Question

The healthcare industry has many characteristics that make it unique from an economic perspective. For instance, uncertainty plays a tremendous role. From the demand side, consumers are uncertain of their own health status and need for care. On an individual level, the demand for health care is irregular and unpredictable. Health care is a "credence good,” one for which the quality cannot be ascertained beforehand by the consumer, but also, frequently, by the provider. The healthcare market is peculiar in other ways as well. Insurance spreads risk but also weakens price effects. Insurance changes the demand for care and the incentives of providers. Patients’ short-term and long-term incentives are often in conflict. The profit motive contends in unique ways with ethical and social imperatives. Explore the economic characteristics that distinguish health care and the implications of these economic characteristics for business and public policy.

Answer 1

Health care industry has a peculiar characteristic of assymmetric information . This is particularly evident in health insurance programmes . The insurance industry is unaware of health status of their clients . This can be mitigated to certain extent by conducting health check ups before ascertaining the premium amount but still some information can be hidden effectively . Also people who opt for health insurance policies often tend to become negligible about their health , this is the problem of moral hazard , since they think that they are covered by insurance so they can lead a reckless life .

In healthcare market the true quality of healthcare supply is a qualitative attribute and cannot be measured by any means . So the actual price of healthcare supply is difficult to ascertain . Also healthcare demand is quite fluctuating and depends largely upon consumer preferences . Also healthcare can be distinguished by highly inelastic demand . If a person is sick then that person will always buy medicines or consult a doctor whatever be the charges . So medicines specially have highly inelastic demand . This causes sometimes medicines to be highly priced and requires government mandate for price control .