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Healthcare is essential in every society since it influences the physical wellness of the population (Rebelo, 2007). The provision of medical services is determined by the availability of financial resources which are always scarce (Cox, Pacola, Vercellotti, & Shea, 2004).
Consequently, the government and the private sector have used different policies to enhance access to healthcare. This has led to the evolution of healthcare economics as the costs for accessing medication shift from one sector of the economy to the other (Rebelo, 2007). The evolution of healthcare economics is attributed to improvements in technology, medical research and socio-political factors (Rebelo, 2007).
Supply and Demand for Healthcare
Supply refers to the amount of goods and services that sellers are willing to bring to the market at a given price (Rebelo, 2007). Demand refers to the amount of goods and services that buyers are willing and able to buy (Rebelo, 2007).
In the past centuries, the provision/ supply of healthcare services was limited by lack of proper technology that would enable physicians to treat various illness (Rebelo, 2007). Thus the American Medical Association was formed in 1884 to promote medical research with the aim of developing new methods of treatment (Rebelo, 2007). The association was also responsible for formulating the standards that were to be used by all medical practitioners (Rebelo, 2007).
Technological advancement in the 19th century and 20th century led to the development of new treatment methods and the manufacture of various medicinal drugs. Consequently, there has been a great increase in the supply of medical services. There was low demand during the great depression as well as during the Second World War. Majority of citizens were not able to access healthcare due to lack of financial resources.
Macroeconomics and Microeconomics
Macroeconomics relates to the expenditure of the government and the productivity of the economy. Microeconomics relates to the activities of firms and the factors that affect their operations. In the 18th century, “citizens paid 100% of their medical bills” (Cox, Pacola, Vercellotti, & Shea, 2004) out of their pockets. After the Second World War the government began to give financial support to the sick especially the elderly and children. The support was in the form of building hospitals and provision of affordable drugs (Rebelo, 2007).
In the 19th century health insurance was introduced to help in minimizing costs associated with the provision of healthcare (Rebelo, 2007). Firms began to offer health insurance covers to employees as an incentive (Cox, Pacola, Vercellotti, & Shea, 2004). “A proposal to adopt a universal health cover was rejected during the cold war era” (Rebelo, 2007). Consequently, the government continued to provide healthcare at high costs to its citizens through programs such as Medicare and Medicaid (Rebelo, 2007).
By the year 2000, the country’s budget deficit had widened due to the expenditure on healthcare. Consequently, the proposal to adopt a universal healthcare was reintroduced after the 2008/ 2009 financial crisis. The proposal was accepted and became the new law in 2010. This means that the burden of paying for healthcare has been shifted to insurers (Cox, Pacola, Vercellotti, & Shea, 2004). The citizens will contribute indirectly through taxation (Rebelo, 2007).
The macroeconomic effect of the new system is to be experienced in terms of a reduction in government’s expenditure on healthcare (Cox, Pacola, Vercellotti, & Shea, 2004). Technological advancements in the private sector have enabled insurance companies to develop efficient and effective payment processing methods. Besides, the various Pharma companies have introduced online sales systems that enable citizens to access various drugs at any time.
Elasticity and Inelasticity
The demand for a particular product is said to be elastic if it is affected by variables such as prices (Cox, Pacola, Vercellotti, & Shea, 2004). The demand is said to be inelastic if it does not change as prices change (Cox, Pacola, Vercellotti, & Shea, 2004). The demand for healthcare or medical services is price elastic (Cox, Pacola, Vercellotti, & Shea, 2004).
The elasticity was greater in the previous century when citizens paid for a better part of their medical bills out of their pockets. The elasticity is set to reduce due to the adoption of the healthcare reform proposal (Cox, Pacola, Vercellotti, & Shea, 2004). This is because the citizens will not pay for the services directly. Thus they will not feel the economic impact of an increase in prices of medical services.
Gross Domestic Product (GDP)
Gross domestic product is the amount of goods and services produced in a country within a given year (Cox, Pacola, Vercellotti, & Shea, 2004). The country’s GDP determines the availability of funds used to provide healthcare or medical services (Cox, Pacola, Vercellotti, & Shea, 2004).
The country realized the lowest GDP during the great recession and this limited its ability to provide medical services. Consequently, the physical wellness of the population was adversely affected and this led to a reduction in the country’s productivity. Increases in the country’s GDP in the 19th century and 20th century did not help in solving the healthcare problems.
Even though the government spent as much as 17.5% of its GDP on healthcare, the services were still expensive to majority of Americans (Cox, Pacola, Vercellotti, & Shea, 2004). The new healthcare reform proposal was thus adopted due to the rising costs of healthcare.
References
Cox, M., Pacola, J., Vercellotti, G., & Shea, J. (2004). Health care economics, financing, organiozation and delivery. Family Medicine, vol. 36 (1) , 1-11.
Rebelo, L. (2007). The origin and the evolution of health economics. Working Papers in Economics, vol. 1 (16) , 1-24.
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