The question is whether or not the demand for health care is inelastic. I would say that it depends on the type of healthcare. That is, one of the key determinants of elasticity is time. If I need to catch a plane back to Oregon tonight, due to dire circumstances, I will be willing to pay just about anything for the ticket. The same is with healthcare. If I have an urgent need for healthcare, I will be willing to pay exorbitant prices for it -- especially if I fear the loss of life, limb, or eyesight. Multiply this demand if it's for my kid. When my daughter was just a baby, she had a severe allergic reaction. We called 911, and the fire department responded. They gave her some medication, and advised us that she should be okay, and did we want to call an ambulance? From past experience, I knew that an ambulance would cost me a great amount of out of pocket expense. As a new dad, and not wanting to take any chances with my baby's health, I told them to do it -- although the hospital was only about a mile or so away. Because most of would be willing to pay whatever is necessary to save the life of ourselves or the ones we love, I would say the price for emergency or urgent care is inelastic. Primary care, or routine are, on the other hand, would not be as inelastic -- it would be elastic.
The second part of the question is whether this inelasticity is a good argument for government regulation of prices. Economics suggest that a healthy market leads to the best price for consumer when there are many competitors in the market. However, the healthcare market is an imperfect one. More urban areas/densely populated areas will have more competitors, and healthcare should be fairly lower in cost. Rural areas might have more cost-prohibitive services, but services needed none the less. For now, given the current political climate and history of individualism in America, while regulation of prices might be preferable, it does not seem like a realistic option.
I like to start with definitions. Healthcare (US Healthcare Systems) - a variety of services believed to improve a person's health or well being Own Price Elasticity (Micro)- a measure of the responsiveness of the quantity demanded of a good to a change in price of that good Inelastic Goods (Micro) - relatively critical commodity, and the price does not matter, the consumer will pay it Response: Certain aspects of healthcare are own price inelastic: life, limb, eyesight - these tend to be the 'non negotiables,' and consumers will pay the price no matter how high it may rise. Other aspects of the healthcare spectrum, specifically the ones that deal with a person's well being, will exhibit a change in behavior if the cost is too high. This explains why so much of the US population foregoes preventive care or alternative medicine. The cost is too high, and money spent to pay for these services is money that is not spent else where: rent, food, gas, etc. I absolutely believe the inelasticity of the non negotiables can serve as a platform for government intervention. Hospitals that charge large amounts of money for these services are taking advantage of an already ( by virtue of state of emergency) trusting and vulnerable population. Additionally, if that population is poor, and can not on their own afford the cost even of the non negotiables, it is the tax payer who will feel the blunt end of increased, nonstandard pricing across the healthcare system.
Demand for healthcare overall has some limited elasticity, but isn't anywhere close to the elasticity of cruises or time shares. Health care costs and growth have been down the last couple years, mostly due to the economic troubles in the US relating to the "great recession." Yet in spite of a small dip, healthcare demand remains.
As mentioned above, some parts of healthcare are more elastic and some are not.
Government regulation changes the free market system and in turn can change the demand for healthcare by increasing access. The ACA will most likely increase demand for healthcare as it increased access by subsidizing those who normally would not have insurance.
The government should be more heavily involved with the inelastic services of healthcare.
Looking at elasticity alone, inelastic items are generally things that people want/need in spite of economic difficulties and this means that government interests and regulations
It is a difficult question- like trying to nail Jell-O to the wall. At the micro-level, we truly do not know the actual price of healthcare costs. What we DO know is what we see on a hospital or doctor's bill. But that is not the actual cost. This is an issue today that is very political- with the 'Full Disclosure' debate in Congress that would require healthcare facilities to post their prices, like many other industries.
The simple answer to me is that it also depends on the time of year! At the beginning of my premium year and I have not touched my deductible, then I will do more shopping around for the best price, the market may be more elastic in some areas because it is a cash-pay oriented market. However, as the premium year moves on and a third-party is paying the bill (as the deductibles are met), then the consumer really does not care about the price as he is not paying it, it become more inelastic.
Some retrospective surveys and studies also tend to show that individuals who have no financial risk involved (dare I say Tragedy of the Commons) are more apt to expect and consume more resources than one who has 'skin in the game'. If I am not paying for it, then I do not really care how much it costs- which the cost is inelastic.
Similar to emergency department costs, which are exceptionally expensive. Rarely do hospitals recoup the costs (not charges!) to provide this care for many reasons. On the flip side, outpatient rehabilitation is elastic, as only those who have insurance or can pay for it will receive it. There is competition in most locations and facilities will market their services and prices to be competitive.
The question is whether or not the demand for health care is inelastic. I would say that it depends on the type of healthcare. That is, one of the key determinants of elasticity is time. If I need to catch a plane back to Oregon tonight, due to dire circumstances, I will be willing to pay just about anything for the ticket. The same is with healthcare. If I have an urgent need for healthcare, I will be willing to pay exorbitant prices for it -- especially if I fear the loss of life, limb, or eyesight. Multiply this demand if it's for my kid. When my daughter was just a baby, she had a severe allergic reaction. We called 911, and the fire department responded. They gave her some medication, and advised us that she should be okay, and did we want to call an ambulance? From past experience, I knew that an ambulance would cost me a great amount of out of pocket expense. As a new dad, and not wanting to take any chances with my baby's health, I told them to do it -- although the hospital was only about a mile or so away. Because most of would be willing to pay whatever is necessary to save the life of ourselves or the ones we love, I would say the price for emergency or urgent care is inelastic. Primary care, or routine are, on the other hand, would not be as inelastic -- it would be elastic.
ReplyDeleteThe second part of the question is whether this inelasticity is a good argument for government regulation of prices. Economics suggest that a healthy market leads to the best price for consumer when there are many competitors in the market. However, the healthcare market is an imperfect one. More urban areas/densely populated areas will have more competitors, and healthcare should be fairly lower in cost. Rural areas might have more cost-prohibitive services, but services needed none the less. For now, given the current political climate and history of individualism in America, while regulation of prices might be preferable, it does not seem like a realistic option.
I like to start with definitions.
ReplyDeleteHealthcare (US Healthcare Systems) - a variety of services believed to improve a person's health or well being
Own Price Elasticity (Micro)- a measure of the responsiveness of the quantity demanded of a good to a change in price of that good
Inelastic Goods (Micro) - relatively critical commodity, and the price does not matter, the consumer will pay it
Response: Certain aspects of healthcare are own price inelastic: life, limb, eyesight - these tend to be the 'non negotiables,' and consumers will pay the price no matter how high it may rise. Other aspects of the healthcare spectrum, specifically the ones that deal with a person's well being, will exhibit a change in behavior if the cost is too high. This explains why so much of the US population foregoes preventive care or alternative medicine. The cost is too high, and money spent to pay for these services is money that is not spent else where: rent, food, gas, etc. I absolutely believe the inelasticity of the non negotiables can serve as a platform for government intervention. Hospitals that charge large amounts of money for these services are taking advantage of an already ( by virtue of state of emergency) trusting and vulnerable population. Additionally, if that population is poor, and can not on their own afford the cost even of the non negotiables, it is the tax payer who will feel the blunt end of increased, nonstandard pricing across the healthcare system.
Demand for healthcare overall has some limited elasticity, but isn't anywhere close to the elasticity of cruises or time shares. Health care costs and growth have been down the last couple years, mostly due to the economic troubles in the US relating to the "great recession." Yet in spite of a small dip, healthcare demand remains.
ReplyDeleteAs mentioned above, some parts of healthcare are more elastic and some are not.
Government regulation changes the free market system and in turn can change the demand for healthcare by increasing access. The ACA will most likely increase demand for healthcare as it increased access by subsidizing those who normally would not have insurance.
The government should be more heavily involved with the inelastic services of healthcare.
Looking at elasticity alone, inelastic items are generally things that people want/need in spite of economic difficulties and this means that government interests and regulations
It is a difficult question- like trying to nail Jell-O to the wall. At the micro-level, we truly do not know the actual price of healthcare costs. What we DO know is what we see on a hospital or doctor's bill. But that is not the actual cost. This is an issue today that is very political- with the 'Full Disclosure' debate in Congress that would require healthcare facilities to post their prices, like many other industries.
ReplyDeleteThe simple answer to me is that it also depends on the time of year! At the beginning of my premium year and I have not touched my deductible, then I will do more shopping around for the best price, the market may be more elastic in some areas because it is a cash-pay oriented market. However, as the premium year moves on and a third-party is paying the bill (as the deductibles are met), then the consumer really does not care about the price as he is not paying it, it become more inelastic.
Some retrospective surveys and studies also tend to show that individuals who have no financial risk involved (dare I say Tragedy of the Commons) are more apt to expect and consume more resources than one who has 'skin in the game'. If I am not paying for it, then I do not really care how much it costs- which the cost is inelastic.
Similar to emergency department costs, which are exceptionally expensive. Rarely do hospitals recoup the costs (not charges!) to provide this care for many reasons. On the flip side, outpatient rehabilitation is elastic, as only those who have insurance or can pay for it will receive it. There is competition in most locations and facilities will market their services and prices to be competitive.
To restate the best answer, it depends!