Health Care Supply & Demand
While most goods and services adhere to the basic economic principle of supply and demand, in many ways healthcare does not. The principle of supply and demand describes a balance that develops between the supply of an item or service and the demand for it. The variable is that of price. There is a simple balance in which as price goes up, demand goes down, and vice versa. Generally, supply reflects demand as who would continue to develop a product or supply a service for which demand has dropped?
The problem in healthcare is that the consumer often pays little or nothing for services, despite the current reality of deductibles and copayments. When this is the case, price stops being a factor in demand and demand increases to virtually unlimited levels.
There was a time when my health insurance cost me nothing (100% of the premium was paid by my employer), I had no deductible and no copayment. So I had no out-of-pocket expenses whatsoever associated with healthcare. Now I really don't like going to the doctor, so it did not matter to me all that much, I still did not use a great deal of care. But many people, when costs are not a factor, use services at the drop of a hat.
This is the reality that triggered the current healthcare crisis. Even now, despite out-of-pocket costs, utilization is at record levels. People even tend to feel that since they are paying more for premiums (though nothing close to what employers are paying), they should get their money's worth. There is little to stop them from using services except the managed care initiatives that have been implemented in the last 20 years to address this situation. People in the first half of the 20th century paid for healthcare themselves and were cautious about what services they used. When cost (price) stopped being a factor, desire for the product exploded and we have the runaway train that is currently eating up over 15 percent of our gross domestic product.
So, how do we deal with this situation? How do we provide the comprehensive care for everyone indicated in this week's question?
More importantly, how will we pay for it?