Economic Theories in Action: Analysing Healthcare Policy Discrimination

Everyone has heard of the words “healthcare” and “health insurance,” but have you ever thought of the economics behind them? By understanding the economics behind healthcare, you would be empowered to make informed decisions and choices about your health while also reflecting on the broader implications of your choices. Drawing insights from the book “Health Economics” by Jay Bhattacharya, Timothy Hyde, and Peter Tu, this blog will explore the economics behind healthcare. 

Healthcare plays a huge role in the economies of all countries. For instance, in many countries, citizens benefit from subsidised health insurance or are eligible for free care provided by the government. In contrast, in the United States, individuals often have to make critical decisions about how much to pay for their healthcare.

The demand for healthcare: choices and risks 

The demand for healthcare is uncertain because most people are risk-averse. Generally, it is believed that healthcare is so valuable that economic tradeoffs can be overlooked, hence making it seem price-insensitive. However, in reality, consumers are quite price-sensitive when it comes to medical care. People evaluate the tradeoff between medical care differently based on their budget constraints, life expectancies, and quality of life considerations. Think about it: would you rather get cosmetic surgery or would you get treatment for a serious condition like kidney stones? Normally, elective procedures have a more elastic demand when compared to emergency procedures. 

Supply and demand are foundational to economic theory; they describe how the availability of healthcare services and the desire for them influence market behaviour. The demand for healthcare is driven by individual health conditions and personal preferences, with socioeconomic status playing a significant role. Additionally, insurance coverage, premium prices, and government policies significantly impact the healthcare options available to individuals.

Market Dynamics

In an ideal competitive market, healthcare service prices should be determined where supply and demand intersect. However, because of the special and unpredictable nature of healthcare needs, healthcare markets deviate from perfect competition. Healthcare is a necessity and not a luxury which is why the market dynamics work a lot more differently than other markets. 

The Role Of Health Insurance

Health insurance spreads the financial risk among a large pool of individuals in the healthcare system. The insurance pools the risk of high medical costs; usually, everyone pays a premium and the insurance covers the “significant” medical expenses in return. In theory, it reduces an individual's healthcare costs in the long run and financially protects them from unforeseen medical expenses. 

However, insurance also introduces a concept called “Moral Hazard,” in which individuals with insurance coverage are more likely to take part in higher-risk activities or overuse medical services as they will not have to bear the full costs. Maybe we’ve all been in a scenario where we rely too much on healthcare and to manage this there are control measures that insurers take such as deductibles and copays which incentivise a more sensible use of medical services. 

Additionally, various economic evaluation methods help make informed decisions in healthcare. For example, there is cost-utility analysis in healthcare where treatments for chronic diseases affect the patient's survival and quality of life. It evaluates the trade-offs between health outcomes and costs. Many health insurance companies believe that some chronic illness treatments are not worth the cost (which is deeply saddening).

If you reflect on your healthcare decisions, try to see the economic principles that are at play and how they have an impact on the pricing and quality of care you and your family receive. Let's navigate the healthcare system more effectively to advocate for policies that promote better healthcare and health outcomes for everyone, rather than excluding people who are financially burdened by a health condition they have no control over.