BHA FPX 4112 Assessment 2 Instructions: The Supply and Demand of Health Care Example
The Supply and Demand of Health Care
Access to quality healthcare services is a constitutional right and a subject of economic scrutiny. In this sense, it is essential to incorporate principles of demand and supply to determine efficiency, effectiveness, values, and consumer preferences regarding healthcare. Another justification for embracing health economics is to account for national and global expenditures for healthcare services, equipment, and infrastructure.
Since everybody has the right to access quality care, countries invest massively in addressing social determinants of health that influence populations’ willingness to pay for healthcare services and insurance premiums. Despite these justifications, economists face a daunting endeavor when integrating standard principles of demand and supply into healthcare because it sometimes circumvents these guidelines due to underlying factors that influence accessibility, affordability, and quality.
As a result, this paper compares supply and demand for healthcare services and an automobile while emphasizing current legislative trends and the impacts of different reimbursement models on services demand and supply.
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Demand and Supply for Healthcare Services Compared to Automobiles
Demand refers to the consumers’ desire to purchase goods and services alongside their willingness to pay the price for specific goods or services. On the other hand, supply entails the number of goods or services available to customers at a given price when other factors are constant. When discussing demand and supply for a particular good or service, it is essential to consider price/cost as the primary factor influencing an individual’s purchase power.
However, it is fundamental to approach the demand and supply for healthcare as uniquely different from other consumer entities like automobiles due to various distinctive features. According to Folland et al. (2017), demand and supply for healthcare services are partially consistent with the normal economic principles due to the presence of uncertainties, prominence of insurance, the problem of information, restrictions on competition, government subsidies, and public provisions, and the ever-expanding roles of non-profit firms.
Factors Influencing the Demand for Healthcare Services and Automobiles.
Price and income
As noted earlier, the demand for healthcare services often circumvents the standard principles of economics. In this sense, factors influencing consumers’ willingness to pay for services extend beyond the service price. Folland et al. (2017) contend that healthcare differs from other goods because consumers do not respond to financial incentives (p. 42).
However, price matters when it comes to accessibility to healthcare services because people are willing to access more services when they become less costly in terms of out-of-pocket expenses. At this point, government incentives and insurance premiums significantly lower out-of-pocket costs, increasing demand for quality care services.
When considering how prices influence demand for healthcare services, it is clear that similar trends manifest in the automobile industry since the demand for care increases with decreased costs and vice versa. The inverse relationship between price and demand is consistent in almost all consumer goods, including healthcare services and automobiles.
Another similarity between healthcare services and automobiles is the role of personal income in determining individual purchase power. When income increases, customers are more willing and able to pay for healthcare services and insurance premiums. Similarly, increased income translates to higher demand for expensive automobiles if other factors are constant.
Complements and Substitutes
Complements are related goods or services whose changes influence the demand for complementary goods or services (Ghorban, 2021). Consumers’ access to various complementary services is common in healthcare because they guarantee care coordination and quality. For example, the demand for contact lenses may influence the number of optometrist visits at a given time.
Considering the demand for complementary goods, such as fuel and spare parts, is essential before settling on a specific automotive model in the automobile industry. To sum up the synergies between complementary goods and services, it is possible to argue that an increase in price for a good or service translates to decreased demand for its complement in a perfect market.
Similarly, the availability of substitute goods and services determines the demand for healthcare services and automobiles. In this sense, a substitute is a good or a service that offers similar characteristics and satisfies the same wants. Substitutes include generic drugs and service providers providing similar services in the healthcare sector.
In the automobile industry, substitutes may be competing for car models that claim market share by providing many sought-after features. According to Ghorban (2021), people are willing to demand a substitute product if it proves more effective than its alternatives. As a result, an increase in price for a product or service will prompt customers to favor alternatives, increasing their demand. The inverse relationship between the price of one product or service and the subsequent demand for its alternative (s) applies to healthcare and automobiles.
Individual perceptions of quality significantly influence demand for healthcare services and automobiles. When purchasing a car, evaluating quality measures such as fuel consumption, technology, energy efficiency, and safety factors is possible. In this sense, such factors influence individual willingness to pay for a particular model.
In the healthcare sector, patients’ perceptions of quality rely massively on care coordination, timeliness, proceed efficiency, and the plausibility of achieving positive medical outcomes and improved health. Other healthcare quality indicators are service price, accessibility, and policies for improving healthcare services. When services and goods satisfy individual preferences, customers become more interested in making purchases, increasing their demand.
Comparing and Contrasting the Similarities and Differences of the Demand Curve of these Two Industries
A demand curve illustrates healthcare services and automobiles in a hypothetical market for a given period. In this sense, it is possible to determine the interactions between factors that influence customers’ ability to pay for services or goods. When comparing the demand curve for healthcare services and automobiles, it is essential to note the similarities and differences between the two industries.
As earlier stated, the healthcare sector sometimes circumvents these basic principles of economics because of the underlying factors such as the role of government in controlling prices, insufficient information by customers, insurance, and the perception of health as an investment. However, the two Industries share various factors that influence demand.
Similarities in demand curves for healthcare services and automobiles
An increase in price for healthcare services or automobiles reduces demand, making the curve shift to the left side. Similarly, increasing income enables consumers to pay for cars or healthcare services, increasing their demand. Therefore, the curve shifts to the right upon increased customer income. Finally, an increase in price for substitutes services and goods increases the demand for alternatives, shifting their curves to the right.
Differences in demand curves for healthcare services and automobiles
Although price, substitutes, complements, and income influence the demand for healthcare services, there are exceptions where these factors do not influence the demand for services. According to Folland et al. (2017), patients may ignore the impact of increased prices for healthcare services because health is an investment rather than an expense.
In this sense, people are willing to pay for services regardless of their prices when the need arises. This factor renders healthcare services inelastic, meaning the demand curve would not shift to the left even after increasing the price of services. Conversely, the automobile industry is highly elastic, meaning customers make trade-offs and consider options following upsurging prices that make the demand curve shift to the left.
Supply for Healthcare Services vs. Supply for Automobiles
Supply refers to the number of goods and the nature of services available to customers at a given price for a particular time. Healthcare providers such as drug manufacturers and caregivers determine supplies depending on various factors, including technological change, inputs price, industry size, insurance coverage, and prices of production-related goods (Folland et al., 2019, p. 61).
On the other hand, technological changes, input prices, and production-related goods determine the supply of automobiles. Although these industries share factors that influence the supply of goods and services, the healthcare sector contains additional aspects, including coinsurance and indemnity insurance, that reduce out-of-pocket expenses, affecting subsequent supplies.
Similarities and Differences of Supply Curves for Healthcare Services and Automobiles
Advanced technologies, input prices, and production-related goods result in increased supply to maximize profit. An increase in supply shifts the supply curve to the right and vice versa. Healthcare services are prone to advancing technologies, leading to increased supply and enhanced services. Also, increasing input prices in labor and processes prompt health organizations to increase supply to match these developments. Similarly, these trends consistently determine the supply of automobiles.
However, healthcare services are prone to exogenous factors that alter the movement of the supply curve. For instance, coinsurance and indemnity insurance reduce out-of-pocket expenses, increasing the supply shifting the curve towards the right. Another factor that increases the supply of healthcare services is the improvement of transport and communication systems that allow people to access services and vice versa.
Current Legislative Trends that Influence the Demand and Supply for Healthcare Services
Medicare and Medicaid are the most prominent policies determining the demand and supply of healthcare services in the United States. According to Guth et al. (2020), studies show that Medicaid and Medicare increase access to care, enhance health outcomes, strengthen providers’ capacity, and guarantee financial security by reducing out-of-pocket expenses.
As stated earlier, reducing out-of-pocket expenses by subsiding care services through insurance premiums increases demand for quality care while strengthening providers’ capacity to provide quality care. More significantly, Medicaid expansion policies proposed by the Affordable Care Act (ACA) of 2010 are fundamental in addressing the problem of uninsured and underinsured populations. As a result, these policy priorities consistently increase the supply and demand for quality care services by guaranteeing access to coinsurance and comprehensive coverage for various health services.
Although Medicare and Medicaid legislation increases demand and supply for healthcare services, some states are yet to expand Medicaid, meaning they still grapple with the high rate of uninsured and underinsured populations. According to Shrank et al. (2020), states face various challenges in implementing ACA provisions, including high premium rates, stagnant wages, growing national debts, and strained local budgets. These constraints contribute to difficulties when paying for insurance premiums.
Eventually, uninsured people affect the demand and supply of healthcare services by increasing uncompensated care. Although the Emergency Medical Treatment and Labor Act (EMTALA) of 1986 requires healthcare organizations to provide emergency care to patients regardless of their insurance status and ability to pay, high rates of uninsured patients lead to increased uncompensated costs that reduce organizational capacity to provide quality care.
Reimbursement Methods that Influence the Supply and Demand for Healthcare Services
In the United States, employers, private insurance companies, national and state governments, and patients are the main payers of healthcare services. In this sense, employers, the national government, and states reimburse healthcare services through various models, including the Beveridge system (national health model), the Bismarck system (social insurance model), and private insurance. On the other hand, uninsured patients pay for healthcare services primarily through the out-of-pocket model (Crowley et al., 2020). These reimbursement models have varied effects on the supply and demand for healthcare services.
The national health insurance model entails a scenario where the government acts as a single-payer to provide universal coverage. This system improves demand and supply for healthcare services by creating affordable premiums that enable people to access quality care. On the other hand, the Bismarck system entails compulsory enrollment insurance plans that cover employees. It contributes to financial security, access to quality care, and a high demand for reliable services. Finally, private insurance and out-of-pocket models allow people to purchase insurance premiums from their income. These reimbursement models are expensive and inefficient for people of low income, reducing their demand for healthcare services.
The demand and supply for healthcare services rely massively upon various endogenous and exogenous factors, including government policies, insurance, consumer preferences, income, prices, and the availability of complements and substitutes. Unlike other consumer goods and products such as automobiles, healthcare services are prone to uncertainties, lack of consumer information, non-profit motives, restrictions on competition, and consumer ignorance. These factors affect the supply and demand curves for healthcare services. When considering the effects of these factors, it is possible to understand the role of current policies such as Medicare and Medicaid on the demand and supply of healthcare services.
Crowley, R., Daniel, H., Cooney, T., & Engel, L. (2020). Envisioning a better U.S. Health care system for all: Coverage and cost of care. Annals Of Internal Medicine, 172(2_Supplement), S7. https://doi.org/10.7326/m19-2415
Folland, S., Goodman, A., & Stano, M. (2017). The economics of health and health care (8th ed.). Routledge.
Ghorbani, A. (2021). Demand for Health and Healthcare. Healthcare Access, 1–10. https://doi.org/10.5772/intechopen.98915
Guth, M., Garfield, R., & Rudowitz, R. (2020). The effects of Medicaid expansion under the ACA: Updated findings from a literature review (pp. 1–100). KFF. https://files.kff.org/attachment/Report-The-Effects-of-Medicaid-Expansion-under-the-ACA-Updated-Findings-from-a-Literature-Review.pdf
Shrank, W., DeParle, N., Gottlieb, S., Jain, S., Orszag, P., Powers, B., & Wilensky, G. (2021). Health costs and financing: Challenges and strategies for a new administration. Health Affairs, 40(2), 235-242. https://doi.org/10.1377/hlthaff.2020.01560
BHA FPX 4112 Assessment 2
Write 7-9 pages that compare different models of supply and demand, as well as analyze how legislation and reimbursement methods impact supply and demand for health care.
As we take a closer look at the demand side of economics, we will consider how need versus demand is different and how this impacts planning and policy in the health care environment. Demand is typically initiated by the patient; however, provider involvement significantly impacts demand. Since the patient is dependent on the provider for expertise and medical opinion, there is a risk that demand will be increased. This is unique to the health care industry since consumers are not typically as dependent on the supplier of a service in other industries when making a purchase.
Another important driver of demand is the insurance company. Patients initiate the health care service but are not responsible to pay the bill—and this has the potential to skew the demand curve. This is one of the ideas behind high-deductible health care and the effort to control the consumption of services by making the patient responsible for a higher percentage of the overall bill. Finally, you will be offered an opportunity to think about the implications of free medical care and how that may impact the demand for health care services.
Like the demand curve, the health care field presents unique and interesting challenges to the supply of health care. You will be introduced to the concept of economic efficiency and the impact of inefficiencies on cost. The production function will be further explored, which is the relationship between the output of a product or service compared to the resources used to produce it (Feldstein, 2012). Competition, market structure, market performance, and public policies as they relate to the supply of health care services will be discussed as well.
The evolution of health care insurance has impact aspects health care economics such as price competition, medical loss ratios, and risk. As you prepare to complete the assessment consider the role that copays, coinsurance, and deductibles play on the demand curve and reflect on your opinions related to the effectiveness of high-deductible health plans in controlling the demand of health care services.
Feldstein, P. J. (2012). Health care economics (7th ed.). Clifton Park, NY: Delmar.
Demonstration of Proficiency
By successfully completing this assessment, you will demonstrate your proficiency in the course competencies through the following assessment scoring guide criteria:
Competency 1: Analyze historical perspectives and current trends in the health care industry.
Explain current legislative trends that influence the supply and demand of health care. Competency 2: Assess the United States health care system from an economic perspective.
Compare and contrast the demand of health care services with the demand of an automobile.
Compare and contrast the supply of health care services with the supply of an automobile. Competency 3: Analyze the evolving economic reimbursement trends, methods, and technology.
Analyze reimbursement methods that influence the supply and demand of health care services.
Competency 5: Communicate in a manner that is scholarly, professional, and respectful of the diversity, dignity, and integrity of others and is consistent with expectations for health care professionals.
Write following APA style for in-text citation, quotes, and references.
Write clearly and logically, with correct use of spelling, grammar, punctuation, and mechanics.
The basic economic laws of supply and demand do not work the same way in the health care industry as they do in other industries. A few of the contributing issues include: demand cannot be restricted to only those with an ability to pay since health care is considered a basic human right (need versus demand), demand is increased due to a third party (insurance or government) that pays for the service, and our supply is limited based on a highly skilled human resource variable (physicians).
In this assessment, you will consider these contributing issues and others that you identify in your research as they relate to the free market. Compare and contrast the laws of supply and demand of the health care industry with that of the automobile industry and explain how the economic structure of the health care industry is different from other industries. Reviewing the following media pieces may help to solidify your understanding of the economic concepts and industries relevant to this assessment.
Health Care Supply and Demand | Transcript. Supply, Demand, & Reimbursement | Transcript.
Also, make sure to consult the scoring guide to make sure you are meeting the communication criteria and achieving at your desired rubric level.
- Compare and contrast the demand of health care services with the demand of an automobile (Competency 2).
- Identify the key contributing factors that determine demand of health care
- Identify the key contributing factors that determine demand of an
- Compare and contrast the similarities and differences of the demand curve of these two
- Compare and contrast the supply of health care services with the supply of an automobile (Competency 2).
Identify the key contributing factors that determine supply of health care
- Identify the key contributing factors that determine supply of an
- Compare and contrast the similarities and differences of the supply curve of these two
- Explain current legislative trends that influence the supply and demand of health care (Competency 1).
- Explain how Medicare and Medicaid impact supply and demand of health care
- Discuss the impact of the uninsured population on the supply and demand of health care
- Analyze reimbursement methods that influence the supply and demand of health care services (Competency 3).
- Identify the stakeholders who pay for health care
- Analyze the impact of different reimbursement methodologies and payment models on the supply and demand of health care
- Write following APA style for in-text citation, quotes, and references (Competency 5).
- Determine the proper application of APA formatting requirements and scholarly writing
- Assess the relevance and credibility of information
- Write clearly and logically, with correct use of spelling, grammar, punctuation, and mechanics (Competency 5).
- Apply the principles of effective
- Determine the proper application of the rules of grammar and mechanics
Written Communication: Prepare an assessment free of errors that detract from the overall message, with writing that is clear, precise, and scholarly. Concepts flow in a logical order.
References: Cite at least three references from peer-reviewed journals, in addition to your text.
Length: Submit 7–9 pages.
APA: Use correct APA style and formatting. You may wish to use or consult the following: APA Style Paper Tutorial [DOCX].
APA Style Paper Template [DOCX]. APA Style and Format.
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