Concept Architecture
Concept
Theoretically, Demand for Health is an economic concept describing an individual's demand for health as a durable capital stock rather than for healthcare itself. Developed in Grossman's health capital model, individuals derive utility directly from being healthy and invest in health through medical care, healthy behaviours, and time. Health depreciates over time but can be maintained or improved through investment, making health both a consumption good and an investment good.
Mathematically, demand for health is represented within the health capital framework, in which individuals maximise lifetime utility subject to time and budget constraints. The optimal stock of health is determined by balancing the marginal benefits of improved health against the marginal costs of health investment. Health evolves according to a capital accumulation equation incorporating investment and depreciation.
In practice, demand for health is estimated using structural or reduced-form econometric models that relate health outcomes to healthcare utilisation, lifestyle behaviours, socioeconomic characteristics, and demographic factors. The concept underpins analyses of preventive care, healthcare utilisation, insurance demand, labour productivity, and long-term health policy within health economics.
Purpose
Used to explain how individuals invest in and maintain health over time, supporting analyses of healthcare utilisation, preventive interventions, health behaviour, and health policy.
Mathematical Formulae
Primary Formula
Health capital accumulation:
H??? = H?(1 ? �) + I?
where:
- H? = health stock at time t
- � = health depreciation rate
- I? = investment in health
Supporting Formulae
Health production function:
I = f(M, T, E)
where:
- M = medical care inputs
- T = time devoted to health production
- E = other health-producing inputs
Related Mathematical Methods
- Health capital modelling
- Dynamic optimisation
- Utility maximisation
- Health production functions
- Econometric demand estimation
Example
An individual begins the year with a health stock of 100 units. Annual health depreciation is 8%, and investment in health through medical care and healthy behaviours is 12 units.
H??? = 100(1 ? 0.08) + 12
H??? = 92 + 12 = 104
The individual's health stock increases to 104 units after accounting for depreciation and health investment.
Excel Implementation
| Function | Example Formula | Health Economics Application |
|---|---|---|
=(Previous*(1-Depreciation))+Investment | =(B2*(1-C2))+D2 | Calculates updated health stock over time. |
| SUM | =SUM(D2:D13) | Aggregates annual health investments. |
| LINEST | =LINEST(Health,Inputs,TRUE,TRUE) | Estimates relationships between health outcomes and health investments. |
| FORECAST.LINEAR | =FORECAST.LINEAR(A13,B2:B12,A2:A12) | Projects future health stock from historical observations. |
VBA (Optional)
Automate simulation of health capital accumulation over multiple time periods under alternative depreciation rates and health investment scenarios.
Sources
- Grossman M. On the concept of health capital and the demand for health. Journal of Political Economy. 1972;80(2):223?255.
- Grossman M. The Demand for Health: A Theoretical and Empirical Investigation. Columbia University Press.
- Folland S, Goodman AC, Stano M. The Economics of Health and Health Care.
- Zweifel P, Breyer F, Kifmann M. Health Economics.
- Drummond MF, et al. Methods for the Economic Evaluation of Health Care Programmes. Oxford University Press.
Related Concepts (2)
Library
Media
5
Health Economics — Marginal Revolution University — Tyler Cowen & Alex Tabarrok (Marginal Revolution University), CC BY-ND 4.0 ed., 2023 (Marginal Revolution University / YouTube)
A free, openly-licensed (Creative Commons) video series introducing the economics of healthcare markets — asymmetric information, moral hazard, insurance and the demand for health — taught by economists Tyler Cowen and Alex Tabarrok.
Video (YouTube)View source →MIT 14.01 Principles of Microeconomics — Lecture 25: Health Economics — Jonathan Gruber (MIT OpenCourseWare), Fall 2018 ed., 2018 (MIT OpenCourseWare / YouTube)
A full university lecture on health economics from MIT’s flagship microeconomics course, taught by Jonathan Gruber, covering health insurance, adverse selection, moral hazard and the economics of healthcare markets.
Video (YouTube)View source →Kenneth J. Arrow — Portrait (Wikimedia Commons) — Wikimedia Commons contributors, Openly licensed (see file page) ed., 2017 (Wikimedia Commons)
Openly-licensed portraits of Kenneth Arrow, whose 1963 paper “Uncertainty and the Welfare Economics of Medical Care” founded modern health economics by analysing information asymmetry and insurance in medical markets. Each image on the category page carries its own open licence.
Image (Wikimedia Commons)View source →Michael Grossman — Portrait (Wikimedia Commons) — Wikimedia Commons contributors, Openly licensed (see file page) ed., 2020 (Wikimedia Commons)
Openly-licensed images of health economist Michael Grossman, whose 1972 human-capital model of the demand for health remains foundational to the field. Each image on the category page carries its own open licence.
Image (Wikimedia Commons)View source →The Economics of Health Care Delivery — Ezekiel Emanuel & Guy David (University of Pennsylvania), Online course ed., 2024 (Coursera)
A University of Pennsylvania online course (Perelman School of Medicine and Wharton) on the key components of health care and the economics behind their principles and pricing, part of the Business of Health Care Specialization.
Online CourseView source →
Frequently Asked Questions (6)
What is the demand for health?
The framework treating an individual's desire for health, and resulting demand for healthcare, as an economic choice subject to cost-benefit considerations.
Source: Grossman 1972
How does the demand for health differ from demand for other goods?
Health is unusual as an object of demand because it cannot be bought directly. A person cannot purchase health itself, only inputs such as care, time, and effort that help produce it, and the stock they hold is partly inherited and declines with age whatever they do. Unlike an ordinary good consumed for the satisfaction it gives, health is also wanted because it frees time for work and other activity. Grossman (1972) built these features into the demand for health.
Source: Grossman 1972
How does Grossman model the demand for health?
Grossman models health as a durable stock that yields healthy days, depreciates with age, and can be increased by investment. Individuals inherit an initial stock and invest in it over their lives, using inputs such as health care, diet, and time, to produce health. They choose how much to invest by weighing the benefit of additional health, in useful healthy time and direct wellbeing, against the cost of the resources and time required, treating health as a good they actively produce.
Source: Grossman 1972
Why is health treated as an investment in the Grossman model?
Health is treated as an investment because, in the model, it is a durable stock that lasts over time and yields a return in the form of healthy days available for work and other activities. Spending resources and time on health now raises the stock and so the healthy time available in future, much as investing in capital yields future output. Health also depreciates and can be replenished, so individuals invest to maintain it, weighing the future return against the present cost.
Source: Grossman 1972
What does the demand-for-health framework imply about health care?
The framework implies that health care is demanded not for itself but as one input into producing health, so the demand for care derives from the demand for health. People use care to the extent it helps maintain or restore their health stock, weighing its contribution against its cost. This explains why demand for care varies with factors such as age, education, wage, and the price of care, and it links the use of health services to the underlying investment in health.
Source: Grossman 1972
Why is the Grossman model of the demand for health important?
The Grossman model is important because it provides a coherent economic account of why people demand health and health care, treating health as something individuals produce and invest in rather than simply receive. It explains patterns in health and health care use by age, income, education, and price, and it underlies much later work in health economics. By making the demand for care derive from the demand for health, it reframes health care as a means to an end rather than an end in itself.
Source: Grossman 1972
Trust Record
Verified by Dr Darrin Baines
British health economist
Professional identity: darrinbaines.org
Verification date: 10 Sep 2025
Content version: 1.0.0
Canonical Identity
- Persistent URI
- https://healtheconomics.wiki/concept/demand-for-health
- Term code
- HE-EE-ME-016
Stable URI · Machine-readable · Resolvable · CC BY 4.0