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Health Care Economics
Medical Care is never free, although the individual may pay nothing?
Medical Care is both a commodity and a service. The process of consuming medical care has a cost, even if the after insurance price is zero to the consumer. For instance, there are hard costs that include the buildings, equipment and supplies that house the medical care or office. There are the wages that are paid for the administration and provision of healthcare, and a cost for every procedure, every drug, and every minute of healthcare operations. In an economy in which there is insurance coverage, costs are not static, but variable. The "cost" of something may be $100, but because of economies of scale and negotiations, the payment for that service may only be $60 once the insurance company has verified the claim. The individual may pay nothing of that if their firm pays their premium, or may pay only a very small portion of the overall bill based on co-payment arrangements. Similarly, if someone comes to the Emergency Room and cannot pay, there may be no out of pocket cost to them, but someone does have to pay, or absorb, the cost of doing business.
In the medical field, equipment is expensive, pharmaceuticals are expensive, and often, after 10-12 years of schooling and expertise, physician and specialist care is expensive. If we think of medical care as a tangible commodity, while we may not consume it in the traditional manner, we do consume it by using it; whether needed or unneeded. Then, when we add ancillary healthcare costs to the mix, we end up with the five major health risks brought upon by lifestyle costing over $135 billion to the American economy per year. The "costs" of medical care spiral -- if 30% of a given population use the product but cannot pay, their bill may be $0.00; but the other 60% may have higher insurance premiums, deductibles, or co-pays simply because of this disparity. Just as it costs to produce a loaf of bread, once consumed, it is gone. Similarly, with healthcare, once consumed, even at high costs, it is gone.
Part 2 -- What factors determine demand? How do they relate to price?
When economists think about a product in general, they think supply and demand. If there is no demand for the product, then there will likely be a smaller supply. If the item is rare and there is a high demand, then the product will be expensive. We can look at the demand for health care services; if prices rise too high, no one can afford to go to a doctor or hospital, or insurance premiums become so egregious that consumers are forced to use the Emergency Rooms. This could result in the number of people who are insured and the scope of their coverage, their disposable income, and even the number of people inside the healthcare industry. . The economics of healthcare also deal with the cases of scarcity -- in health care dimensions, geographic areas, or economic/demographic conditions, and even rationing considering the percentage of Americans without healthcare. People demand healthcare, and for the nation to be productive, they must be healthy. As it is, illness from work costs the overall economy billions per annum. Smoking, obesity and alcohol cost employers and the country even more.
In general, price elasticity of demand is an economic measurement that shows the how responsive the quantity wanted is to the selling price. The demand for a good is elastic when greater than one is -- or changes in price have a relatively large effect on goods demanded. Of course there are a number of variables present regarding price elasticity: type of good, luxury or necessity, duration of the market cycle, and availability of that good. In most economic scenarios, though, as price increases, demand decreases; again, depending on where the item was priced in the first place. Elasticity varies between products, just as price and consumer demand does. Something that is highly elastic means that if a small change in price leads to a sharp change in the quantity of demand -- raise price and consumers no longer want the product. People need to live, though, so most will find ways to "demand" healthcare.
Part 3- What…[continue]
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