Demand and supply of healthcare insurance
Introduction
As supply and demand for most markets tend to work perfectly, that is not the case with the health care sector. The demand for healthcare is unlimited. The supply of physicians does not concur with the market forces. Some specializations do not fit the supply-demand curve. In all cases, specialization is fostered by income. The healthcare system is based on the third party payer system. The payment is neither paid by the patient nor the provider but the health insurance. The health insurance acts as the third party. The payer is not represented anywhere in the supply-demand curve. The patient demands the service; the doctor supplies the service, and the health insurance pays for the service. Health demands are inelastic. That means one will have to purchase regardless of price. All elective healthcare services are therefore elastic; this includes home visits and psychotherapy sessions. This paper will highlight the impact of demand and supply for health insurance and the effects of the third party to patients (Folland, Goodman & Stano, 2007).
Demand and supply of health insurance
It is evident that the healthcare services demand curve is downward-sloping similar to other goods and services in the market. Like the other commodities, the law of demand applies to healthcare, since the consumer reacts to change in price. The demand curve for health care is sophisticated on how it is financed. Almost 80 percent of healthcare is paid by third parties. The prices depend on the copayment rate. Since the patients only pay for 20 percent of the bills, the quantity demanded healthcare will rise at a lower price (Folland, Goodman & Stano, 2007). In the third-party system, patients receive many incentives to receive reduced benefits. The services destruct the usual equilibrium of the supply and demand for the industry. The industry price inflation is enhanced by the influence of the third parties. When the prices are reduced, the patients represent the highest portion of the demand curve. Since they possess the power they apply the pseudo-price-controls in the healthcare industry and affect most of the healthcare prices. The health insurance agencies make the hospitals lose money. For instance, the plastic bedpan in hospitals is cheap, but the process of documenting and distribution is very expensive. The healthcare facilities that offer standard items to all the patients simplifies the process of reimbursement and, therefore, obtain more revenue to gain profitability (Folland, Goodman & Stano, 2007).
There is a potential failure of the government in providing much healthcare hence causing moral hazard. Since the third party bears most of the claim, there are incentives to inflate claims and deplete scarce resources. When there is cost sharing in the demand and the supply-side cost sharing will promote healthcare payment of the system to enhance risk protection and adequate healthcare (Folland, Goodman & Stano, 2007). It is established that in addressing the problems demand and supply, the supply-side cost sharing will help achieve health care utility targets. The demand-side cost sharing will protect the patients from the risk incurred through finances. Using both cost sharing tools will give the best outcome that minimizes the consumer financial risk while eliminating the moral hazard problem.
Conclusion and recommendations
References
Folland, S., Goodman, A. C., & Stano, M. (2007). The economics of health and health care vol. 6. New Jersey: Pearson Prentice Hall.
