Essay Sample on Health Economics: Supply & Demand of Healthcare Goods & Services

Health economics looks at the exchange of goods and services related to health. In economics, the expectation is that demand and supply determine the level of production of such goods and services. Broadly, health goods and services include healthcare professionals, drugs, diagnostic tools and equipment, and healthcare administration. Such goods form the supply side of the healthcare industry. However, they also form part of the demand. For example, a health practitioner supplies services to the healthcare administrator. From the demand side, there are patients and payers. The dynamics and the relationship between suppliers and consumers of healthcare goods and services is a concern for health economists. It is also a part of this extensive interrogation of the US healthcare system.

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Just like any other product, optimal efficiency is the desired effect for a particular action. However, the healthcare industry shows signs of its inability to achieve such a coveted economic position. Why? The reasons for this are diverse. Economists look at the healthcare industry as a complex interrelationship whose co-dependence and co-reliance between and among players difficult to measure and analyze. For example, a doctor makes the healthcare decisions, but he or she is not the payer. In such a case, the payer is codependent on the doctor not to favor his or her gains. If the doctor makes a decision that favors the clinic, they are entirely rational. Rational behavior economics assumes that humans are generally going to make rational choices.

A person will only make a favorable decision, making demand and supply dynamics possible because they rely on people's independent and rational choices. Therefore, one does not expect the doctor not to be rational. The physician will choose the side that favors them the most. Such choices make health measurement and analysis difficult.

Several evaluation methods are particularly helpful when evaluating healthcare economics. The most obvious is the input-output analysis. The model, though not an economic model per se, assumes that inputs should lead to equal or comparable outcomes. Two evaluation models emerge from this perspective-cost-benefit and cost-utility analysis. In a cost-benefit structure, the benefits should outweigh the cost (Sloan and Hsieh 113). In the cost-utility structure, the derived utilities of health, which include quality of life, are considered (126). If a health consumer decides to pay for a check-up, the benefits of that check-up should outweigh the cost of the procedure.

The decision to have that check-up is a factor of more than just cost and benefits. If the person does not afford the medical procedure, the benefits will cease to matter. People know the benefits of visiting a dentist, but they cannot take the offer. The most for them is not the same as that of a business person who would look at the cost and benefits only. From a business perspective, a perspective that medical administrators subscribe to, someone can borrow funds to fund the opportunity. In a healthcare setting, though the benefits are real and ideal, the person cannot afford them. As will be seen in the US healthcare system, choices made on health follow this pattern.

This approach on costs, benefits, and utilities is inefficient in explaining healthcare economics. Healthcare costs and benefits are hard to measure from one individual to the next. For example, attaching the value of human life or quality of healthy a value is difficult. The United States healthcare is the best-funded globally (Nationa Health Expenditure (NHE) 1). The expectations are that more expenditure often leads to improved outcomes. Again, this is not necessarily true. If the substantial funding is laden with inefficient systems, the results may be discouraging. Such a picture of the healthcare system is simplistic as best. It neglects important aspects of care, such as access and value for money. Who gets the money? The administrator could be getting more money than the actual supplier of health could. Health costs could just be plainly expensive thanks to monopolistic tendencies of firms in the healthcare industry. In such a case, cost-effectiveness comes into play ahead of the input-output approach.

The cost-effectiveness approach looks at the health sector as a process. It looks at the aspect of mobilization and utilization of output towards achieving set outcomes. Effectiveness in such an approach is all about the ability to achieve the desired result (Sloan and Hsieh 480). For example, when a person buys health insurance in the marketplace, they have certain expectations. To get universal coverage is the ideal situation, but it is a cost. The insurer also has desired outcomes. So, they are likely to avoid adverse selection-enrollees that are likely to put their desired outcomes at risk.

Such an environment creates room for gaps in coverage. It also creates room for tiered coverage, multiple coverages, and cases of neglect. Again, this approach creates a barrier of harmonizing supply and demand in a healthcare setting. One has to analyze layers of healthcare from the payers to the recipients, patients. This paper will use similar approaches to look at the healthcare economics of the United States. The perspective will focus on the economics of sustainability. When it comes to economics, the cost of an item is sometimes secondary. In value economics, a popular concept used in healthcare economics, the utilities derived from expenditure are far greater. In this paper, the idea is to look at the value economics of having the largest healthcare budget vis-a-vis its performance.

Over the years, the United States of America's healthcare budget has always dwarfed its peers-developed economies. The level of expenditure on healthcare spending has been under scrutiny for several years now. Despite the scrutiny, it continues to grow every year. This growth is contentious, as some healthcare metrics are still wanting. In 2017, 3.5 trillion was spent on healthcare, which was 18% of the GDP. To put this figure into perspective, other developed countries spend less than 10% of their GDP on healthcare (NHE 1).

Healthcare performance measurement takes many forms. Different metrics are available that scholars use, including disease precedence, life expectancy, affordability, and access, among many other metrics. In the recent past, healthcare performance debate has revolved mostly on access. In Europe and eastern Asia, sustainability is the core performance metric. Sustainability takes away the desire and intention to compare one healthcare system with the other. It looks at one case against its key merits. However, it is still a popular approach to compare to get a glimpse of what other systems are performing with fewer resources.

About 45% of healthcare spending comes from the federal government (OECD 159). Federal government revenues rely heavily on taxation of the factors of production, notably labor and entrepreneurship activities. All of these avenues of revenue revolve around the population, which is also distressed. Healthcare spending continues to grow, especially at a time when people are concerned about it. Politicians and activist groups are also actively trying to raise awareness about the cost of healthcare. They have made many proposals on how to improve it. In such an environment, can the government continue to fund the escalating costs of Medicare and Medicaid?

The sustainable fiscal policy relies on revenues, health insurance, and population dynamics. Population dynamics are significant. The effects of an aging population have a greater effect than that of a mandatory insurance cover (Colombier and Braendle, 280). In this case, population dynamics are likely to affect the sustainability of current health spending growth than Medicare and Medicaid. This suggests that healthcare spending growth will be a necessity rather than an option as the US population is likely to continue to change over time. The projected change is that by 2060, at least 23 million Americans will be over 85 years. Retirees will be over 50 million (United States Census Bureau, 1).

The challenge with an aging population is that they all depend on social security, a tool that continues to show challenges over the years since it relies on the working population exceeding pensioners. Contracting the same with that of the 1960s, the number of pensioners were much fewer compared to the working population. In the 60s, 70s, and 80s, the economy was rapidly growing. The population was young and healthy. Advances in the medical field helped the population, the baby boomers to grow tremendously. However, statistics show that the reverse will be witnessed in the coming years. The life expectancy remains high, which means pensioners will live longer (Fullman et al. 2243). Consequently, the budget for healthcare will also face significant pressure because something will have to give so that healthcare can receive. The Congressional Budget Office projects that by 2028, barely eight years from today, healthcare subsidies will be almost 10% of the entire GDP of the country.

The budget office will have to deny other sectors their current share for healthcare to be funded. Development funds are the first casualty for austerity measures. Repurposing development funds to healthcare could backfire, as the growth in the healthcare demands requires systematic and deliberate effort to halt its northwards trend (Popescu et al. 4). The Organisation for Economic Co-operation and Development's (OECD) 2019 Health Statistics painted a grim picture in their report. For example, the per capita expenditure of healthcare in the United States is the same as that of Germany and Sweden combined at over $10,000. Such expenditures must have a factor other than that the desire to fund healthcare adequately.

Other forces that are outside of the control of payers complicate their ability to buy. The economy, for example, determines the affordability of private insurance-which provides insurance for two-thirds of all health insurance enrollees. As for the government, it is in their interest for people to live longer-it will indicate that they are doing well. Unfortunately, retirees do not have the economic contribution to sustain growth in healthcare payments. The United States must, therefore, think about the sustenance of increased need for funding, at a time when there is a shrinking population to pay.

Experts argue that the United States funding for healthcare is commendable. Others poke holes in its expenditure, citing inefficiencies and neglect. For example, a report released by the Kaiser Family Foundation, healthcare quality, and access (HAQ) index in the United States is 88.7. The Netherlands, whose per capita healthcare spending is around $5000, has a HAQ of 96 (Fullman 2236). The implication here is that at least a sizeable population struggles to access quality healthcare in the United States. The same report shows that 8.5% of Americans do not have insurance (2243).

Those who cannot afford insurance will have trouble affording a doctor's visit. Out-of-pocket payments have far greater implications as they make people make choices about healthcare that are not desirable. A sick person will wait a while longer to see if the problem subsides-a decision someone can consider rational. When the situation escalates, the person incurs even more in the process of avoiding a check-up or a test that could have prevented an escalation of the healthcare status. The need for healthcare vis-a-vis actual visits to a doctor is 65% in the United States (OECD 109). This statistic implies that the number of American adults who will have second thoughts about visiting a...