Economics Tools and Concept Paper

Health itself cannot be sold or bought, but goods and services which allow maintaining or restoring it are available on market. However, many ordinary goods and services like good food, rest and exercise stir up positive emotions. But health care has specific aspect. In most cases negative commodities that made one feel sick are forcing the use of means to restore or maintain health. Currently, healthcare economics made significant steps in the development as an independent science. This is facilitated by the emergence and development of market relations, commercialization of health, manifested, in particular, in the growth of the volume of paid services for the population. In addition, the system of health insurance played its’ principal role. It causes the actual changes in the economic situation of the medical institution which acquires features of service-producing enterprise. Changing the status of medical institutions leads to alteration of the nature of economic relations and the relations that are established in the practice of medical structure. They are forced to increasingly operate on a commercial basis, taking into account the principles of self-sufficiency.

Feature of Health Care Economy

Health care market has its specific features. First of all, there are risks(and uncertainties, which on the unregulated market lead to the development of insurance. Illness or accident are associated with the need of medical services. They are always sudden, and no one can be sure whether they will happen or not. That is why, people have to reserve a certain amount of money in case of this, for paying for medical services if necessary (model paid medicine). For most people, it is burdensome, and sometimes impossible, to always keep in reserve the required amount. Besides, with the development of medical technology, the amount of money needed may be very large.

The insurance assumes that all insured persons have an equal risk of falling ill. However, in real life, the older the person is, the greater is the risk of disease. In addition, the risk depends on the profession, the presence of chronic diseases or predisposition to them. Therefore, the private health insurance market is the selection of risks. The situation remains the same as in the first case since now community has to collect a large sum of money to pay for the required medical assistance. Ultimately, development of the private health insurance market leads to the fact that community divides into two groups. There are the very rich, who can buy any medical services, and the poor, who cannot invest the required amount of money in the insurance community.

guarantee

In the United States about 15% of the population is not covered by insurance. The US government is forced to finance two health insurance programs for the poor and the elderly, to provide them with medical care.

Private markets involve in the process of health insurance many small insurers whose activities are also costly. In the US, these costs reach 20% of all health funds, and it is uneconomical due to the small scale of insurance companies.

Moral costs of medical consumers mainly relate to two factors. First, in case of illness the insured person is less concerned about healthy lifestyle. As a result, disease can develop and consumption of health care services will increase. Second, the insured patient receives free medical services or with a small surcharge. Thus, price signals between producers and consumers in the market of medical services disappear, and there is overconsumption of “free” health care. Moral costs arise primarily when medical employees are remunerated on fee-basis, and the doctors have an incentive to recommend the patient unnecessary tests and procedures. Thus, the overconsumption of medical services is an inevitable feature of the insurance health market. Some methods of dealing with overconsumption are described below.

It should be noted that price controls (co-insurance, co-payments, partial compensation) systems are widely used in private and compulsory health insurance. But non-price adjustments (restriction of choice, access, waiting lists) are used more often in public (integrated) health systems.

This puts the question of transferring part of the incomes of the richest members of society to health care of the poor. This can be done, for example, by earmarked contributions for health insurance in proportion to income. It works in the US by ensuring redistribution from the healthy to the sick, from rich to poor, from young to old.

It should be noted that price controls (co-insurance, co-payments, partial compensation) systems are widely used in private and compulsory health insurance. But non-price adjustments (restriction of choice, access, waiting lists) are used more often in public (integrated) health systems.

In the classical market, patient buys medical services at market prices, choosing any suitable manufacturer. He is guided by his own thoughts about the value of the purchase for him comparing it, for example, with a visit to the swimming pool. His choice will be determined depending on the price of services. The lower is the price, the more willing is the patient to pay services. Therefore, the demand curve is falling (left to right). In the graph on the ordinate is the price of medical services, the horizontal axis shows the number of medical services per unit.

In the classical market model it is assumed that manufacturers of medical services can indefinitely increase the number of services (when a demand for a massage or manual therapy increases the number of people attending these services grows). The higher is the price for the offered services,, the more of them appear on the market. That is demonstrated, with the supply curve increase from left to right.

With growth in demand for services manufacturers increase the number of services and products and simultaneously raise prices. But buyers react to it negatively and begin to think that manual therapy is not always good, swimming in the pool is better and safer. Demand is falling, manufacturers are starting to cut prices, some chiropractors urgently change specialization, and leave this market. At some point the offered price and the amount of purchased services are the same. It is called an equilibrium point. It is unstable, as manufacturers continue to raise prices, demand begins to fall and the market goes from the equilibrium point to return to it after a while. Thus, in the classical market, prices and the number of services offered oscillate around the equilibrium point.

Unfortunately, this model is valid only for ideal markets.

It means that the user knows exactly what services and what amount of them he needs. It is extremely rare in the market of medical services, except in relation to preventive measures. Perfect market implies that the goods do not interact with each other. In real life, including health care, there are external effects. For example, flu shots, make a separate segment of population persistent to this particular illness and prevent diseases of other people in a positive externality, but there are negative externalities.

Perfect market implies that the buyer is fully aware of the quality of goods. Regarding health services, this means that the patient accurately assesses the state of his health, he knows what medical services he needs and what changes will occur as a result of provision of services. Obviously, such knowledge of health is not possible for usual people without medical education (except for some chronic diseases).

Treatment always requires deep expertise and certificate of the knowledge (license) that only professional doctors have. Thus, they were able to restrict access to the market of new producers through free competition elimination. Moreover, as a rule, doctors operate as parts of large institutions, what further limits the freedom of small producers.

Conclusion

Health care in the United States is really a huge business. For decades, the system was lined up the way that the doctors do not care about the health of the patient, but about their wallets in the form of insurance indemnities. It is obvious that the issue of economic reformation of health care system will arise in the near future. It will not only go to the agenda, but will be the subject of heated debates and struggle in the upcoming presidential or parliament campaign.

Place an Order Support 24/7

Earn 10% from every order!

Earn money today! Refer our service to your friends