Linda Caruso
Capella University
BHA-FPX4112: Economics of Health Care
Dr. Christopher Miller
October 29, 2022
The Supply and Demand of Health Care
The healthcare sector is unique since its impacts the lives of more people compared to other industries such as automobiles. The law of demand is similar in the health care sector and other markets such as automobiles. In this case, an increase in process reduces demand for services. However, consumers have an incentive to purchase more health care services due to incentives provided by insurance firms. The demand for health care services is also relatively inelastic, considering that patients purchase services at almost any rates when sick (Stadhoudersa et al., 2019).
Thus, patients and their families may avoid spending on other products to access the medical care they need. Comparing the supply and demand of health services to scenarios in the automobile sector highlights unique differences between the health care and other sectors. This paper discusses determinants of demand and supply in the health care sector and compares with scenarios in the automobile industry. The discussion provides insights into the uniqueness of the health care industry, where demand for services is simultaneously an investment for everyone aiming to maintain a healthier and productive life.
Demand of Health Care Services with the Demand of an Automobile
The United States healthcare system is experiencing significant reforms triggered by an increasing demand for health services. A high population and the growing number of elderly patients with multiple chronic conditions explains changes in the industry (Adaskou et al., 2021). The challenges trigger uncertainties about the future of the American healthcare system. Nonetheless, health remains an investment for millions of people across the world. Everyone desires to remain healthy, hence the decision to make health a simultaneous investment. In this case, consumers in the health care sector may choose to spend more on their current health to achieve significant benefits in the future (Rodriguez et al., 2021).
The demand for health care aligns with individual desire to remain productive and in good health (Adaskou et al., 2021). The various determinants of demand for health services include a patient’s income, accessibility of services, and health policies at local, state, and national levels. The common factors are cost and accessibility, which motivate individuals to engage primary care providers and specialists. Costs include expenses for therapies, medication, and medical procedures (Adaskou et al., 2021). Increase in cost of care triggers negative health-seeking behaviors, consequently lowering demand. More patients avoid the burden of paying more for primary, urgent, emergency care, and other essential services. In this case, patients are likely to skip appointments and other treatments that influence quality of care.
For automobile, the demand depends on fuel prices, income, and prevailing economic conditions. More people buy cars to enable them move from one place to another. As the prices of a car increases, the law of demand indicates that the quantity demanded of the care will decrease (Saidahrolovich et al., 2022). In this regard, individuals may delay purchasing a new car, prefer an affordable alternative, and choose to use an alternative mode of transportation. Since a car is an asset, a household considers consumption and saving aspects before making the decision to purchase a car. A household considers current and expected future income. Knowledge of increased benefits in the future convinces individuals to purchase a car.
Fuel prices are a primary determinant of motivation to purchase automobiles. The higher the fuel prices, the lower the demand for cars. As the price of fuel increases, buying and operating automobiles become more expensive for more people (Saidahrolovich et al., 2022). Similarly, consumers may prefer low mileage per liter in response to a rapid increase in the price of fuel. As fuel prices increase, users choose competing means of transportation such as bicycles, buses, or walking. Additionally, individuals buy vehicles for various reasons beside the cost of fuel. Inflation is among the causes of declining demand due to the high cost of living that convince people to consider alternatives such as using public transport. On the other hand, rising incomes motivate individuals to purchase cars due to desire to embrace a higher lifestyle (Saidahrolovich et al., 2022). A thriving economy increase purchasing power and makes vehicles affordable to middle and high-income earners. Demand in the healthcare and automobile sectors depends on individuals’ desire to live fulfilling lives. Demand in both industries also aligns with consumer income. A higher income triggers positive health-seeking behaviors and attitude. Individuals are also willing to buy cars when their income rises.
The demand for health care depends on government policies seeking to enhance access and reduce the cost of services. Health coverage encourages more people to seek services. Policies such as the Affordable Care Act reminds care providers about their obligation towards providing services for patients living with chronic conditions such as cancer, diabetes, and HIV. The statute enhances access to prescription drugs, prevention services, counselling, and other essential services for patients from low-income households (Rodriguez et al., 2021). In automobile sector, the consumer does not receive incentives from the government. Access depends on agreement with dealers, the cost of insurance, and taxes.
The demand for cars also aligns with a patient’s taste and preference. However, the health care sector has standardized services that enhance uniform demand among patients (Rodriguez et al., 2021). Buying a car is a more complex decision than buying health care services. The process involves considering several alternatives including different car models, timing, and possibility of using other modes of transportation rather than owning a car. While the law of demand is similar for cars and healthcare services, a change in the price of cars discourages more people from purchasing automobiles due to complementary products such as fuel, insurance, and infrastructure.
The Supply of Health Care Services with the Supply of an Automobile
The supply of health care depends on changes in the components of the production function such as labor, capital, and intermediate inputs. The production functions shows that availability of physicians, surgeons, technicians, nurses, administrative staff, and others determine the volume of services available to consumers (Christos et al., 2019). The hospital buildings, beds, diagnostic tools, and other equipment also influence supply of services. Additionally, more patients benefit from a facility with adequate intermediate inputs such as wound dressing, anesthetics for operation, and pharmaceutical products (Christos et al., 2019). Supply in the healthcare sector depends on human factors such as the staffing levels, employee motivation, burnout, and accessibility of services. Most hospitals have challenges of longer wait times, staff shortages, and technological barriers that limit patients from receiving the best services.
Persistent nurse and physician shortages reveal the need for significant investment in training and recruiting competent professionals to handle a growing population of patients with different health needs. For instance, the United States requires adequate staffing to respond to the needs of elderly patients with multiple chronic conditions. The demand for health services exceed the supply, hence limiting more patients from accessing primary care providers and specialists (Christos et al., 2019). Further, an increasing number of retiring nurses and physicians reduces supply and undermines ability to address individual and population needs.
The supply of health services also depends on the number of healthcare facilities within a community. Patients in remote rural locations are the most affected by the low number of primary care and specialty care. More hospitals are also likely to close due to new policies that increase the cost of operation. The events trigger delayed or postponed access to care due to limited supply. Thus, healthcare providers supply more services through technological advances. Product and process innovations increase drugs and other items in the market. Similarly, advanced machinery such as x-ray machines, MRI equipment, and others increases services available to patients with different healthcare needs.
Supply in the automobile industry depends on the purchase price, manufacturing cost, and the level of competition. The higher the willingness to pay higher prices, the higher the likelihood of increased supply of cars (Sedjati et al., 2017). Similarly, reduced manufacturing costs motivates producers to deliver more products to the market. Supply in both healthcare and automobile sectors depends on the number of firms. More companies means increased supply of products and services. In the healthcare sector, wait times and staff burnout influence supply of services.
Current Legislative Trends That Influence the Supply and Demand of Health Care
Medicaid and Medicare influence demand and supply of healthcare. The policies create incentives for consumers to adopt positive health-seeking behaviors and attitudes. Medicaid is vital for low-income households that face challenges accessing quality, safe, and affordable care (Shrank et al., 2020). The policy allows states to design programs for enhancing access to health services through payments made directly to health care service providers. On the other hand, Medicare is an aged-based statute that protects elderly patients with multiple chronic conditions (Shrank et al., 2020). The statute covers over 40 million Americans, which means that more people can benefit from prices set by the government for physicians. Medicaid and Medicare demonstrate the government’s commitment to maintain its position as a big player in the healthcare sector. As such, government decisions determine demand for different healthcare services by setting prices for procedures.
Both policies eliminate financial barriers that jeopardize access to quality and safe care. The various incentives enhance access to primary, prevent, emergency, and urgent care. However, patients may still face challenges in terms of pricing methods and penalties for non-payment of premiums. Reduced Medicare prices lower supply of services to beneficiaries. Low payment rates also discourage healthcare providers from participating in Medicaid and other state and federal programs meant to reduce cost of health services (Shrank et al., 2020). Thus, government should consider alternatives that make private insurance markets competitive and favorable to patients and healthcare providers.
The uninsured population have low incomes, which affects access to safe, quality, and affordable care. The high rates of uninsured population increases the burden of health care due to budget constraints and the risk of budget cuts to respond to demand for services in other public sectors. Increasing demand for healthcare services among uninsured groups make it challenging for the public health facilities to respond adequately to all patients. In this sense, reduced funding affects supply of essential health services.
Reimbursement Methods That Influence the Supply and Demand of Health Care Services
The healthcare sector has multiple players including insurance providers, physician and non-physician staff, patients, employers, pharmaceutical companies, and regulators who influence demand and supply. Reimbursement methods include Fee for Services, capitation, and bundled payments that influence demand and supply of health services. For instance, fee-for-service method matches a volume-based approach, which determines the number of human and technical resources available to patients. Patients also incur high out-of-pocket expenses due to providers’ malpractices in offering unnecessary exams and tests to increase reimbursement (Shrank et al., 2020). Capitation reimbursement entails paying a fixed amount per patient for a specified period by an insurance provider. In terms of demand and supply, capitation influence healthcare providers’ response to patients in different ways. For example, there is an option to use telehealth and other technologies that help reduce costs and enhance accessibility. However, capitation may lower supply due to healthcare providers’ decision to avoid handling patients with chronic conditions.
Conclusion
The demand and supply of services in healthcare and automobile sectors provide insights into the various factors that determine access to products. The demand for health services and automobiles depends on consumer income and the price of products and services. However, purchasing healthcare services is different from buying a car since the former is an essential commodity that determine individuals’ health and wellness. While both industries have insurance providers, high premiums in the automobile sector may limit individuals from purchasing cars. On the other hand, health insurance responds to the needs of lower income households, consequently increasing demand. The health care sector faces multiple challenges such as financial barriers, high turnover rates, and reimbursement costs that may reduce supply and expose patients to negative health-seeking behaviors. Reforms in the healthcare sector are necessary to achieve an equilibrium such that consumers, healthcare providers, insurance providers, and other stakeholders benefit from incentives and other mechanisms at the state and national levels.
References
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