Health economics glossary

The use of statistical and financial methods to project a health insurance scheme's future costs, revenue, membership and reserves, and to test whether it can meet its obligations.

Example: An actuarial analysis might show whether current contribution rates can fund a scheme's benefit package over the next five years.

See also: Benefit Package Costing Sprint

The measure used to divide shared costs between activities or services, such as staff time, floor space, number of visits or share of direct costs.

Example: Using the number of staff in each department as the key to allocate management costs.

See also: Shared costs

Spending resources on the mix of interventions that produces the most health (or value) for a given budget. It asks whether we are doing the right things, not only doing things well.

Example: Shifting money from a low-value intervention to one that averts more DALYs per dollar improves allocative efficiency.

See also: Cost-effectiveness analysis explained

The list of services, medicines and other health goods that a health insurance scheme or public system commits to provide or pay for, with any conditions such as co-payments or referral rules.

Example: A benefit package might cover outpatient visits, deliveries and essential medicines at primary care, with specialist care on referral.

See also: Benefit Package Costing Sprint · Health financing and insurance

An estimate of the change in spending for a specific budget holder, usually over one to five years, if a new intervention is adopted. It answers whether an intervention is affordable, not whether it is good value.

Example: A ministry might use a budget impact analysis to plan the first three years of a new vaccination programme.

See also: Budget impact calculator

A household's resources after meeting basic subsistence needs, often measured as total consumption minus subsistence (usually food) spending. Used in one approach to catastrophic health expenditure.

Example: Out-of-pocket spending above 40% of capacity to pay is a commonly used threshold for catastrophic spending.

See also: Catastrophic expenditure calculator

The cost of items that last more than one year, such as equipment, vehicles, buildings and start-up training. In costing studies, capital costs are spread over their useful life rather than counted in the year of purchase.

Example: A laboratory analyser with a ten-year life is annualised, so only its equivalent annual cost is counted each year.

See also: Equivalent annual cost

A provider payment method in which a provider receives a fixed amount per person enrolled with them for a period, regardless of how many services each person uses.

Example: A primary care clinic might receive a fixed amount per registered member per month.

See also: Provider payment methods compared

A provider payment method in which a hospital receives a fixed amount per admission, depending on the category (for example the diagnosis-related group) the case falls into.

Example: All uncomplicated appendectomies might be paid the same rate, whatever the length of stay.

See also: Provider payment methods compared

Out-of-pocket spending on health that is large relative to a household's resources, for example above a set share of total consumption or of the budget left after basic needs.

Example: Under a 10% budget-share threshold, a household spending 12% of its consumption on health has catastrophic spending.

See also: Measuring financial protection · Calculator

The Consolidated Health Economic Evaluation Reporting Standards 2022: a 28-item checklist for reporting economic evaluations of health interventions so that readers can understand and assess them.

Example: Journals and HTA bodies often ask for a completed CHEERS 2022 checklist with a submission.

See also: Methods and standards

Voluntary or semi-voluntary health insurance organised at community level, often for people in the informal sector, in which members pay contributions into a local or national pool.

Example: Contributions may be a flat amount per household or vary by household income group.

See also: Health financing and insurance

The alternative against which an intervention is compared in an economic evaluation — usually current practice, another intervention or no intervention.

Example: A new malaria test might be compared with microscopy, which is current practice in the setting.

See also: Cost-effectiveness analysis explained

The full cost of a programme divided by the number of unique people who benefited from it. A measure of efficiency often requested by funders.

Example: A programme costing 150,000 that reached 4,000 unique people has a cost per beneficiary of 37.50.

See also: Calculator · Value-for-money guide

An economic evaluation that values both costs and outcomes in money, so that the net benefit (benefits minus costs) or the benefit-cost ratio can be calculated.

Example: A cost-benefit analysis of a water programme might value health gains and time saved in money and compare them with the programme's cost.

An economic evaluation that reports costs alongside a range of separate outcomes, without combining them into a single ratio, leaving the weighing to the decision-maker.

Example: A report might list the cost of a programme next to the cases detected, deaths averted and patient time saved.

A graph showing the probability that an intervention is cost-effective at different threshold values, based on probabilistic sensitivity analysis.

Example: The curve might show a 70% probability of being cost-effective at one threshold and 90% at a higher one.

See also: Probabilistic sensitivity analysis

An economic evaluation that compares the costs and health effects of alternatives, with effects measured in a single health unit such as cases averted, life years gained, QALYs or DALYs.

Example: Comparing two HIV testing strategies by their cost per new diagnosis is a cost-effectiveness analysis.

See also: Guide · Economic evaluation and HTA

A graph with the incremental effect on the horizontal axis and the incremental cost on the vertical axis. Where a result falls shows whether an intervention dominates, is dominated or involves a trade-off.

Example: A result in the south-east quadrant is more effective and cheaper, so the intervention dominates.

See also: ICER and plane explorer

The maximum amount a decision-maker is willing or able to pay for one unit of health, such as one DALY averted or one QALY gained. How thresholds should be set is debated.

Example: An intervention with an ICER below the threshold is usually considered cost-effective.

See also: Cost-effectiveness analysis explained

A study that estimates the total costs a disease imposes on a health system, households or society over a period, without comparing interventions.

Example: A cost-of-illness study might estimate what households spend on care and lose in income because of tuberculosis.

See also: Costing studies

A form of cost-effectiveness analysis in which health effects are measured in a generic unit combining length and quality of life, such as QALYs or DALYs.

Example: Reporting a result as cost per QALY gained means it is a cost-utility analysis.

See also: QALY · DALY

Disability-adjusted life year: one year of healthy life lost, through early death or through living with illness or disability. Interventions are assessed by the DALYs they avert.

Example: An intervention that prevents early deaths and long-term disability averts DALYs on both counts.

See also: Cost-effectiveness analysis explained

A simple model that maps the possible pathways and outcomes following a decision, with a probability, cost and outcome attached to each branch. Suited to short-term, one-off events.

Example: A decision tree might compare testing strategies by following patients through positive and negative results to treatment.

See also: Markov model

Changing one or a few model inputs at a time, over plausible ranges, to see how much the result changes. Often shown as a tornado diagram.

Example: Varying the price of a medicine by ±25% shows how sensitive the ICER is to price.

An impact evaluation method that compares the change in an outcome over time in a group exposed to a programme with the change in a comparison group that was not, to estimate the programme's effect.

Example: Comparing facility deliveries before and after a fee removal in districts with and without the policy.

See also: Impact evaluation

Converting future costs and health effects into present values, reflecting the general preference for benefits sooner and costs later. The discount rate is usually set by national guidelines.

Example: At a 3% discount rate, a cost of 1,000 in five years has a present value of about 863 today.

See also: Present value

A survey method in which people choose between alternatives described by several attributes, such as cost, waiting time and quality, to reveal how they value each attribute.

Example: A discrete choice experiment might show how much weight households give to distance versus price when choosing an insurance plan.

See also: Preference studies

An intervention dominates another when it is both more effective and less costly. A dominated intervention is both less effective and more costly and should not be chosen.

Example: A new strategy that saves money and averts more DALYs than current practice dominates it.

See also: Cost-effectiveness plane

The process by which a country takes over the financing and management of health programmes previously supported by external funders, as that support declines or ends.

Example: Planning for transition includes costing the programmes to be absorbed and identifying domestic funding.

See also: Costing studies

The value of all resources used to deliver a service, including those not paid for in cash, such as donated goods and volunteer time, valued at their opportunity cost.

Example: Donated medicines have no financial cost to a programme but do have an economic cost.

See also: Costing study checklist

The annual cost of a capital item spread over its useful life, taking account of the discount rate: the purchase value divided by an annuity factor.

Example: Equipment worth 10,000 with a five-year life and a 3% discount rate has an equivalent annual cost of about 2,184.

See also: Programme costing template

A provider payment method in which providers are paid for each individual service they deliver, according to a fee schedule.

Example: A clinic paid separately for each consultation, test and procedure is paid fee-for-service.

See also: Provider payment methods compared

The actual money paid for the resources used to deliver a service. Budgets and funding requests are usually based on financial costs.

Example: Salaries paid, medicines bought and rent paid are financial costs.

See also: Economic cost

The extent to which people can use health services without suffering financial hardship. Usually measured by catastrophic and impoverishing out-of-pocket spending.

Example: Removing user fees for deliveries is intended to improve financial protection for pregnant women.

See also: Measuring financial protection

The room in a government's budget to increase spending on a priority, such as health, without compromising the sustainability of its finances.

Example: Fiscal space for health can come from economic growth, reprioritisation, new revenue, efficiency gains or external funding.

See also: Health financing and insurance

A provider payment method in which a provider receives a fixed total amount for a period to deliver an agreed range of services, with flexibility over how it is spent.

Example: A district hospital might receive an annual global budget based on its expected activity.

See also: Provider payment methods compared

A systematic, multidisciplinary process that uses explicit methods to assess the value of a health intervention — its costs, effects and wider implications — to inform decisions about its use.

Example: An HTA might inform whether a medicine is added to an insurer's benefit package.

See also: HTA readiness self-assessment · Economic evaluation and HTA

Incremental cost-effectiveness ratio: the difference in cost between two alternatives divided by the difference in their health effects — the extra cost per extra unit of health gained.

Example: An extra cost of 50,000 for 25 extra DALYs averted gives an ICER of 2,000 per DALY averted.

See also: ICER explorer

A study that estimates the change in outcomes caused by a programme or policy, by comparing what happened with an estimate of what would have happened without it (the counterfactual).

Example: An impact evaluation might estimate how much a health insurance programme changed service use.

See also: Impact evaluation

Out-of-pocket health spending that pushes a household below a poverty line: its consumption is above the line before the spending and below it after.

Example: A household just above the poverty line that pays a large hospital bill may be impoverished by it.

See also: Measuring financial protection

A bottom-up costing method that lists every input used to deliver a service, measures the quantity of each and multiplies it by its unit price.

Example: Costing a vaccination session by adding up staff time, vaccines, syringes, cold chain and transport.

See also: Costing study checklist · Programme costing template

A model in which a population moves between defined health states over repeated time cycles, with costs and health outcomes attached to each state. Suited to chronic and recurring conditions.

Example: A Markov model of HIV might track people between states defined by treatment status and disease stage.

See also: Data analytics and modelling

Checks that a model is correctly built and produces credible results, including face validity with experts, technical verification of the code and logic, and comparison with other evidence.

Example: Running extreme values through a model to check that results behave as expected is part of verification.

See also: Methods and standards

The incremental health effect multiplied by the threshold, minus the incremental cost. A positive value means an intervention is cost-effective at that threshold.

Example: 25 extra DALYs averted at a threshold of 3,000, minus an extra cost of 50,000, gives a net monetary benefit of 25,000.

See also: ICER explorer

The value of the best alternative use of a resource. In health economics, spending on one intervention means the health that could have been gained from spending the same money elsewhere is given up.

Example: A nurse's time spent on one programme is not available for another; its opportunity cost is what that time could have achieved elsewhere.

Money paid directly by households at the time of using health care, net of any reimbursement from insurance or another third party.

Example: Paying for medicines at a pharmacy without insurance cover is an out-of-pocket payment.

See also: Measuring financial protection

The point of view from which costs (and sometimes outcomes) are counted in an economic evaluation or costing study, such as the provider, the health system or society.

Example: A societal perspective includes patients' travel costs and lost income; a health system perspective does not.

See also: Costing study checklist

Paying for health care before it is needed, through taxes, insurance contributions or premiums, rather than at the point of use.

Example: Monthly insurance contributions are a form of prepayment.

See also: Risk pooling

The value today of a future cost or benefit, after discounting: the future amount divided by (1 + discount rate) raised to the number of years.

Example: At 3%, 1,000 received in two years has a present value of about 943.

See also: Discounting

The year whose prices all costs in an analysis are expressed in. Costs from other years are adjusted for inflation to the price year.

Example: A study reporting costs in 2026 prices adjusts a 2023 salary figure for inflation between 2023 and 2026.

See also: Costing study checklist

The process of deciding how to allocate limited resources among competing health interventions and programmes, ideally using explicit criteria and evidence.

Example: Using cost-effectiveness, budget impact and equity criteria to decide which services join a benefit package.

See also: HTA readiness self-assessment

Varying all uncertain model inputs at once, by drawing values repeatedly from probability distributions, to show the overall uncertainty in the result.

Example: Running a model 5,000 times with inputs drawn from their distributions gives a cloud of results on the cost-effectiveness plane.

See also: Cost-effectiveness acceptability curve

An impact evaluation method that pairs people who received a programme with similar people who did not, based on their estimated probability of taking part, to estimate the programme's effect.

Example: Matching insured and uninsured households with similar characteristics to compare their health spending.

See also: Impact evaluation

Quality-adjusted life year: a measure combining length and quality of life, where one year in full health equals one QALY and a year in poorer health counts as less. Interventions are assessed by the QALYs they gain.

Example: Two years lived at a quality weight of 0.5 equal one QALY.

See also: Cost-effectiveness analysis explained

A study in which participants are randomly assigned to receive an intervention or a comparator, so that differences in outcomes can be attributed to the intervention.

Example: Economic evaluations are often carried out alongside randomised trials, using cost data collected during the trial.

See also: Grant Economic Evaluation Package

The cost of resources used up within a year, such as salaries, medicines, supplies, utilities and transport.

Example: Monthly staff salaries and test kits are recurrent costs.

See also: Capital cost

A set of recommended methods and reporting standards for a type of analysis, so that studies are consistent and comparable.

Example: The iDSI reference case guides economic evaluations; the GHCC reference case guides costing studies.

See also: Methods and standards

An impact evaluation method that compares people just above and just below a cut-off used to decide eligibility for a programme, who are otherwise similar.

Example: Comparing households just below and just above an income cut-off for subsidised insurance.

See also: Impact evaluation

Combining the financial risk of ill health across many people, so that the costs of those who fall ill are shared by all contributors.

Example: Insurance contributions from healthy members help pay for the care of members who are sick.

See also: Health financing and insurance

Testing how results change under alternative sets of assumptions, such as a different comparator, time horizon or uptake rate.

Example: Running a budget impact model with slow, expected and fast uptake scenarios.

See also: Budget impact calculator

Costs that support several activities or services, such as management, administration, utilities and support staff. They are allocated to activities using a stated key.

Example: Allocating office rent to programmes by their share of floor space.

See also: Cost-per-beneficiary calculator

A form of health financing in which contributions, usually linked to income and often mandatory, are pooled in a fund that pays for a defined benefit package for members.

Example: Payroll-based contributions from employers and employees paid into a national health insurance fund.

See also: Health financing and insurance

Aligning the funding and incentives given to providers with the services people are entitled to, using information on provider performance and population health needs.

Example: An insurer that pays providers based on quality and population needs, rather than simply reimbursing claims, is purchasing strategically.

See also: Provider payment methods compared

An international framework for tracking health spending in a country: who pays, through which financing schemes, for which services and providers.

Example: Health accounts show how much of total health spending comes from government, insurance, households and external sources.

See also: Health financing and insurance

The price a purchaser, such as an insurer, pays a provider for a service or case. Tariffs may be set from costing studies, historical spending or negotiation.

Example: An insurer's tariff for a normal delivery at a health centre.

See also: Costing studies

The period over which costs and outcomes are counted in an economic evaluation. It should be long enough to capture the important differences between alternatives.

Example: A vaccine that prevents lifelong disability needs a lifetime horizon.

A costing method that starts with total expenditure, such as a facility's accounts, and allocates it to services using allocation keys.

Example: Allocating a hospital's total costs to departments by staff numbers, then to patients by bed-days.

See also: Ingredients approach

The cost of producing one unit of output, such as one outpatient visit, one test or one patient treated.

Example: Total annual cost of a clinic's outpatient service divided by the number of visits.

See also: Rapid Costing Study

All people having access to the quality health services they need without suffering financial hardship.

Example: Progress is tracked with indicators of service coverage and financial protection.

See also: Measuring financial protection

A number, usually between 0 (dead) and 1 (full health), that represents how people value a particular health state. Used to calculate QALYs.

Example: A health state with a utility of 0.7 counts as 0.7 of a year in full health for each year lived in it.

See also: QALY

The best use of resources to achieve intended results, often assessed through economy, efficiency, effectiveness and equity (the 4Es).

Example: A value-for-money assessment asks whether inputs were bought well, turned into outputs efficiently, achieved outcomes and reached the right people.

See also: Value-for-money guide · VfM analysis for NGOs

The maximum amount a person, or a decision-maker, would pay for a good, service or health gain. Measured in surveys and stated-preference studies, or used as a threshold.

Example: A willingness-to-pay study might ask how much households would contribute for an insurance plan.

See also: Preference studies