Health Economics: Select Concepts of the Health Production Function, Risk, and Insurance

Abstract

The production of health as an output of various inputs is a key concept of health care economics and a key influence on health care policy. Similarly, the notion of risk—that an outcome might not turn out as expected or hoped—underpins the entire theory of insurance. Insurance, and the benefits it can provide, cannot be understood without understanding risk, or without understanding how the features of an insurance contract transform risk for the individual, the payer, or society. The health economist, policy maker, leader, expert operator, financier, insurer, clinician of any stripe, patient or family or advocate, or other interested stakeholder must always consider the structural, clinical, and economic anatomy of health care in the context of the underlying physiology of these economic concepts. This review contains 2 figures, 1 table, and 14 references. Key Words: health economics, health policy, health production, marginal return (diminishing), utility, inputs, QALY, risk (aversion or tolerance), insurance (contract features)