Introduction
The healthcare market, and the health care system in general, is unique and very different from markets for other goods and services. The recent collapse of the global healthcare system associated with Covid19 has highlighted the need for a more detailed and in-depth study of the healthcare market. Understanding this market’s uniqueness and peculiarities helps prevent similar crises in the future and can also make the provision of medical services more affordable and equitable. Thus, this essay will examine the differences and peculiarities of the health care market, as well as current trends in this field.
Comparison of the Automobile Market and the Medical Market
Several factors determine the demand for medical services. First, when the price decreases, the demand for medical services increases. Second, the population’s income increases the demand for medical services. Third, the demand for medical services strongly depends on the demographic characteristics of the area. An increase in population leads to an increase in the number of patients, the process of population aging caused by the second demographic transition leads to an increase in the demand for drugs and medical services, and the presence of dangerous industries in the city leads to an increase in the number of patients working at these plants. Fourth, there is the factor of demand forced by doctors who diagnose patients, refer them for other medical services, and recommend certain medications (Welfens, 2020). Finally, there is the factor of changing patient tastes, which is usually attributed to the plastic surgery market. Fashion or perceptions of beauty changes can affect the demand for certain surgeries.
When considering the car market, it is essential to consider a used car market and a new car market. The used car market is unique in that it often sells lower quality goods at a higher price, while good cars sell for less than their value due to the asymmetry of information in this market. Sellers know far more about their goods than buyers do, and buyers believe that a high price is always justified by quality, which makes terrible cars more expensive and forces owners of good cars to lower prices to maintain competitiveness (Mele, 2021). Otherwise, markets are similar, and customer demand is influenced by changing tastes, increasing incomes, and the cost of goods. As an alternative to the demographic factor, there is a factor of changing pedestrian demand for their transportation. This factor depends on how convenient the buyer’s city is to travel by car, the cost of travel by public transport, and the cost of gasoline and car maintenance.
Thus, several similarities and differences can be highlighted by comparing the factors influencing demand formation in the medical services and car markets. Demand in both markets depends on the price factor. Still, demand for medical services tends to be much less elastic because patients often cannot refuse medical services (Schmitz, 2012). Besides, buying a car is a less obligatory action for a person. Therefore, a price change in the car market would result in a more considerable drop in demand than in the medical services market.
On the other hand, demand for medical services is inexhaustible and less dependent on price factors than demand in the car market. Postponing the treatment leads to the fact that often the patient still has to go for medical help, but the diseases tend to progress and thus become more complicated and expensive to treat. The car market has no such feature and postponing a car purchase usually does not lead to an urgent need to buy a car. Besides, in both markets, there is an asymmetry of information caused by the inability of customers to verify the quality of the product or service they receive (Mele, 2021). It unites the market for medical services and used cars, but it is still difficult to argue that the health care market also tends to increase the price of substandard services. It is due to the greater accountability of service representatives to the law and several other ethical standards among physicians. Thus, in the graph, the slope of the demand curve for medical services is always sharper than the slope of the demand curve for cars, which is related to the elasticity of demand.
Continuing the theme of the differences in the supply of the two markets and the asymmetry of information, other factors are worth noting. In the healthcare market, supply is less susceptible to dramatic changes because it takes a long time to train competent specialists. Supply in this market is also affected by the cost of drugs and equipment, which depends on innovation, technological development, logistics, and other factors. In the automotive market, supply is also affected by resource availability, logistics, market size, technology, and other classic factors (Mele, 2021). Specifics include a factor relating to the used car market, in which the supply of certain car brands will correlate directly with the number of models of a given model sold several years ago. Thus, supply in both markets is strongly influenced by information asymmetry, but the medical services market is less flexible due to the need for training (Welfens, 2020). The difference in the graph is that the supply curve in the health care market is less elastic than the curve in the car market. Consequently, the curve in the health care market will be steeper.
Existing Trends and Reimbursement Methods Affecting Supply and Demand in the Medical Services Market
Currently, two federal programs in the U.S. are designed to make health care more affordable for citizens. They are Medicare and Medicaid, which are constantly expanding into new states. Medicare is for the elderly, and Medicaid is for the poor (Schmitz, 2012). The existence of these programs, as well as the health insurance system in America, dramatically affects the supply and demand for medical services. Because insurance payments and payments from federal programs cover a significant portion of the cost of health care services, the cost that patients pay falls dramatically. Although the price equilibrium will be high on the chart, the actual amount customers will be much lower with the supply curve. It means an increase in demand for medical services, primarily preventive services. Because demand for emergency care or urgent surgery is inelastic and has little to do with price, preventive and wellness procedures, tests, and diagnostics of various kinds are often ignored by those who do not have insurance coverage or the ability to use federal programs. Thus, the demand for such procedures only grows as the number of people receiving federal support increases.
In addition to those who pay for health insurance, some cannot afford it. The federal Medicare and Medicaid programs were introduced for this population segment. However, many of the population still cannot qualify for the programs because of their age, lack of disability, or barely exceeding the minimum required earnings. This population also dramatically affects the health care market because it creates the problem that there is a considerable amount of medical debt. Therefore, medical services are not commodities and cannot be taken away. It means that there are often cases where a patient is provided with medical care, but once it is done, they are left unable to pay for it. It is the most paradoxical situation because those who cannot afford medical services do not have health insurance (Schmitz, 2012). Thus, it is logical that they cannot pay for medical services either. Situations like this force many hospitals to gradually move to a prepayment system. Being a big trend, the prepayment system also affects supply and demand in the industry. First, people’s demand for medical services cannot disappear but only be pushed back in time, leading to complications and the need for a more expensive procedure. Second, people without health insurance are less likely to go for consultations, health checks, and preventive care. All of this leads to patients also going to the hospital only when there are more obvious symptoms of illness, which of course, is terrible for both the patient and the health care system, which will have to spend more resources treating a patient who may also have been a spreader of disease for years. The existence of people without health insurance significantly reduces supply, reduces demand for preventive procedures, and increases demand for complex surgeries and emergency care (Association of American Medical Colleges, 2020). It is an important impact on the economics of the industry and the region’s mortality rate, and that’s why the government is looking to expand its federal programs.
In terms of changing supply trends, it is worth looking at the activities of the American Medical Association, which unites virtually half of all private practice physicians in the United States. This organization artificially influences the supply side of medical services because it limits enrollment in medical schools, monitors the activities of immigrant physicians, and influences the cost of tuition for medical specialties (Association of American Medical Colleges, 2020). This organization is essential in the workforce planning process because it acts on projections of the future workload of the medical system.
Thus, payment for medical services is made in a variety of ways. Patients can pay for the service themselves if they do not have health insurance, which is usually much more expensive than other options and increasingly requires prepayment. If the patient has health insurance, part of the service cost is paid by the insurance agency, and federal programs often sponsor part by the client and the purchase of health insurance. Sometimes, federal programs serve not to help pay for health insurance but as an alternative to it, serving specific needs. Typically, this is associated with a long-term hospital or nursing home stay (Association of American Medical Colleges, 2020). Based on the above, several parties pay for medical services. These are the state represented by federal programs, the insurance agency, and the patient himself. Banks also offer various loans and installments to pay for medical services, but such situations are relevant to those who do not have insurance.
Conclusion
In conclusion, the health care market is indeed strikingly different from markets for other services and goods. Although there are also classic price and non-price factors in the health care market, they differ in their degree of importance from other markets. This peculiarity is caused by the high social importance of the health care market, inelasticity of demand for it, and weak flexibility of supply. Still, a significant share of the market is composed of human resources, which take a long time to prepare, and therefore the market does not have time to respond quickly to crises like Covid19. It means that it is necessary to improve resource planning methods in this market in advance, which is possible by considering several important factors, such as federal programs and health insurance. Making these offerings more affordable could make the health care system more efficient and strengthen the price equilibrium in the market without creating distortions in certain areas.
The health care market is also unique in that there is an asymmetry of information, in that the average customer has difficulty understanding the difference between quality and poor health care delivery, which makes it similar to the used car market and could also lead to the proliferation of substandard offers in the absence of proper oversight. However, this does not happen, thanks to government monitoring, the American Medical Association, and other agencies dedicated to overseeing the quality of medical care. Finally, this market’s essential uniqueness lies in its definition of demand. The demand for health care services is linked to various variables, including demographics, outbreaks of epidemics, environmental influences, etc. At the same time, the demand for medical services is also unique in that it cannot disappear but is only delayed in time, which is mainly affected by the income level of customers and their availability of health insurance. At the same time, postponing the demand for medical services is dangerous for the patient. It can increase the cost of the medical service due to the possibility of complications. Considering these market factors is very important because approaching the market for medical services will differ from approaching the market for automobiles or any other service.
References
Association of American Medical Colleges. (2020). The Complexities of Physician Supply and Demand: Projections From 2018 to 2033.
Mele, C., & Spena, T. R. (2021). The dark side of market practices: a concerned view of dieselgate in the automotive market system. Journal of Macromarketing, 41(2), 332-355.
Schmitz, A. (2012). Microeconomics: Supply and Demand in Health-Care Markets. Saylor Academy.
Welfens, P. J. (2020). Macroeconomic and health care aspects of the coronavirus epidemic: EU, US and global perspectives. International Economics and Economic Policy, 17(2), 295-362.