The consumption of health care left to the market assumes certain conditions that are not reliably met in health care. For an ideal market, we seek both equity and efficiency. Efficiency in the sense of achieving optimal health benefits when allocating resources at minimal costs (1). Equity in a perfect market relates to the fair and just distribution of health care services (2). We will see that attempts to leave health care consumption to the market will achieve neither as certain conditions in health care result in extensive failure of the market. The key conditions that do not exist in health care are certainty, consumer sovereignty and symmetry of information between the provider and consumer (1). Externalities are also inherent in health which contributes to market failure in health care (1).
Uncertainty in Health Care
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When a person may become sick, where and how they will become sick are uncertain events. Serious illness is often unexpected and unplanned for. They are also highly expensive such that in a free market ideal, those who cannot afford it will be neglected (1). This is where health care insurance may step in. As businesses of their own seeking profit, insurance companies may exploit people’s risk aversion (1). High premiums may be bought in hopes to plan for the sudden and expensive illnesses however these premiums may not be at fair prices. In an unregulated market, many competing insurance companies may continue to push these prices higher as they take advantage of the uncertainty of health and individual’s risk aversion to buy premium packages (1). In other words, it fails allocative efficacy as more expensive premiums to cover catastrophic circumstances would be contracted and those who could not afford it or felt it was not worth the cost would miss out altogether
As it is generally assumed, health care is a social component that is mandatory in any developed society. Opponents argue that patients benefit from privatisation as they will have better choices because of the competition spawned as a result. They also suggest that patients will be subject to affordable and quality services (safeguarding free services) since competition will provide different clinical groups the opportunity to solicit valuable contracts that will protect pricing and quality services (El-Gingihy,
All healthcare systems, regardless of funding mechanisms, ration the limited resources of health care to some degree (Petrou & Wolstenholme, 2000). Even setting limits on patient choice is a form of rationing that takes place in almost all countries’ health systems (Lauridsen, Norup & Rossel, 2007). In the United States, health care is rationed according to free market principles while other countries employ other means such as long wait times for non-acute conditions or delays in the
The cost of health insurance has changed drastically over the years as it has become more expensive. Depending on personal characteristic, the cost of health insurance may vary. For instance, as individuals grow older the more expensive it becomes. In this case, health insurance is more costly because “older individuals require more health care” therefore “the cost of providing health care is rising” (Madura &Atlantic, 2012). Not only does this affect the high cost of health insurance, but the number of individuals uninsured. As stated by Madura and Atlantic (2012), “about one in every five workers is uninsured” and has increased since then because health insurance has become unaffordable. As a result, individuals tend to seek health care elsewhere as they can no longer
A major contributor to the rise of healthcare cost is that heath spending for individuals is primarily funded by third-parties. Because consumers of healthcare share little of the financial burden of the cost of the care they receive, patients and physicians are incentivized to utilize healthcare at a higher rate than they would if cost was a larger factor. The United States healthcare systems is based on a capitalist system but it operates in an imperfect marketplace that is no competitive. The current marketplace is not highly regulated as there is not a national health care program for all Americans which allow prices to be regulated and controlled effectively by a single regulating body. In this imperfect
The healthcare system in the United States is a system composed of many private insurance companies who act independently from one another. These companies make their money through premiums which are paid by the insured; therefore a major part of the healthcare system is privately funded. This type of market is considered to be an imperfect market because it does not meet the true requirements of a free market where there is unrestrained competition between providers. In our healthcare system there is an absence of a central agency to govern healthcare. There are multiple payers and third party insurers serving as intermediaries between financing and the delivery of healthcare. The United States has a multi-payer, heavily private system in which thousands of private insurance companies are responsible for paying some claims, while federal and state
Millions of Americans cannot afford healthcare services, and therefore have no financial defense in battling illnesses. Even with the affordable care act in place, there is a constant struggle for many who cannot afford the premiums that come with these insurance policies. "One of the reasons why we have uninsurance in the United States is that it has become increasingly unaffordable to purchase insurance because the cost of care and the premiums for care have gone up at multiples of the rates of increase of wages and of the cost-of-living in the United States" (Blumenthal, 2014)
718). Another challenge or tradeoff, if you will, is the need for a large body of healthy people to sign up in order to support financially of the consistently recently insured ill population (Cohen, 2015). The argument is that this is inflicting a very ruthless economic weight on the younger population who do not have a pressing necessity for coverage (Cohen, 2015).
Under a free-market system, health care is characterized in three ways – cost, access, and quality. In the United States, a mixed economic system that favors a free market system, health care is characterized as high cost, low access, and high quality. As such, these dichotomies pose an imperfect, inefficient scenario – the high cost and low access of health care lead people to not purchase insurance, while the high quality of health care drives people to still receive health care services. As a result, millions of Americans are currently uninsured, yet still utilizing various health care services, and are unable to pay their medical bills. This poses yet another conundrum - how can uninsured individuals receive medical care without paying for it? More importantly, who ends up paying for these services? Having recognized this gap between receiving medical care and paying for medical care,
In the article, "Universal Health Care: Can We Afford Anything Less?" by Gerald Friedman, it touches on the fact that if healthcare weren't such a special commodity there wouldn't be such a challenging time getting it. In the article it states, “If health insurance were like other commodities, like shoes or bow ties, then reducing access might lower costs by reducing demands on suppliers for time and materials." This supports my original thesis, that if there was equal access available to everyone there wouldn't be a need for competition in the market.
Health care in the U.S is still too expensive for many families. So what does the system look like right now and how does health care systems look in other countries? This paper will explore these questions and delineate and differentiate these systems in this paper. The market-based health insurance system in the
“To summarize these results, failure to risk-rate health insurance policy results in three types of market failure. First, moral hazard will affect the medical care purchase market. Second, consumers will fail to achieve the optimal allocation of income among states of the world; more specifically,low-risks consumers will systematically subsidize the insurance purchases of high risks. Third, the conditions for optimal spending on health promotion activities will not be met”. (O'Malley, 1989, p. 304).
Health insurance companies need a balance of healthy and sick people in order to increase revenue from the healthy people and take that money and use it for the sick people’s health costs, [1].
Some major reasons that a free, unregulated market in medical care might night be optimal are: Imperfect information, asymmetric information, barriers to entry, and third-party payers.
Changing factors such as aging populations and new technologies becoming available are increasing expectations from people throughout the world, and decision makers must make rational choices to maximise benefits to population health whilst working with limited resources. Yothasamut et al (2009) summarise this by observing that "health care resources in every setting are always constrained, while unlimited demand is observed". The 'best' choices in the context of economics are the ones which maximise utility (individual satisfaction through consumption of goods) and welfare, the sum utility experienced by all individuals in society. Decision makers often have to seek satisfactory rather than optimal solutions, also known as working with 'bounded rationality' (Simon 1957 in Williams et al 2008), as it is important to pursue both efficiency and equity in the funding of health care. Therefore, it may be unsuitable to fund the most cost effective option if it sacrifices the equal distribution of benefits. Research in health economics can take a normative or positive approach and this reflects the balance needed between cost control and equity when making economic decisions. Positive economic research and analysis is concerned with 'how things are' and seeks to explain economic phenomena, whilst normative economic research and analysis is concerned with 'how things ought to be' and relies on value
There is a spacious room for lemon in insurance field. The price for health insurance is not fixed, it varies based on the level of the need an applicant may require for the insurance. As in the case of elderly people over the age 65, it is well known that it is very difficult for them to get health insurance because of its high price as they certainly will need it more than other applicants. On the other hand, employees working in companies are offered health insurance as a part of the companies’ policies and regulations. This actually create more room for lemon in the insurance field and less chance for old people who need it more. This ended up with adverse selection by the insurance companies. (A.Akerlof, Aug