Question

Pick a side, the payors of healthcare or the providers of healthcare, and defend their position for the payment of healthcare services.

Answer 1

HEALTHCARE CONSUMERS

The right to health is a human right that we should all benefit from. The United States is a very particular case because, even though is the wealthiest country in the world, it is famous for having high costs in basic services to its population, such as education and health.

Healthcare coverage should make it possible for a covered individual to seek the care they need with the knowledge that he or she will be able to finance this expenditure. In reality, healthcare consumers are instead avoiding the needed care or dropping treatments because they don’t know if they would be able to afford it.

In this industry, where you try to save the patient's life, there are some disadvantages for the consumers or patients. One of them is that there is no complete information for the consumer about the prices, quality and relative benefit of the product or service before consuming it. Consumers know the prices of their visit to the hospital at the time when the account arrives, that is, after they have consumed the good or service. This causes a market failure called asymmetric information. Asymmetric information occurs when an agent in a transaction possesses information while other agents do not. In the past, information was considered perfect and even some economist assumed that even if the information was not perfect, it did not change the result of the transaction. Stiglitz in 2001 contradicted that idea, he affirmed that even a small difference of information between agents, could mean a huge effect on the nature’s equilibrium.

There are two types of asymmetric information, adverse selection and moral hazard. The first one appears before the transaction is made, and it occurs when one of the participants, either the agent or the principal, has more information than the other one, or one part doesn’t know about the characteristics or intention of the other; this causes an advantage of one of the part in the transaction. The second one, moral hazard, occurs after the transaction or the contract have been signed. In this type of asymmetry, the principal cannot neither observe the actions of the agent nor control them.

In the case of health care, it is clear that adverse selection is the type of asymmetric information. By having more information insurers about the actual prices of services, they are able to increase the cost to the individual covered, or adding unnecessary fees.

On the other hand, there is evidence of monopolistic activities by pharmaceutical companies in the United States. Monopolistic activities can be summarized as pharmaceuticals that have market power (in this case patents for a drug that combats a specific disease), increase prices considerably for the only purpose of increasing their profits. This harms the consumer because he or she ends up paying more, in this case the market equilibrium price is lower than the market price.

In conclusion, there is evidence that market failures in the health industry prevent the market from driving efficiently. When there are market failures, the government usually intervenes (by modifying industry subsidies and taxes) to arrive at the equilibrium price. It is important to remember that health is also a matter of economic growth; a sick population reduces country’s productive capacities. A healthy population is also a sign of a healthy and growing economy. Although it is clear that the federal government does intervene to help some taxpayers, even greater efforts are needed to make these services more accessible for all the population.