Health economics deals with a wide range of issues related to health provision and consumption. Therefore, this aspect involves the analysis of how health care systems function, as well as behavioral implications on health. Health economics, unlike other areas of economics, consists of many determining factors. These include uncertainties, externalities, the presence of third parties, and government intervention. In analyzing health economics, a major factor to consider is cost; a direct derivative of demand and supply. The cost of medical care has been at the center of discussions around the globe. Due to the rise in the cost of living, quality medical care is out of reach for many people in various world economies. Governments are developing plans to counter this trend with little success. A case study of such an attempt is the ‘Obama care’, or the ‘Patient Protection and Affordable Care Act that is aimed at ensuring the uninsured in America gain access to quality health care. If this challenge is not resolved in all parts of the world, life expectancy and mortality rates will be the next headache to deal with (Victor, 2011).
External and Social demand for Medical Care
The demand for medical care, that is services by medical practitioners, as well as any other goods and services used, has been on an upward trend in all parts of the world. This has been accompanied by a great rise in cost. Expenditures for health care have skyrocketed from as low as $4 billion back in the 1930s, to over $120 billion in 2000 in America (Victor, 2011). However, the increased costs do not translate into improved health care. Through comparison, life expectancy rates are actually higher in some European countries that do not necessarily spend as much as the U.S. on health care. Statistics indicate a great disparity in death rates between the U.S. and many other western countries. This simply means that the resources dedicated to health care need to be utilized in a more effective way (Victor, 2011).
The health care sector in the U.S. needs restructuring. This is because the medical industry operates in a paradoxical format in comparison to other industries. All businesses invest aiming to make profits, but the health care sector faces restrictions whereby their operations are supposed to be non-profit based. The health care industry is characterized by strict entry and participation requirements, curtailed competition, and rigorous patent control which results in some forms of monopoly. This in turn results in high costs of medical care. Therefore, competition should be allowed to enhance the participation of more players in the industry. This would result in affordable medical care. The cost of health care is to a large extent cost-shared; thus, the taxpayer foots a portion of the medical bill. This is based on natural laws governing humanity, and therefore, it is only fair that the taxpayer is guaranteed quality medical care (Jacobs & Rapoport, 2003).
The demand for health care, as that of any other goods or services, is under control of external forces such as prices and income of consumers. Nonetheless, medical care demand is quite inelastic in reference to price fluctuations. When prices fluctuate upwards in relation to other prices, the quantity demanded is less than the price increase. This in turn results in more expenditure on health care. Studies by experts indicate that the elasticity of price towards medical care demand could fall to as low as 0.2 (Victor, 2011).
Health care has two components in respect to price in the sense that, there is the nominal price from the hospital or from the medical caregiver, and the second component is the patient’s time value. In all economies, health care cost is directly proportional to earning power, with the unemployed and the elderly being charged less than their working counterparts. Demand for health care is constantly under the influence of many other factors, such as insurance schemes, that have very controversial prepayments plans. The insured clients may demand better and costlier services, which in turn results in an increase in medical care nominal prices. Statistics indicate that high expenditure rates are associated with insurance covers that are based on premiums paid by the insured (Victor, 2011).
Social factors in health care also play a role affecting demand for health care. The attitudes that individuals have towards medical care at different levels influence population health. The social factors or tastes are a result of environmental influence, education levels attained and lifestyle changes. It is common knowledge that the higher the numbers of the elderly in a region, the higher the demand for health care services. This is because the elderly are prone to illnesses as compared to the young. Education is believed to result in better health living standards and hence lower levels of health care demands in a society (Derickson, 2005).
The external and social factors influencing health care demand are intertwined. As outlined above, it is clear that an increase in income will translate into better health care since one can afford any medication preferred. The lifestyles adopted by different people may also determine their health status. Governments’ intervention in medical care should be focused on affordability and quality.
Jacobs, P & Rapoport, J. (2003). The Economics of Health and Medical Care. Canada: Jones & Bartlett Learning.
Victor, R. F. (2011). Essays in the Economics of Health and Medical Care Massachusetts: National Bureau of Economic Research; distributed by Columbia University Press.
Derickson, A. (2005). Health Security for all: dreams of universal health care in America. Baltimore: Johns Hopkins University Press.