Question

Compare and contrast the use of various economic models to explain the role of economics in healthcare and how the concept of the market equilibrium works in healthcare.

Answer 1

Globally, great improvements in health care have been observed over the last few decades by increased life expectancy and reduced child mortality. These can be attained by increased living standards, better environmental conditions such as water, sanitation and above all advances in medical technologies and services. We will apply the model of demand and supply here. Health care has several interdependent markets such as: education, manpower, institutional, pharmaceutical, etc. The education market determines how many doctors, nurses and other professionals are trained every year and therefore available to provide services. Manpower markets determine labour prices (salaries and wages) paid to professionals. Institutional markets determine prices for hospital stays, or stays in nursing homes. In the pharmaceutical markets, prices of medications are determined. The demand for health services include consumption and production aspects. Factors affecting the demand for medical care is patient demographics, health insurance, prices of the health care, etc. The supply of health care is determined by factors like input markets, technology, size of the health care market, etc.

Market equilibrium is a market state where the supply in the market is equal to the demand in the market. If the market is at equilibrium, the price will not change unless an external factor changes the supply or demand, which results in a disruption of the equilibrium. Both internal factors of unpredictability and external market threats create instability in the health care industry. For health care providers, this means decreased health care payments, rising costs per patient and a stressed health care workforce. Some of the factors that drive the health care industry, such as aging and chronic illness, are quite predictable. Health care consumers directly feel the impact of these predictable changes over time. As consumers age, health care becomes more expensive in both terms of premium payments and amount of care required.