is a broad concept that has been revolutionized from as early as the 19th century aimed at providing better health care services to the local nations practicing it. However, financing of these drives is marred with government and political interference that slows this intervention. The government should regulate this having the welfare of the population in mind, not some political millage that only serves their greedy gains (Wise, 2009). Is well injected without political agendas this would help serve the population and add live value which would in return add a lot of income as healthy minds are active and recreational in terms of revenue-generating.


Arrow, K. (1993). Uncertainty and the Welfare Economics of Medical Care. American Economic Review. 53 (5), 941–973.

Dranove, D. (2002). The Economic Evolution of American Health Care: From Marcus Welby to Managed Care. New Jersey: Princeton University Press.

Drummond, M. (2005). Methods for the Economic Evaluation of Health Care Programs. Oxford: Oxford University Press

Phelps, C. (2003). Health Economics. Boston: Addison Wesley.

Wise, D. (2009). Developments in the Economics of Aging. Chicago: University of Chicago Press.

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