What are externalities in health care economics?

Externalities in health care economics refer to costs or benefits that affect third parties who are not directly involved in a particular transaction or situation. For instance, if a person receives a vaccination, the immediate benefit is for that individual, but there is also a broader impact on public health; others are less likely to contract a disease due to increased immunity in the population. This is a positive externality, as the benefits extend beyond the individual.

Similarly, negative externalities can occur when decisions made by individuals impact others negatively, such as when a person with a contagious disease does not seek treatment and spreads the illness to others. These externalities illustrate the interconnectedness of health outcomes and emphasize the importance of considering the wider societal implications of health care decisions, which can lead to market failures if not addressed appropriately.

Other options focus on issues such as internal costs, regulations, or risks associated with technology, which do not capture the essence of externalities, as they pertain to direct financial or operational aspects within the health care system rather than the broader societal implications of individual actions.