What High School Economics Taught Me About Healthcare

One thing that I learned in economics in high school was that the price of a service or product, in a free market economy, rises or falls with the supply and demand. For example, when the supply of gasoline is low and the demand is high, the price goes up. Later, when the supply is high and the demand is low, the price goes down. If supply is high and demand is high, the price is steady and very much tolerable to the consumer. Supply can also be low and demand high, but the demand will drop if the price rises beyond a tolerable limit. We scale back on how much of the product we use, or we look for viable alternatives.

For the sake of argument, let’s say that healthcare is a product or service. There are those, including me, who believe that access to healthcare is a right, but let’s put that aside for a bit while we have this discussion. The price of healthcare is rising in the United States because because the supply of it is low and the demand is high. The supply is low because of several reasons. There are less people going into careers in healthcare because it’s not attractive, it’s costly to get an education in a healthcare field, and it means pouring your life into the career. Also, healthcare providers are leaving their profession because of exorbitant malpractice insurance premiums resulting from every more exorbitant court awards and out-of-court settlements of lawsuits. Supply is also low because not enough people are able to pay for healthcare, making the whole thing a self-feeding monster.

Demand is high for healthcare because more and more of us are coming down with chronic conditions. Now more than ever, there are people walking around with diabetes, cancer, arthritis, etc. This is a function of our lifestyles and our longer lifespans. There are also more of us, and the population continues to grow. All of this combined is placing a huge demand on a healthcare system that is dwindling in supply. The result, as we know, is increased costs.

There are a few things that can be done to reverse this trend. We can increase the supply of healthcare or reduce the demand, or both. To increase the supply, we could enact tort reform to keep the awards for malpractice lawsuits down, thus reducing the premiums for malpractice insurance and keeping healthcare providers in their field. We can also finance students in healthcare fields by forgiving their school loans after a reasonable period of time that they work in their fields, less time if they work in underserved populations. We can also make it more attractive to work in the healthcare field by taxing those employees at a lower rate. And we can allow insurance companies to compete across state lines to increase the pool of healthy payers and distribute risk. Finally, we can encourage more competition between pharmaceutical companies by reforming patent laws to make generic drug therapies more affordable. All these things have been suggested before by both Republican and Democratic administrations and lawmakers.

To reduce the demand, we can make people healthier. This requires a serious investment in public health interventions such as smoking cessation, exercise encouragement, and nutritional education. Making preventive care affordable also reduces demand by allowing people to prevent disease or catch a disorder before it becomes more difficult to treat. For example, almost any cancer caught on time is highly treatable and some are curable. Cancer that has metastasized (spread to other parts of the body) is more difficult to treat and is many times fatal. On the average and in the long run, short, periodic visits to the doctor to get checked are more affordable that one long hospital stay because of a catastrophic disease. (A more relatable example might be the more affordable cost of timely oil changes to an engine compared to an engine failure.)

While the law of supply and demand has exceptions, as any good law should, it is important to realize that our economy is set up to deal with rising healthcare prices through this concept. The solutions are not perfect, nor are they universal. There will be those for whom healthcare will still not be affordable and those who will not take advantage of preventative care no matter how easy their access to it. But those are the exceptions that can be dealt with on a case-by-case basis without subjecting the rest of the population to inconvenience, or harm, from a continuing decline in healthcare supply and increase in its demand.

[do action=”credit”]Featured image credit: Funky64 (www.lucarossato.com) / Foter / CC BY-NC-ND[/do]

I'm a doctoral candidate in the Doctor of Public Health program at the Johns Hopkins University Bloomberg School of Public Health. All opinions posted here are my own, of course, and they do not necessarily reflect the opinions of my school, employers, friends, family, etc. Feel free to follow me on Twitter: @EpiRen

4 thoughts on “What High School Economics Taught Me About Healthcare

  1. It seems that everyone wants the enhanced coverage for preexisting medical conditions and extension of parental health care coverage for their twenty-something children, but they don’t want “Big Government” involved in their health care.

    Some of us are old enough to remember how certain segments of our society fought against the implementation of Medicare and Medicaid coverage for the elderly and the disabled ~ 50 years ago, yet we as a society have come to expect those coverages for our older citizens and as a safety net for the disabled.

    *Trivia Question (From my immense store of totally useless trivia and minutiae).

    Who was the first person to be enrolled in Medicare?

    http://www.ssa.gov/history/lbjsm.html

    “What The Boondoggle Medicare Part D Taught Me” about politics and windfalls for pharmaceutical companies….

    http://www.politifact.com/wisconsin/statements/2012/sep/04/tammy-baldwin/uncle-sam-barred-bargaining-medicare-drug-prices-s/

    Like

    • Not gone. Just had two links in it, so it went to spam. I recommend the “Oracian” link posting approach of “htt_p://webaddress.com”

      Like

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