Health economic

The health care economy is a topic that attracts special interest due to the significance of health to the US economy. Additionally, it is a profound effect on healthcare provision to individuals and ultimate well-being of the population. On the other hand, explicit allocation of resources in the health care industry has become a source of conflict among different stakeholders. Different economic factors in health system significantly determine the effectiveness of health care delivery and well-being of a population. Numerous issues have motivated the ongoing healthcare reforms. To gain a better understanding of health care system, it is important to understand different aspects of healthcare economics. This paper discusses the demand for health and supply of insurance in order to determine how ongoing health insurance policies affect demand for health care.

Health insurance policies affect demand for health care

The Affordable Care Act increased access to health insurance coverage to many previously uninsured individuals. These efforts were expected to increase demand for hospital and physician services as a result of expanded access to providers necessary to accommodate the expected increase in demand. There were differing views on the increases of the scale arising from the policy.   The purpose of the Act was to achieve improved quality, better access and greater efficiency particularly for uninsured individuals, low-income people, and individuals with previous low access to insurance. Various researchers have conducted studies on the impact of insurance on demand for medical services.

According to Dong (2013), the demand for medical care is affected substantially by the growth of health insurance. The study shows that as the out-of-pocket price increases, the demand for medical care decreases. Consumers of healthcare attempt to minimize their expenses by making less frequent visits to their healthcare providers (Dong, 2013). Additionally, the author finds that deductible reduced the demand for medical services. As a result, the amount of health care consumed increases as deductible and coinsurance rates decrease.

It is important to determine the relation between the quantity of medical services and utility in order to derive the demand curve for medical care. In this case, the stock of health should be viewed as a durable good that produces utility. The law of diminishing marginal utility applies to healthcare. Intermediate factors appearing between are not considered in the assessment. Accordingly, an incremental improvement in health results in a small addition to total utility. Thus, health care generates utility. As a result, utility can is specified as a function of the quantity of medical care.  At a particular market price, consumers determine the right combination of goods and services to pay for using their fixed incomes.  These include medical care.  Microeconomic theorists hold that consumers choose the bundle of goods and services that are likely to maximize utility.

According to studies, there are various factors associated with insurance that affect the demand for services. Risk-averse persons are more likely to pay for insurance to provide protection against possible future losses related to illnesses. Among large sources of uncertainties, affecting families include medical expenses.  On the other hand, this is one type of uncertainties that insurance companies are suited to address. Thus, the decision regarding health services is based on various factors including risk preferences, availability of services and cost. Insurance coverage is also a key factor in determining about the type of care to seek and the stage of need.  Accordingly, people with insurance are more likely to use primary care given that they do not incur a direct monetary cost for such service. Similarly, those without insurance are more likely to end up being hospitalized or tend to seek emergency care as they may seek healthcare at an acute stage.

Rosenbaum (2011) observed that patterns of health care utilization have changed since health care reform.  A preliminary analysis conducted using outpatient data, hospital discharge data and ER data from that state suggest that the likelihood that a hospital visitor was an ER visit or outpatient decreased for people who got insurance coverage during or after health reforms. The findings show that individuals who gained insurance coverage increasingly substituted away from hospital care towards care received in local clinics and physicians’ offices (Rosenbaum, 2011).

The study also showed that insured tend to be those with observed and unobserved traits correlated with lower health risk. Observed traits correlated with lower health risks include higher education while unobserved traits being such as greater health-consciousness.  In either case, this means that insured people have observed and unobserved characteristics that are associated with demand for medical care. Another factor is that health insurance reduces the price of health care. Thus, other things equal, insured individuals tend to utilize more health care services. For example, a person who is indifferent between utilizing and not utilizing particular medical service at uninsured rates is likely to utilize it if they have insurance. 

In the context of health insurance, research about moral hazard is relatively scanty.  Moral hazard is well researched in other insurance contexts that entail adverse health outcomes. For example, Kiil & Houlberg (2014) suggest that there is an increase in workplace injury when employees’ injury compensation is high and an increase in motor vehicle accidents linked with generous car insurance (Kiil & Houlberg, 2014). Intuitively, individuals covered by health insurance are likely to engage in less healthy behavior given that it lowers the emotional and monetary cost of the resulting negative health outcomes hence providing a safety net.

For example, a person with a chronic disease is more likely to rely on medication rather than behavioral improvement once drugs become cheaper. This is also true for health insurance where the impacts of behavioral improvement show up gradually and in a less perceptible manner than medication (Hofer et al., 2011). A policy implication that mandates insurance coverage to enhance the health status of a targeted population may not be fully efficient. In part, the effectiveness depends on how much people substitute medication for behavioral improvement. For example, an assessment on the impact of mandates in some states that necessitate health insurance companies to cover diabetes treatment without a corresponding increase in premium shows a similar perspective (Hofer et al., 2011). The study suggests that such mandates produce strong disincentives for peoples’ behavioral prevention and steadily increase the patients’ BMI in the states affected. The result is associated with not engaging in good diet and physical exercise (Kolstad & Kowalski, 2012).  Consequently, distinguishing between the two impacts may help further uncover relevant policy parameters.

Identifying the underlying impact of health insurance on medical utilization and health behavior is important in controlling for potential adverse or advantageous selection effects. For example, if more risk-averse individuals or more health-conscious self-select into the insured group, or if the provider successfully selects the group of individuals with healthier habits through price discrimination, then it is likely that the insured will have healthier behavior. The result is a downward bias in the expected insurance impact on unhealthy behavior (Blumberg et al., 2012). In the same way, if the insurance service provider has observed or unobserved traits that are negatively or positively correlated with medical utilization, then estimations of the insurance effects on medical 

Different studies show that medical services utilization is a function of endogenous health insurance as well as health behavior. Additionally, Health behavior is a function of the various insurance decisions. The health insurance equation changes in availability or cost of health insurance causes an increase in the use of health care.  People purchase health insurances mainly because they prefer the certainty of small premium to paying large medical bills that characterize the risk of illnesses and injuries (Baker, 2011).However, additional health care consumed by individuals as a result of the low cost of medical services is not equivalent to the cost of producing it. As a result, economists have promoted policies such as managed care and copayments to minimize consumption of the additional care.

Conclusion

Health Insurance is one of the factors in a health system that significantly determines the effectiveness of health care delivery and well-being of a population. Identifying the underlying impact of health insurance on medical utilization is important in controlling for potential adverse or advantageous selection effects. Patterns of health care utilization have changed since health care reform.  Insured individuals tend to be those with observed and unobserved traits correlated with lower health risk. Observed traits correlated with lower health risks include higher education while unobserved traits being such as greater health-consciousness.  This means that insured people have observed and unobserved characteristics that are associated with demand for medical care. Thus, the decision regarding health services is based on various factors including risk preferences, availability of services and cost. Insurance coverage is also a key factor in determining the type of care to seek and the stage of need. 

 References

Atella, V., Holly, A., & Mistretta, A. (2016). Disentangling adverse selection, moral hazard, and supply induced demand: An empirical analysis of the demand for healthcare services.

Dong, Y. (2013). How Health Insurance Affects Health Care Demand—A Structural Analysis Of Behavioral Moral Hazard And Adverse Selection. Economic Inquiry, 51(2), 1324-1344.

Kiil, A., & Houlberg, K. (2014). How does copayment for health care services affect demand, health, and redistribution? A systematic review of the empirical evidence from 1990 to 2011. The European Journal of Health Economics, 15(8), 813-828.

Rosenbaum, S. (2011). The Patient Protection and Affordable Care Act: implications for public health policy and practice. Public Health Reports, 130-135.

Hofer, A. N., Abraham, J., & Moscovice, I. (2011). Expansion of coverage under the Patient Protection and Affordable Care Act and primary care utilization. Milbank Quarterly, 89(1), 69-89.

Blumberg, L. J., Buettgens, M., Feder, J., & Holahan, J. (2012). Why employers will continue to provide health insurance: the impact of the Affordable Care Act. INQUIRY: The Journal of Health Care Organization, Provision, and Financing, 49(2), 116-126.

Baker, T. (2011). Health insurance, risk, and responsibility after the Patient Protection and Affordable Care Act. University of Pennsylvania Law Review, 1577-1622.

Kolstad, J. T., & Kowalski, A. E. (2012). The impact of health care reform on hospital and preventive care: evidence from Massachusetts. Journal of Public Economics, 96(11), 909-929.

Sherry Roberts is the author of this paper. A senior editor at Melda Research in nursing paper writing services if you need a similar paper you can place your order for Medicine Essay Writing.