Supply, Demand, and Marginal Analysis in US vs. Europe Healthcare Costs

Introduction

Economic tools and concepts can be applied to contemporary issues and the dynamic situations present in today's healthcare industry. Numerous economic changes in the United States have shaped the current trends in the nation's healthcare. These include economic factors such as financial recession, which has altered consumer behavior and, in turn, influenced the level of demand for healthcare. For instance, most dental practitioners are private doctors, and consumers schedule appointments at their discretion. This means that during a recession, consumers will reduce their appointments unless they are urgent or involve emergencies (Keegan et al., 2013).

In the same way, recession affects demand by causing the loss of healthcare coverage for many individuals and households who are insured through employer arrangements. One of the most widely discussed topics in the healthcare sector is the reform efforts that have significantly influenced healthcare costs in the United States. Legislation that has been passed and reforms that have been instituted have generated considerable discussion about both the quality of healthcare and its costs. This paper employs demand curves, supply curves, and marginal analysis as economic tools to analyze healthcare costs between the United States and Europe.

Demand and Supply in Healthcare Markets

These tools aptly measure and analyze the impact of high costs on healthcare. Two diagrams illustrate the healthcare costs and the differences in supply and demand curves between Europe and the United States.

The first diagram depicts the price of healthcare on the vertical axis and the quantity of healthcare on the horizontal axis. It shows two demand curves — one for the United States and one for Europe — alongside a single supply curve. The U.S. equilibrium point lies higher than the European equilibrium, reflecting higher U.S. demand at any given price level.

The second diagram similarly plots price against quantity but instead shows two supply curves — one for the United States and one for Europe — alongside a single demand curve. Again, the U.S. equilibrium rests at a higher price point, this time reflecting a more restricted or limited U.S. supply relative to Europe.

Together, these two diagrams offer two probable explanations for high healthcare costs in the U.S. The first diagram suggests that the level of demand in the U.S. is high, while the second suggests that the level of supply in the U.S. is restricted or limited. The diagrams illustrate that there is a higher level of demand for healthcare in the United States, whereas in Europe the level of supply is restricted across both scenarios.

Limitations of Traditional Supply and Demand Models

However, as Schmitz (2012) observes, neither explanation is fully convincing, which raises the question of whether supply and demand analysis alone is comprehensive enough to evaluate healthcare. In order to demonstrate that supply and demand concepts cannot be comprehensively applied to healthcare, it is necessary to examine how the healthcare market differs from traditional business models.

The conventional understanding of demand is based on the notion that every person will consume a good or service up to the point where the marginal value of an additional unit equals the price of that unit (Schmitz, 2012). In healthcare, however, consumers often do not understand the full value of the treatment they receive. In many cases, the consumer does not pay the total price because of insurance coverage. The conventional demand framework is therefore somewhat distorted when applied to healthcare, compared to other sectors.

The same limitation applies to supply. Differences arise because market structures in the U.S. and in Europe differ significantly, with a number of healthcare suppliers holding substantial market power. This does not mean that supply-and-demand reasoning yields no insight, but it does mean that comparing healthcare prices across countries is complicated — one must also account for differences in market power (Schmitz, 2012). Price comparisons are further complicated by additional factors that influence demand for healthcare in each region. For instance, one might argue that demand for healthcare in the United States is higher because individuals do not consistently lead healthy lifestyles. Conversely, one might argue that demand is lower in certain European nations — such as Belgium — partly due to smaller population sizes.

Conclusion

The current issues in the healthcare sector will continue to be strongly debated. Nonetheless, as new policies and legislative acts come into effect, economic tools and concepts such as demand and supply will be employed to determine how healthcare funds are being allocated and to ensure that such resources are directed appropriately. The improvement of healthcare quality will benefit not only individual consumers — the citizens — but the nation as a whole. Currently, consumers are increasingly aware of the high costs of healthcare. Pursuing participation in legislation, the enactment of the Affordable Care Act (ACA), and related policies will enable consumers to access the quality of healthcare they have been paying for (Rosenbaum, 2011).