Health Care Economics

Health Care Economics






Health Care Economics

Question 1

Moral hazard is a terminology economists use in describing the fact of insurance that the behavior of the party being insured is liable to change in the course of the practice (Gombar, 2002). Insurance seemingly has a paradoxical effect of developing wasteful and risky behavior. Take for example, a situation whereby you are watching a film in a cinema and then you remember you did not lock your vehicle. If you have comprehensively insured your vehicle, you will proceed on watching the film bearing in mind insurance will compensate for any loss incurred. Insurance is said to have changed your attitude towards your vehicle. For this reason, economists will therefore spend appropriate resources and time considering moral hazards especially in cases of health care. (Bijlefeld, 2010). In essence, insurance involves attempts of making human life more secure and safer. These attempts may backfire, resulting to riskier behavior by the party involved, making health care providence a problematic and complicated endeavor. Mark Pauly, an economist, argued in 1968 that moral hazard has a major effect in influencing health care economics. He asserts that before advancing insurable interest to a consumer, adequate consideration on moral hazard has to be undertaken.

In this case, consumers who have insurance policies on health care will more often than not demand for certain procedures, treatments and operations they have not requested if they were liable for payment. In addition, they may not carefully consider living a healthy lifestyle or endeavor in preventive measures. Consequently, when they fall sick, treatment costs are normally higher then they would have been. Health care economics thus attempts to follow up on these kinds of situations to identify their validity. The medical department too is influenced by moral hazard and health economics. They are fully aware that the insurance policy will cater for all the expenses and will therefore tend to over prescribe and over treat their patients. As a result, you find that large amounts of resources are unnecessarily allocated health care. Health care economics will therefore put this into consideration and follow up on the treatment and diagnosis of the patient as whether appropriate or not. Therefore, considering facts regarding healthcare and the issues of insurance, moral hazard is an important consideration in health care economics.

Question 2

The medical department has overseen gradual but constant price increase in health care services over the past two decades, thus prompting concern for adequate financing and provision of health care. Therefore, the methods set for determining prices of administering and paying for health care services will ultimately affect the demand by influencing the consumer’s decisions and what kinds of treatment measures and procedures to receive (Albreht, 2003). Because of the central role hospitals and doctors play in providing health care services, it has prompted important considerations by consumers when making choices related health care choices. Demand for health care will always be high. Falling sick is a natural and unpreventable occurrence that we can only try to minimize (Weeratunga, 2010). With the current high prices for this precious service, many consumers have opted to secure health insurance policies to cater for the expensive costs. People have the notion that it is better to pay small premiums in the long run than to pay a large medical bill in the event of sickness. Age is also another factor considerably affecting demand. As people grow older, their bodies have a tendency of falling sick more often than not. Therefore, they require constant care and provision of health care services.

Cultural and geographical factors also play a crucial role in influencing the demand for health care services. There are some communities that still uphold their strong traditions of administering health services and treatment through established community herbalists. They normally utilize treating and healing properties of certain plants and herbs. Therefore, in these communities, demand for health care services is going to be minimal in hospitals and clinics (Albreht, 2003). On the other hand, characteristics on geography will have a significant effect on health care organization and delivery. Take for example, a region characterized with numerous islands and isolated community groups. This will pose a major challenge in establishing health care departments where they would equally suit everyone and administering it altogether.

Question 3

The main factors that affect the supply of health care services include changes in doctor payment rates, consumer demand, cost of health care services, insurance, geographical factors, and the financial status of the institution. Health care services are affected by supply and this normally falls on hospitals, and doctors due to the central role they play in the faculty. Changes in payment rates for doctors and hospitals and other health care administering agencies is one factor that affects health care supply (Folland, 2004). If there would be a decrease in the amount paid to the health care provider, then it is expected that the health services offered will reduce. This kind of response has been evidently observed in some hospitals, health agencies and nursing facilities. Just like any other commodity involved in a trading chain, the supply of health care services are influenced by demand factor. For example, in the case of a disease outbreak where many people fall ill. The demand for treatment of this particular ailment will consequently increase, prompting an increase in the supply of the service (Albreht, 2003). Cost of health care services is the other factor that has a significant effect on supply. Increases in health care costs will result to low demand, and as a result, the quantity supplied will drop significantly. This can be attributed to people opting for other means of treatment or incorporating preventive measures, or engaging in healthy lifestyles.

Another factor that plays a significant role in influencing the supply of health care revolves around insurances. The providers of health care services will have proportionate reactions to insurance expansions. Expansions in insurance cover for health policies result to an increase in health services offered by medical practitioners. The demand for services will be higher in the case of events where costs are covered by insurance. Laws on economics suggest that increases in demand for a commodity or service will consequently result in an increase in supply to satisfy that demand (Phelps, 2010). The geographical location of s population also has an effect on health care supply. If the health center is located in a remote area where population is far apart, the supply of health services are going to be negatively affected. In terms of the financial status of the center, if it is running on low funds or on a low financial budget, it will find it hard supplying health care services to its consumers due to low demand.


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Wise, D. A., & Yashiro, N. (2006). Health care issues in the United States and Japan. Chicago: University of Chicago Press.

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