Question

Identify an example of an opportunity cost in the context of health care economics for an individual or family. Identify examples of decisions concerning health care where a health care consumer could be indifferent between getting medical care or doing without medical care in correlation to diminishing marginal utility.

Answer 1

In the health sector we could look at the concept of opportunity cost through the following example. We could measure the impact of increasing the number of inpatients on the number of outpatients that can be treated –that is the opportunity cost of treating inpatients in terms of outpatients. For example, the opportunity cost of treating 1,000 inpatients is 10,000 outpatients.

As another example, spending the day in the hospital waiting room may involve forgoing a day at work (measured in wages lost, or time spent elsewhere - recreation or with family).

As per the law of diminishing MU, any additional improvement in health generates successively smaller additions to total utility- the marginal improvement to health brought about by each additional unit of medical care consumed decreases. If an individual already has medical insurance, then additional healthcare insurance will not give him much benefits- in such cases, the individual might be indifferent between buying and not buying the medicare services. The law of diminishing MU also translates into risk averse behaviour from individuals which is why individuals prefer buying healthcare insurance.