Week 7 Discussion: The Rising Costs of Health Care
You are asked to discuss the current state of the health care industry using the tools we have studied this semester.
Review the Discussion Instructions for this week and you will find a list of pros and cons related to this industry along with a short explanation of heath insurance and how it relates to the debate. You are asked to develop your own solution to this social issue. You answer in terms of what you think is the socially optimal solution versus the economic least cost solution, but you must understand and explain the economic costs of your decision.
Week 7 Discussion: The Rising Costs of Health Care
This week we take on the most pressing Microeconomic issue of our time. According to the text, the income elasticity of health care is as high as 1.5 meaning a 1% increase in income would create a 1.5% increase in spending on health care services. Combine this with the fact that health care as a product or service is very inelastic and you've got an industry that will increase in size (revenue) as the price of health care rises.
There are things that make the health care industry different than many industries. Your book lists four reasons:
1. Ethical and equity considerations
People tend to believe that health care is more of a right than a privilege and for someone to be denied health care is seen as unfair.
2. Asymmetric information
Consumers of health care services are not experts on the ailments nor the treatments options that are available, therefore we must rely on our doctors to give us advise on what to do. This is important because you are not able to make the normal trade-offs you would normally make in a purchase decision.
3. Spillover benefits
Society receives benefits from health care that are not fully represented by the price, in other words, a healthy work force is a more productive workforce and an immunized population is one that is not as likely to get sick.
4. Third-party payments - insurance
The mere fact that you do not have to pay the full cost of your health care causes you to over-consume health care services. Does this lead to overconsumption?
Given these elements you're asked to develop a plan to improve or fix the health care system. I recommend consulting the OECD Health Project . Okay, so no great economists, politicians or health industry analysts have done it yet. But then, they aren't you, they don't have your experiences and they may not think outside the box. So tell us:
1. What in your opinion are the problems in the health care industry that are fixable.
2. What in your opinion are the problems that are NOT fixable.
3. Your suggestions for the fix.
Note: You need to state not only what the problem is, but why you believe it exists. In other words back up what you say and try to do so in ECONOMIC TERMS.
You are asked to discuss the current state of the health care industry using the tools we have studied this semester.
Review the Discussion Instructions for this week and you will find a list of pros and cons related to this industry along with a short explanation of heath insurance and how it relates to the debate. You are asked to develop your own solution to this social issue. You answer in terms of what you think is the socially optimal solution versus the economic least cost solution, but you must understand and explain the economic costs of your decision.
Week 7 Discussion: The Rising Costs of Health Care
This week we take on the most pressing Microeconomic issue of our time. According to the text, the income elasticity of health care is as high as 1.5 meaning a 1% increase in income would create a 1.5% increase in spending on health care services. Combine this with the fact that health care as a product or service is very inelastic and you've got an industry that will increase in size (revenue) as the price of health care rises.
There are things that make the health care industry different than many industries. Your book lists four reasons:
1. Ethical and equity considerations
People tend to believe that health care is more of a right than a privilege and for someone to be denied health care is seen as unfair.
2. Asymmetric information
Consumers of health care services are not experts on the ailments nor the treatments options that are available, therefore we must rely on our doctors to give us advise on what to do. This is important because you are not able to make the normal trade-offs you would normally make in a purchase decision.
3. Spillover benefits
Society receives benefits from health care that are not fully represented by the price, in other words, a healthy work force is a more productive workforce and an immunized population is one that is not as likely to get sick.
4. Third-party payments - insurance
The mere fact that you do not have to pay the full cost of your health care causes you to over-consume health care services. Does this lead to overconsumption?
Given these elements you're asked to develop a plan to improve or fix the health care system. I recommend consulting the OECD Health Project . Okay, so no great economists, politicians or health industry analysts have done it yet. But then, they aren't you, they don't have your experiences and they may not think outside the box. So tell us:
1. What in your opinion are the problems in the health care industry that are fixable.
2. What in your opinion are the problems that are NOT fixable.
3. Your suggestions for the fix.
Note: You need to state not only what the problem is, but why you believe it exists. In other words back up what you say and try to do so in ECONOMIC TERMS.
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