What are health care externalities?

Health care externalities refer to the costs or benefits that impact parties who are not directly involved in the health care transaction. These can include both positive and negative effects resulting from health care consumption and delivery that extend beyond the immediate participants in the process.

For example, vaccination programs can lead to herd immunity, benefiting the overall community by reducing the spread of disease, even among those who are not vaccinated. Conversely, a negative externality might occur if a person with a contagious disease does not seek treatment, potentially spreading the illness to others.

Understanding externalities in health care is crucial for policymakers who want to design interventions that address these broader impacts.

In contrast, the other options focus on direct relationships or financial transactions concerning health care services, which do not capture the essence of externalities.