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Health Care Cost Economics1

Running head: Health Care Cost Economics

Health Care Cost Economics Alexandria Sparks HCS 552 Professor Vernita Davis-Knight

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Introduction Healthcare costs have risen dramatically over the years. Many conversations of individuals all over the U.S. focus on how much medical care has risen. Families are discussing how the medical bills are going to be paid. Many individuals are delaying seeking medical care because of the fear of how much the charge will be and not knowing where the money is going to come from to pay the cost of the bill. The uninsured and underinsured populations are steadily increasing especially now during this economic crisis. Over 47 million people in the U.S. are uninsured ( Wojcik,2007).Individuals are losing their jobs and therefore losing their medical coverage. Even though individuals can opt to use COBRA as a form of insurance during the time they are without employment the premium is so high many cannot afford to pay for COBRA. This paper will evaluate health care costs using two economic tools demand and supply. Reasons people do not have healthcare insurance coverage will be evaluated. Why healthcare cost is rising will be discussed. The demand and supply of healthcare insurance will be discussed. The supply of health care insurance will be evaluated. Reasons For Uninsured Health care insurance can be compared to other goods in a sense. Individuals may choose to acquire health insurance from his or her employer or decide to forgo health insurance. For the most part when an individual decides not to acquire health insurance from his or her employer the price of the insurance is too high. Another reason individuals are without healthcare is because of being frictionally uninsured which can mean that a person is between employers that offer health insurance (Ahking, Giaccotto, and Santerre, 2009). For individuals

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that are frictionally uninsured COBRA insurance was designed to allow employers to offer their former employees insurance coverage for a short period of time (Ahking, Giaccotto, and Santerre, 2009). Another reason individuals are uninsured is because their employers do not offer health insurance and paying for self-insurance would most likely be more than his or her income. High Cost The uninsured and underinsured population consists of many individuals that do not have the resources to pay for his or her health care. Health care expenses are consistently rising because individual without insurance wait until the last minute to receive care often requiring more extended expensive care. When providers are left to pay the bill because of rendering services to a patient without insurance the provider usually ends up increasing the cost of services for those who are insured to regain capital. Another reason for higher medical expenses is the overuse of medical resources by individuals who have private insurance (Liebowitz, 1994). These individuals have medical expenses that are paid mostly by the insurer the more care individuals receive the more the insurer has to pay which then drives the cost of the insurance premiums up. Another reason for higher medical costs is the fear of malpractice suits. Physicians are administering extra medical tests to insure that families or patients do not sue when something goes wrong (Liebowitz, 1994). These are just a few of the reasons that healthcare costs are increasing. Demand The demand for healthcare has been described as a vertical line going straight up (Wokcik,2007). The government raises costs higher than they would normally be by

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synthetically stimulating demand and constricting supply (Richmond, 1992). When looking at the demand side Medicaid and Medicare are the two tops payers of healthcare in the U.S. Patients who have Medicaid or Medicare demand more than he or she would if they were paying out of pocket (Richmond, 1992). Because of the increase of demand prices are trending up for the individuals that pay for their own care (Richmond, 1992). Supply On the supply end governmental regulations have constricted the supply of healthcare professionals and physicians (Richmond, 1992). Regulations such as licensures and accreditations have limited the entrance of many individuals into the medical profession. With less of supply of physicians and other medical professionals the price of care can go up. If there were a larger supply of physicians and other medical professionals then the price of care would go down. The supply of medical providers can be compared to a supply of eggs. If strict licensure regulations were in place to own chickens then not many farmers would be able to have chickens which hence would decrease the amount of eggs supplied to stores. The price of eggs would then increase because there are not enough eggs to be distributed to everyone that wants eggs. The supply of healthcare professionals affects the cost of services. If there were more healthcare professionals than the healthcare professionals would be competing for patients. Therefore if healthcare professionals are competing to retain patients then the prices of services would go down. If the prices for services would go down then more individuals would be able to purchase insurance. Conclusion

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The demand for insurance is definitely more than the supply. Many of the reasons for healthcare costs increasing are should not be the reason costs go up. Individuals should not have to make a decision to not purchase insurance because the insurance is too high. Physicians and other providers should be more confident with decision making to decrease the amount of unnecessary treatments and procedures. If the government would decrease the insurance programs costs for medical services would be reasonable. Lower income individuals would be able to buy insurance. The cost of medical services would also decrease if regulations such as licensing and accreditation were repealed. Competition would increase among the medical marketplace allowing individuals to have more choices.

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References Ahking,F., Giacotto,C., & Santerre,P. (2009) Aggregate demand for private health insurance coverage in the United States. Journal of Risk and Insurance 76 (1). Retrieved April13,2009, from EBSCOhost database. Liebowitz,S. (1994) Why healthcare costs so much. Policy Analysis. Cato Institute. Retrieved April 13, 2009, from http://www.cato.org/pubs/pas/pa211.html Richmond, S. (1992) A free market for health care. Freedom Daily. The future of freedom foundation. Retrieved April 13, 2009, from http://www.fff.org/freedom/0692c.asp Wojcik,J. (2007) Health care cost going one way up. Business Insurance 41 (41). Retrieved April 13, 2009, from EBSCOhost database

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