Health Economics Cheat Sheet

The core ideas of Health Economics distilled into a single, scannable reference — perfect for review or quick lookup.

PiqCue — piqcue.com/health-economics/cheatsheet

Quick Reference

Quality-Adjusted Life Year (QALY)

A measure of disease burden that accounts for both the quality and quantity of life lived. One QALY equals one year of life in perfect health. QALYs allow comparison of interventions across different diseases by combining survival and health-related quality of life into a single index.

Cost-Effectiveness Analysis (CEA)

An economic evaluation method that compares the relative costs and health outcomes of two or more interventions. Results are typically expressed as an incremental cost-effectiveness ratio (ICER), calculated as the difference in costs divided by the difference in health outcomes.

Moral Hazard in Health Insurance

The tendency of insured individuals to consume more healthcare services than they would if they bore the full cost, because insurance reduces the out-of-pocket price at the point of care. This overconsumption can drive up premiums and total system costs.

Adverse Selection

A market failure that occurs when individuals with higher health risks are more likely to purchase insurance than healthier individuals, leading to an insured pool that is sicker and more costly than the general population. This can cause a 'death spiral' of rising premiums.

Health Technology Assessment (HTA)

A systematic evaluation of the properties, effects, and impacts of health technologies and interventions. HTA considers clinical effectiveness, cost-effectiveness, and broader social, ethical, and organizational implications to inform coverage and reimbursement decisions.

Externalities in Health

Costs or benefits of health-related activities that affect third parties who are not directly involved in the transaction. Health externalities can be positive (vaccination protecting the unvaccinated through herd immunity) or negative (pollution causing respiratory disease in bystanders).

Elasticity of Demand for Healthcare

A measure of how responsive the quantity of healthcare demanded is to changes in price, income, or other factors. Healthcare demand tends to be relatively inelastic for emergency and life-saving services but more elastic for elective and preventive care.

Supplier-Induced Demand

A phenomenon in healthcare where providers, who possess more medical knowledge than patients, can influence the level of demand for their own services. Because patients rely on physicians for diagnosis and treatment recommendations, doctors may recommend more services than are strictly necessary.

Disability-Adjusted Life Year (DALY)

A measure of overall disease burden expressed as the number of years lost due to ill-health, disability, or early death. One DALY represents one lost year of healthy life. Unlike QALYs, which measure health gained, DALYs measure health lost.

Universal Health Coverage (UHC)

A health system goal ensuring that all people have access to needed health services of sufficient quality without suffering financial hardship. UHC encompasses the full spectrum of services from health promotion and prevention to treatment, rehabilitation, and palliative care.

Key Terms at a Glance

Adverse Selection:A market situation where individuals with higher health risks are more likely to purchase insurance, leading to a sicker-than-average insured pool and rising premiums.

Capitation:A payment model where providers receive a fixed amount per enrolled patient per period, regardless of the volume or type of services rendered.

Cost-Benefit Analysis:An economic evaluation that measures both costs and benefits in monetary terms, enabling comparison of net value across different programs and sectors.

Cost-Effectiveness Analysis:A form of economic evaluation comparing the costs and health outcomes of alternative interventions, typically expressed as cost per QALY gained.

DALY (Disability-Adjusted Life Year):A measure of overall disease burden quantified as the number of years of healthy life lost due to illness, disability, or premature death.

Demand Elasticity:The responsiveness of the quantity of healthcare demanded to changes in its price. Healthcare is generally inelastic, especially for urgent and life-saving services.

Diagnosis-Related Group (DRG):A system classifying hospital cases into groups expected to have similar resource consumption, used as a basis for prospective hospital payment.

Externality:A cost or benefit arising from a health activity that affects parties not directly involved in the activity, such as herd immunity from vaccination.

Fee-for-Service:A payment model where providers are reimbursed for each individual service or procedure performed, which can incentivize higher volumes of care.

Global Burden of Disease:A comprehensive research program measuring the impact of diseases, injuries, and risk factors worldwide, primarily using DALYs as its summary metric.

Grossman Model:Michael Grossman's 1972 economic model of health demand that treats health as a durable capital stock that individuals invest in and that depreciates with age.

Health Equity:The principle that all people should have a fair opportunity to attain their full health potential and that no one should be disadvantaged from achieving this potential.

Health Technology Assessment (HTA):A systematic process for evaluating the clinical effectiveness, cost-effectiveness, and broader impact of health technologies to inform policy and reimbursement decisions.

ICER (Incremental Cost-Effectiveness Ratio):The ratio of the change in costs to the change in health outcomes between two alternative interventions, representing the additional cost per additional health unit gained.

Information Asymmetry:A situation where one party in a transaction (typically the physician) possesses significantly more relevant information than the other (typically the patient).

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