BHA FPX 4112 Assessment 1 Instructions: Health Production Function Example
The Supply and Demand of Health Care
Access to quality healthcare services is a constitutional right and a subject of economic scrutiny. In this sense, it is essential to incorporate principles of demand and supply to determine efficiency, effectiveness, values, and consumer preferences regarding healthcare. Another justification for embracing health economics is to account for national and global expenditures for healthcare services, equipment, and infrastructure.
Since everybody has the right to access quality care, countries invest massively in addressing social determinants of health that influence populations’ willingness to pay for healthcare services and insurance premiums. Despite these justifications, economists face a daunting endeavor when integrating standard principles of demand and supply to healthcare because it sometimes circumvents these guidelines due to underlying factors that influence accessibility, affordability, and quality.
As a result, this paper compares supply and demand for healthcare services and an automobile while emphasizing current legislative trends and the impacts of different reimbursement models on services demand and supply.
Demand and Supply for Healthcare Services Compared to Automobiles
Demand refers to the consumers’ desire to purchase goods and services alongside their willingness to pay the price for specific goods or services. On the other hand, supply entails the number of goods or services available to customers at a given price when other factors are constant. When discussing demand and supply for a particular good or service, it is essential to consider price/cost as the primary factor influencing an individual’s purchase power.
However, it is fundamental to approach the demand and supply for healthcare as uniquely different from other consumer entities like automobiles due to various distinctive features. According to Folland, Goodman & Stano (2017), demand and supply for healthcare services are partially consistent with the normal economic principles due to the presence of uncertainties, prominence of insurance, the problem of information, restrictions on competition, government subsidies, and public provisions, and the ever-expanding roles of non-profit firms.
Factors Influencing the Demand for Healthcare Services and Automobiles.
Price and income
As noted earlier, the demand for healthcare services often circumvents the standard principles of economics. In this sense, factors influencing consumers’ willingness to pay for services extend beyond the service price. Folland, Goodman & Stano (2017) contend that healthcare differs from other goods because consumers do not respond to financial incentives (p. 42).
However, price matters when it comes to accessibility to healthcare services because people are willing to access more services when they become less costly in terms of out-of-pocket expenses. At this point, government incentives and insurance premiums significantly lower out-of-pocket costs, increasing demand for quality care services.
When considering how prices influence demand for healthcare services, it is clear that similar trends manifest in the automobile industry since the demand for care increases with decreased price and vice versa. In this, the inverse relationship between price and demand is consistent in almost all consumer goods, including healthcare services and automobiles.
Another similarity between healthcare services and automobiles is the role of personal income in determining individual purchase power. When income increases, customers are more willing and able to pay for healthcare services and insurance premiums. Similarly, increased income translates to higher demand for the expensive automobile if other factors are constant.
Complements and Substitutes
Complements are related goods or services whose changes influence the demand for complementary goods or services (Ghorban, 2021). Consumers’ access to various complementary services is common in healthcare because they guarantee care coordination and quality. For example, the demand for contact lenses may influence the number of optometrist visits at a given time.
It is essential to consider the demand for complementary goods such as fuel and spare parts before settling on a specific automotive model in the automobile industry. To sum up the synergies between complementary goods and services, it is possible to argue that an increase in price for a good or service translates to decreased demand for its complement in a perfect market.
Similarly, the availability of substitute goods and services determines the demand for healthcare services and automobiles. In this sense, a substitute is a good or a service that offers similar characteristics and satisfy the same wants. Substitutes include generic drugs and service providers providing similar services in the healthcare sector. In the automobile industry, substitutes may be competing for car models that claim market share by providing many sought-after features.
According to Ghorban (2021), people are willing to demand a substitute product if it proves more effective than its alternatives. As a result, an increase in price for a product or service will prompt customers to favor alternatives, increasing their demand. The inverse relationship between the price of one product or service and the subsequent demand for its alternative (s) applies to healthcare and automobiles.
Individual preferences
Individual perceptions of quality significantly influence demand for healthcare services and automobiles. When purchasing a car, it is possible to evaluate quality measures such as fuel consumption, technology, energy efficiency, and safety factors. In this sense, such factors influence individual willingness to pay for a particular model.
In the healthcare sector, patients’ perceptions of quality rely massively on care coordination, timeliness, proceed efficiency, and the plausibility of achieving positive medical outcomes and improved health. Other healthcare quality indicators are service price, accessibility, and policies for improving healthcare services. When services and goods satisfy individual preferences, customers become more interested in making purchases, increasing their demand.
Comparing and Contrasting the Similarities and Differences of the Demand Curve of these Two Industries
A demand curve illustrates healthcare services and automobiles in a hypothetical market for a given period. In this sense, it is possible to determine the interactions between factors that influence customers’ ability to pay for services or goods. When comparing the demand curve for healthcare services and automobiles, it is essential to note the similarities and differences between the two industries.
As earlier stated, the healthcare sector sometimes circumvents these basic principles of economics because of the underlying factors such as the role of government in controlling prices, insufficient information by customers, insurance, and the perception of health as an investment. However, the two Industries share various factors that influence demand.
Similarities in demand curves for healthcare services and automobiles
An increase in price for healthcare services or automobiles reduces demand making the curve shift to the left side. Similarly, an increase in income enables consumers to pay for cars or healthcare services, increasing their demand. Therefore, the curve shifts to the right upon increased customer income. Finally, an increase in price for substitutes services and goods increases the demand for alternatives, making their curves shift to the right.
Differences in demand curves for healthcare services and automobiles
Although price, substitutes, complements, and income influence the demand for healthcare services, there are exceptions where these factors do not influence the demand for services. According to Folland, Goodman & Stano (2017), patients may ignore the impact of increased prices for healthcare services because health is an investment rather than an expense.
In this sense, people are willing to pay for services regardless of their prices when the need arises. This factor renders healthcare services inelastic, meaning the demand curve would not shift to the left even after increasing the price of services. Conversely, the automobile industry is highly elastic, meaning customers make trade-offs and consider options following upsurging prices that make the demand curve shift to the left.
Supply for Healthcare Services vs. Supply for Automobiles
Supply refers to the number of goods and the nature of services available to customers at a given price for a particular time. Healthcare providers such as drug manufacturers and caregivers determine supplies depending on various factors, including technological change, inputs price, industry size, insurance coverage, and prices of production-related goods (Folland, Goodman & Stano, 2019, p. 61).
On the other hand, technological changes, input prices, and production-related goods determine the supply of automobiles. Although these industries share factors that influence the supply of goods and services, the healthcare sector contains additional aspects, including coinsurance and indemnity insurance that reduce out-of-pocket expenses, affecting the subsequent supplies.
Similarities and Differences of Supply Curves for Healthcare Services and Automobiles
Advanced technologies, inputs prices, and production-related goods result in increased supply to maximize profit. An increase in supply makes the supply curve shift to the right and vice versa. Healthcare services are prone to advancing technologies that lead to increased supply and enhanced services. Also, increasing inputs prices in labor and processes prompt health organizations to increase supply to match these developments. Similarly, these trends consistently determine the supply of automobiles.
However, healthcare services are prone to exogenous factors that alter the movement of the supply curve. For instance, coinsurance and indemnity insurance reduce out-of-pocket expenses, increasing the supply, shifting the curve towards the right. Another factor that increases the supply for healthcare services is the improvement of transport and communication systems that allow people to access services and vice versa.
Current Legislative Trends that Influence the Demand and Supply for Healthcare Services
Medicare and Medicaid are the most prominent policies determining the demand and supply for healthcare services in the United States. According to Guth, Garfield & Rudowitz (2020), studies show that Medicaid and Medicare increase access to care, enhance health outcomes, strengthen providers’ capacity, and guarantee financial security by reducing out-of-pocket expenses. As stated earlier, reducing out-of-pocket expenses by subsiding care services through insurance premiums increases demand for quality care while strengthening providers’ capacity to provide quality care.
More significantly, Medicaid expansion policies proposed by the Affordable Care Act (ACA) of 2010 are fundamental in addressing the problem of uninsured and underinsured populations. As a result, these policy priorities consistently increase the supply and demand for quality care services by guaranteeing access to coinsurance and comprehensive coverage for various health services.
Although Medicare and Medicaid legislation increases demand and supply for healthcare services, some states are yet to expand Medicaid, meaning they still grapple with the high rate of uninsured and underinsured populations. According to Shrank et al. (2020), states face various challenges implementing ACA provisions, including high premium rates, stagnant wages, growing national debts, and strained local budgets. These constraints contribute to difficulties when paying for insurance premiums.
Eventually, uninsured people affect demand and supply for healthcare services by increasing uncompensated care. Although the Emergency Medical Treatment and Labor Act (EMTALA) of 1986 requires healthcare organizations to provide emergency care to patients regardless of their insurance status and ability to pay, high rates of uninsured patients lead to increased uncompensated costs that reduce organizational capacity to provide quality care.
Reimbursement Methods that Influence the Supply and Demand for Healthcare Services
In the United States, employers, private insurance companies, national and state governments, and patients are the main payers of healthcare services. In this sense, employers, the national government, and states reimburse healthcare services through various models, including, Beveridge system (national health model), the Bismarck system (social insurance model), and private insurance. On the other hand, uninsured patients pay for healthcare services primarily through the out-of-pocket model (Crowley et al., 2020). These reimbursement models have varied effects on the supply and demand for healthcare services.
The national health insurance model entails a scenario where the government acts as a single-payer to provide universal coverage. This system improves demand and supply for healthcare services by creating affordable premiums that enable people to access quality care. On the other hand, the Bismarck system entails compulsory enrollment insurance plans that cover employees. It contributes to financial security, access to quality care, and high demand for reliable services. Finally, private insurance and out-of-pocket models allow people to purchase insurance premiums from their income. These reimbursement models are expensive and inefficient for people of low income, reducing their demand for healthcare services.
Conclusion
The demand and supply for healthcare services rely massively upon various endogenous and exogenous factors, including government policies, insurance, consumer preferences, income, prices, and the availability of complements and substitutes. Unlike other consumer goods and products such as automobiles, healthcare services are prone to uncertainties, lack of consumer information, non-profit motives, restrictions on competition, and consumer ignorance. These factors affect the supply and demand curves for healthcare services. When considering the effects of these factors, it is possible to understand the role of current policies such as Medicare and Medicaid on the demand and supply for healthcare services.
References
Crowley, R., Daniel, H., Cooney, T., & Engel, L. (2020). Envisioning a better U.S. Health care system for all: Coverage and cost of care. Annals Of Internal Medicine, 172(2_Supplement), S7. https://doi.org/10.7326/m19-2415
Folland, S., Goodman, A., & Stano, M. (2017). The economics of health and health care (8th ed.). Routledge.
Ghorbani, A. (2021). Demand for Health and Healthcare. Healthcare Access, 1-10. https://doi.org/10.5772/intechopen.98915
Guth, M., Garfield, R., & Rudowitz, R. (2020). The effects of Medicaid expansion under the ACA: Updated findings from a literature review (pp. 1-100). KFF. https://files.kff.org/attachment/Report-The-Effects-of-Medicaid-Expansion-under-the-ACA-Updated-Findings-from-a-Literature-Review.pdf
Shrank, W., DeParle, N., Gottlieb, S., Jain, S., Orszag, P., Powers, B., & Wilensky, G. (2021). Health costs and financing: Challenges and strategies for a new administration. Health Affairs, 40(2), 235-242. https://doi.org/10.1377/hlthaff.2020.01560
BHA FPX 4112 Assessment 1 Instructions
Write a 2-4-page executive summary recommending resource investment in a program based on its potential to deliver positive health and economic outcomes.
As a health care professional, you must have a foundational, high-level understanding of health care economics:
One part of this foundation comes from understanding:
The basic laws of economics as they apply to the health care industry.
How the health care system creates unique economic challenges and burdens on all stakeholders.
Another part of this foundation comes from understanding:
The history and trends in health care economics around such topics as the role of the government and government programs such as Medicare and Medicaid.
Trends in patient payments.
The resulting changes in health care expenditures, as well as areas for improvement in the health care system (Feldstein, 2012).
Another key is understanding the concepts and processes involved in the production of health care: Multiple inputs influence health and wellness.
Medical care is only one input, although a significant one.
The health production function and decision rules for allocating health care resources is a key component of the first assessment in this course. For this assessment, think about the ways in which health production efficiency, both technical and economical, can help drive decisions on the allocation of resources (inputs) to drive improved patient health and results (outcomes) (Feldstein, 2012).
Reference
Feldstein, P. J. (2012). Health care economics (7th ed.). Clifton Park, NY: Delmar.
Demonstration of Proficiency
By successfully completing this assessment, you will demonstrate your proficiency in the course competencies through the following assessment scoring guide criteria:
Competency 1: Analyze historical perspectives and current trends in the health care industry.
Describe the current state of a health care organization with regards to alignments to historical health care industry trends. Explain how a health care organization needs to change to better align itself with current trends in the health care industry.
Competency 3: Analyze the evolving economic reimbursement trends, methods, and technology.
Analyze two current programs in a health care setting with regards to the inputs required to operate and its outputs with regards to health outcome rates and patients served.
Competency 4: Analyze how economic and stakeholder influences affect operational planning and decision making.
Propose whether to reallocate, maintain, or increase funding for current programs based upon available resources and projects outputs. Explain how opinions and agendas of stakeholders influence decisions related to the funding of programs in a health care setting.
Competency 5: Communicate in a manner that is scholarly, professional, and respectful of the diversity, dignity, and integrity of others and is
consistent with expectations for health care professionals.
Write following APA style for in-text citation, quotes, and references.
Write clearly and logically, with correct use of spelling, grammar, punctuation, and mechanics.
Professional Context
The ability to research, examine, and determine the most efficient ways to allocate resources in order to produce to best health outcomes is a key competency for health care economic professionals. In the complex field of health care, there will always be multiple ways and multiple programs in which an organization can invest resources.
It is the health care economics professional’s responsibility to examine the cost of the inputs in comparison to the historic or projected output of health and then make recommendations regarding investment. Looking at investment is not always entirely about the amount of positive outputs—technical efficiency, economic efficiency, and stakeholder priorities will all also play a part (Feldstein, 2012). Being able to not only understand and crunch the numbers, but also navigate these other considerations, is vital in becoming an effective health care economics professional.
Scenario
You are a health care economics professional with specific expertise in using a health production function to allocate resources. A member of the Board of Directors has asked you to prepare an executive summary that will help the board understand the current practices of the organization and where the organization should align itself in light of current and emerging trends.
Additionally, you have been asked to analyze the inputs and outputs of two current programs in the organization in order to make allocation recommendations about how to best utilize the available resources to achieve the best possible outputs for the programs.
Instructions
This assessment has three main parts:
The first part is your examination of the organization’s current practices and alignments with historical health care trends, as well as how the organization needs to change to align itself with current and emerging
- The second part is your analysis of two existing programs that could be candidates for further investment (Note: You may use two program examples from your textbook, your own research, or your own organization as the context for your analysis and this executive ).
- The third part is your proposal on how to allocate resources for the two programs, as well as a brief explanation of how the views of the stakeholders influenced your decision making
If you have not already, it may be helpful to complete the formative activity to check your understanding of the economic concepts relevant to this assessment.
Economic Elements in Health Care | Transcript.
Consult the scoring guide to make sure you are meeting the communication criteria and achieving your desired rubric level.
Part I: Current State of Organization and Potential Changes to Align with Trends
Describe the current state of a health care organization with regards to alignments to historical health care industry trends. (Competency 1)
For this, use either an organization that you currently or previously had worked for, have researched as an organization you would like to work for in the future, or one that was present in the textbook or other research you conducted.
Explain how a health care organization needs to change to better align itself with current trends in the health care industry. (Competency 1)
Continue using the organization that you described to meet the first scoring guide criteria.
Part II: Analysis of Current Programs
Analyze two current programs in a health care setting with regards to the inputs required to operate and its outputs with regards to health outcome rates and patients served. (Competency 3)
As noted in the instructions above, you may use program examples from your textbook, your own research, or your own organization. Be sure you choose examples for which you can report the inputs, outputs, and approximate patients served.
Part III: Resource Allocation and Stakeholder Reflections
Propose whether to reallocate, maintain, or increase funding for current programs based upon available resources and projects outputs. (Competency 4)
Use the two programs you analyzed in Part II. It will be helpful to cite evidence (literature, your textbook, or current health improvement initiatives [like those being pursued via your state’s Department of Health] to help support your proposals.
Explain how opinions and agendas of stakeholders influence decisions related to the funding of programs in a health care setting. (Competency 4) Make explicit reference to the stakeholders and their statements in the Scenario section for this assessment, or to specific examples from your current or former career experiences.
Additional Requirements
Written Communication: Prepare an executive summary free of errors that detract from the overall message. Writing must be clear, precise, and scholarly, with concepts that flow in a logical order.
References: Cite at least three references from peer-reviewed journals, in addition to your text.
Length: Submit a 2–3-page executive summary, not including any title or reference page.
APA: Use correct APA style and formatting. You may find it helpful to use the following: APA Style Paper Tutorial [DOCX].
APA Style Paper Template [DOCX].
Related Assignments:
BHA-FPX 4112 Assessment 3 Instructions: National Health Insurance in the United States
BHA-FPX 4112 Assessment 2: The Supply and Demand of Health Care
