Rising Health Care Costs

RisingHealth Care Costs

RisingHealth Care Costs

Healthcare cost drivers are characterized in different ways, and it isimportant to take note of these factors. The following describes thedemand and supply factors that drive the health care costs


Healthinsurance from public and private coverage has an impact arising fromlowering the effective price paid at the point of service by theconsumers. Moreover, a lack of insurance coverage that iscomprehensive has been cited as a factor that increases cost due todelayed care and treatment to the uninsured.

Informationis critical, and a lack of information encompasses a situation wherethe consumer has insufficient expertise to evaluate a clinicalsituation and risk fully (Bade &amp Parkin, 2015).&nbsp.Additionally, default to the professional skills and judgment of thehealth expert is a problem.


Overallservice capacity affects spending level. Communities that have agreater supply have greater spending, a phenomenon that isarticulated as supply-induced demand.

Themix of service such as physician specialties affects spending levelsand distribution.

Demandvs. Supply perspective

Theassumption that describes the perspective is that the demand andsupply curves for health care are at equilibrium that is, a pointthat D1 and S meet. Hence, a certain quantity of healthcare isdelivered (Q1) to consumers at the price (P1). The provision ofuniversal coverage creates more demand for healthcare service whichleads to the demand curve shifting right from D1 to D2. A newequilibrium point is set where quantity Q2 is delivered to set pricesat P2. Increasing the demand without the capacity to meet demandleads to higher prices hence consumers are in competition for thesame service. The control of cost accentuates that price is held atinitial price P1. A horizontal line is drawn across P1 to the newdemand curve D2. A higher quantity of healthcare service is derivedthat would be consumed by price on curve D2, and it is labeled Q3. Abig difference accrues between the quantity of health care demandedQ3 relative to supply Q1 at a price that is constrained. More demandis generated at the artificially low price, but there is no supply.

Demandelasticity perspective

Demandfor healthcare is relatively inelastic. When a consumer is sick andrequires care, the consumer purchases healthcare services at almostany price. Moreover, the ability to purchase healthcare is limited tothe consumer’s income though the user will likely trade offconsumption of many other products to acquire the needed medicalcare.


Bade,R., &amp Parkin, M. (2015).&nbspFoundationsof economics.Pearson.