Health Insurance Effects on Healthcare Demand and Quality
This essay examines the relationship between health insurance and healthcare demand, exploring how insurance coverage lowers out-of-pocket costs and subsequently increases consumer demand for medical procedures. It analyzes the economic principle of supply and demand as it applies to healthcare pricing, discusses factors contributing to rising healthcare costs — including pandemic-related demand surges and labor shortages — and explains why economists regard insurance-subsidized overuse as an economic inefficiency. The paper concludes by evaluating two policy interventions — cost sharing and prior authorization through case management — as mechanisms to curb excessive healthcare utilization while preserving appropriate access to necessary medical services.
- Introduction: Overview of insurance, demand, and overuse themes
- Insurance Coverage and Consumer Demand: Lower costs raise consumer demand for procedures
- Demand, Supply, and Rising Healthcare Costs: High demand and pandemic drive healthcare price increases
- The Problem of Excessive Healthcare Utilization: Insurance coverage encourages unnecessary service use
- Policy Solutions to Reduce Overuse: Cost sharing and prior authorization curb overuse
- Conclusion: Policies ensure appropriate use of healthcare services
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What makes this paper effective
- Clear economic framing: the paper consistently applies supply-and-demand logic to healthcare, giving abstract concepts a concrete analytical structure.
- Concrete numerical examples (the $200 vs. $25 cost comparison) ground the argument in accessible, practical terms that reinforce the theoretical claims.
- Each body section flows logically into the next — from demand, to cost, to overuse, to policy — creating a well-scaffolded argument progression.
Key academic technique demonstrated
The paper demonstrates applied economic reasoning in a policy context. By connecting microeconomic principles (price elasticity of demand) to real-world healthcare behavior and then proposing corrective policies, the author shows how theoretical frameworks can generate practical recommendations — a core skill in health economics and public policy writing.
Structure breakdown
The essay follows a classic expository structure: an introduction that previews all major themes, three analytical body sections that build sequentially (demand → cost → overuse), a policy section that responds to the identified problem, and a summary conclusion. References include peer-reviewed journal articles and a government/academic source, demonstrating appropriate source variety for an undergraduate health policy paper.
Introduction
Health insurance plays a significant role in determining the number of healthcare services performed. When a consumer has insurance, they can often access medical procedures and treatments at a lower cost, as the insurance company covers a portion of the expense. However, this can also lead to excessive use of healthcare services, as the consumer may be less concerned with the overall cost of the procedure. This essay considers the effects of health insurance on the demand for healthcare services, the relationship between demand and cost, and the potential for excessive use of healthcare services. It also discusses policies that might be implemented to prevent this excessive use.
Insurance Coverage and Consumer Demand
The consumer demand for healthcare services would likely be lower if the consumer had to pay the full $200 for a medical procedure. This is because the full cost would be significantly higher for the uninsured consumer, making it less affordable and, therefore, less appealing. Consumers generally base their purchasing decisions on cost, so if the price of a healthcare procedure is too high, they may be less likely to seek out that service. On the other hand, if the consumer has health insurance and only has to pay $25 for the same procedure, they may be more willing to pursue it due to the lower out-of-pocket cost. In that case, the demand for healthcare services would be higher (National Academies of Sciences, Engineering, and Medicine, 2018).
Demand, Supply, and Rising Healthcare Costs
If there is high demand for a healthcare procedure, the cost of that procedure will likely increase (Thuong, Huy, Tai, & Kien, 2020). This follows the basic principle of supply and demand: when demand for a product or service rises, its price tends to increase as well (National Academies of Sciences, Engineering, and Medicine, 2018). Another contributing factor is the overall rise in healthcare costs observed in recent years, which can be attributed to shortages of healthcare resources, equipment, and supplies, as well as rising labor costs in the healthcare industry. These cost increases may be passed on to consumers through higher insurance premiums or greater out-of-pocket expenses.
In addition, the COVID-19 pandemic generated significant demand for healthcare services, as patients sought to catch up on procedures they had postponed or delayed during the early stages of the pandemic. This increased demand, combined with rising operational costs, could further drive up the price of healthcare procedures (Kaplan, 2022).
Conclusion
Health insurance plays a significant role in determining the demand for healthcare services. When the cost of a procedure is lower for the consumer, demand for healthcare services is likely to increase. However, this can also lead to excessive use, as consumers may be less concerned with cost when insurance absorbs most of the expense. Policies such as cost sharing and prior authorization can be implemented to prevent this overuse. These measures help ensure that healthcare services are utilized appropriately and not simply sought out to take advantage of insurance coverage.
References
National Academies of Sciences, Engineering, and Medicine; Health and Medicine Division; Board on Health Care Services; Committee on Health Care Utilization and Adults with Disabilities. (2018, March 1). Healthcare utilization as a proxy in disability determination (Chapter 2: Factors that affect healthcare utilization). National Academies Press. https://www.ncbi.nlm.nih.gov/books/NBK500097/
Kim, M. J., & Lee, E. (2020). How to reduce excessive use of the health care service in medical aid beneficiaries: Effectiveness of community-based case management. International Journal of Environmental Research and Public Health, 17(7), 2503. https://doi.org/10.3390/ijerph17072503
Thuong, N. T. T., Huy, T. Q., Tai, D. A., & Kien, T. N. (2020). Impact of health insurance on health care utilisation and out-of-pocket health expenditure in Vietnam. BioMed Research International, 2020, 9065287.
Kaplan, J. (2022, October). Why your healthcare is about to get a lot more expensive. Business Insider. Retrieved January 9, 2023, from https://www.businessinsider.com/healthcare-cost-increase-forecast-making-it-more-expensive-for-you-2022-10
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