Healthcare Economics 101

Healthcare:  Not a True Free Market System

In a typical free market economy, the more demand you have for a product the more you supply, or if you supply less, then raise the price (sometimes both).  Consumers have a demand or want for a particular product, then the consumer seeks the best supplier or price for the product.  This is not typical of the healthcare industry.

Healthcare is not usually demanded because it provides fun or personal pleasure.  It’s demanded to sustain life.  The patient (consumer) has to make a choice of supplier: urgent care, emergency room or primary care physician.  The doctor (supplier) then determines (demands) what the patient needs.  The doctor is both supplier and demand-er.

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Healthcare is demanded when we need it, not usually when we want it.  How will you possibly fit a doctor’s appointment in today’s schedule?  But yet, you manage to stand in line to grab your favorite cup of coffee or someone does it for you.

In the United States, the majority of health care costs are paid for by third-parties.

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Healthcare is not as tangible.  You can’t legally trade or barter for it.

There is a lack of transparency in healthcare pricing, especially by hospitals and primary care physicians.  Dr. John Doe doesn’t have a billboard that reads, “$24.95 for Physical Exam.” In a true supply and demand market, suppliers boast pricing.  Why do you think competing grocery chains have weekly ads?  Imagine “Day After Thanksgiving” ads for doctors competing with pricing.

In conclusion, the economic law of “Supply and Demand” does not apply to healthcare.  The persons demanding a medical good or service is not able to determine what their need or demand is – the doctor does this for them.  Consumers of medical goods and services are not able to price compare due to lack of pricing transparency.  Also, third-parties mainly pay for costs and consumers are more likely to not “shop” around for services since they tend to stay within the primary care physician’s network.