Economics Study Set 20

Business

Quiz 36 :

The Economics of Health Care.

Quiz 36 :

The Economics of Health Care.

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How does the substitution of third-party payments by insurance companies and the government for the out-of-pocket purchase of health care by consumers influence the demand and price of medical services? Explain.
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The third party payment and scarce supply of medical services has increases the spending and prices of the medical care in US. This becomes a great concern and debate among the economists. The third party payment method had also increases the inefficient use of resources leading to wastage and some times over consumption of the health care services in the US.
The third party payment by insurance companies and government had increases the demand and price of medical services for two reasons:
1. The subsidies and the third party payments decrease the out-of-the-pocket payment of the consumer and the consumer faces a lower price of the medical care. This increases the demand for these services and the price of these services increases. The medical care, on the other hand, is subject to inelastic supply. Thus, increase in price does not affect the prices much and the prices keep on increasing.
2. The decrease in out-of-the-pocket payment also decreases the incentive of the consumer to find a service that is worth its value and the supplier loses their incentive to provide the service at lowest cost. The consumer opted for the best regardless of prices because they do not have to pay the fees. The suppliers also charge higher prices as they know it will not affect its demand. In this way the general price of medical services continue to rise.

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When an employer provides health insurance benefits as part of the compensation package, does this represent a gift by employers to their employees? Do employees earn these benefits? Why or why not? Justify your response.
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The third party payment and scarce supply of medical services has increases the spending and prices of the medical care in US. This becomes a great concern and debate among the economists. The third party payment method had also increases the inefficient use of resources leading to wastage and some times over consumption of the health care services in the US.
The employers provide the medical insurance as a compensation package for the employees. This is the part of the total cost incurred by the employer for each employee. If the benefit from the employee exceed or equal to the cost of hiring the person, he will be hired and not otherwise. Then the compensation package is earned by the employees and not a gift.

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Do individuals have a right to free health care? Do they have a right to force others to provide them with free health care? Discuss.
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The third party payment and scarce supply of medical services has increases the spending and prices of the medical care in US. This becomes a great concern and debate among the economists. The third party payment method had also increases the inefficient use of resources leading to wastage and some times over consumption of the health care services in the US.
The politicians want to provide the medical care for free. But each service has a certain cost of operation and service. The countries where the government provides health care as a public good imposes politically imposed restriction and other non-price methods to ration the health care services. Thus the health care cannot be provided for "free" and neither one can force anyone to provide any service for free. Because, each service needs resources and as resources are scarce it has certain value attached to it. If we force someone to provide the service for free, the incentive of the service provider will be none and the service will be inefficient one.

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How did the Medicare and Medicaid programs influence the cost of medical services purchased by Americans who were neither poor nor elderly? Explain.
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Consider the six reform proposals suggested by the authors at the end of this feature. Indicate why you believe each is either a good or a bad idea. Explain your answers
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Do personal choices influence health care expenditures? If health care is paid for by others or if everyone is charged the same premium for health care, how will this influence the incentive to make healthy lifestyle choices?
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Suppose the government established a new program that would use revenues from a payroll tax to finance 85 percent of the maintenance and repair cost of automobiles incurred by those who are employed. How would this legislation influence (a) the prices of auto repair and maintenance services, (b) total spending on these services, and (c) the cost of this program in the years immediately ahead? Do you think this program should be adopted? Why or why not?
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If the government either provides (or forces insurers to provide) insurance to persons with preexisting adverse health conditions, how will this influence the incentive to purchase insurance when you are healthy?
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