Economic Terms and Health Care History


The history and evolution of healthcare economics can be described as the typical application of economic theory to phenomena and problems associated with health. Healthcare economics as a subject started after Kenneth Arrow’s seminal study.

The history of healthcare economics started when plague emerged in Europe in the year 1520 that led to one medic known as Paracelus, try finding solutions. This was followed by thirty years of war between the years 1618 and 1648 which left so many people in poor health. This saw the emergence of Cameralists who championed for the creation of healthcare policy measures. The development of industrialization pushed more people irrespective of gender and age from farm labour to forced labour for longer duration.

These made Roscher to research on health related problems and seek for ways in which health of individuals could be protected. The rise of industrialization led to high level of insecurity within the urban population, which also marked the start of war between social classes. This led to the designation of market-based social institutions that targeted some basic areas such as health insurance and cooperative accident insurance (Arrow, 1963).

History and evolution of healthcare economics

In medieval times, health institutions were built and operated under municipal foundations which gave much attention to keeping of medical records. The data bases on patients’ health conditions kept in hospitals made it possible the application of accounting methods for proper record keeping. Economic concerns played a big part in the application of statistical methods.

Monopolization of healthcare which emerged in early 19th Century encouraged the existence of fraud and provision of low quality services to patients. This received opposition from the Cameralists who gave guidelines on how peoples’ health would be made better; they went ahead and interpreted the population health as an equivalent to the Gross domestic product to make it clear for the government that prosperity of any nation lies with the health of its citizens (Wilhelm, 1894).

After the thirty years of war Christian Wolf suggested a bottom-up approach towards provision of health care services. This promoted the focus on households, where the nearest healthcare services were to be relied upon.

This was followed by the suggestion of improving the health of the population through government policies and administration. This idea brought clear the focus on agricultural policies which were meant to prevent starvation related diseases through improvement of gross domestic product as well as sanitary conditions (Wilhelm, 1894).

Another medical officer Roscher, who lived between 1817 and 1894, brought about the issue of family unit being the start point of a nation’s economy. This saw the introduction of education as means to pull people out of poverty and ultimately improve their health conditions.

This was the start of building institutions for the purpose of providing healthcare services hence the introduction of health economics within constitution. This was followed at the start of twentieth century by the investigation of insurance policies that could help guard individuals against difficulties. The investigation was carried out during the time of industrialization crisis. This approach helped in the creation of incentives that were used in reducing risks associated with individual’s health.

Karl (1847-1830) who was also a medical officer brought about the introduction of social welfare within healthcare industry, he insisted on the use of charity for the benefits of healthcare institutions. This made it possible for the non-markets active participation in providing healthcare which acted as a boost to government efforts (Wilhelm, 1894).

Crisis emerged within the health care system due to failure by the governments to match the demand and the supply of medical services. The rising costs amidst increase in economic constraint called for the need of healthcare reforms. The need to harmonise costs and demand in line with the political and economic traditions was considered an important approach towards medical reformation. All the reforms were expected to support improvement in healthcare quality and protection of patient rights (Gavin, 1986).

Healthcare demand was known as derived demand since it was means by which consumers achieved huge stock of health capital. Within the demand for health it was the individuals who allocated resources for the purposes of health production and consumption.

The stock in healthcare was expected to degrade over period of time especially when there was no longer any valid investments made within health. It is believed that large section of health care economics focuses on the microeconomic evaluation of specific individual treatments (Getzen, 1997).

The evaluation involves comparison between alternative courses of action in terms of costs and the results obtained. Evaluation methods used by economists include; cost-minimization analysis which proves the equivalence in effectiveness of any medical care at affordable cost, there is cost-benefit analysis which calculates the outcome of any healthcare in terms of cash produced and cost effectiveness analysis which is used by economists to measure medical outcome in terms of natural units (Folland et al, 2001).


Health care though considered as private good, encounters some market failures in terms of costs and delivery services that accompany its use. These failures are attributed to the elasticity and inelasticity of prices on healthcare products within the market and the existence of barriers to market entry towards some institutions dealing with issuance of health insurance.

According to government programs the mechanisms within the private market are required to help in equal distribution of services within healthcare. Government does this so as to ensure that the positive outcome of medical treatment to individuals is equivalent to the costs paid for the specific services (Wagner, 1977).

Investigation through the history and evolution of healthcare economics exposes the rate and level of government regulations and control. These regulations from government and other organizations are considered stressful for medical officers and recipients of healthcare services.


Arrow, K. (1963). Uncertainty and welfare Economics of Medical care. American Economic Review, 53, 941-973

Folland, S., Allen, C., and Miron, S. (2001). The Economics of Health and Health Care. Upper Saddle River: Prentice Hall.

Gavin, M. (1986). Economics, Medicine and Health care. Brighton, Wheatsheaf

Getzen, T. (1997). Health Economics: Fundamentals and flow of funds. New York: John Wiley &Sons, Inc.

Wagner, R. (1977). Economic manipulation for political profit: Macroeconomic Consequences and constitutional implications. Kyklos, 30, 395-410

Wilhelm, R. (1894). History of Economics in Germany. Munchen: R. Oldenbourg