Economic advisor to a U.S. Senator

Introduction

Traditionally, pricing has formed the fundamental core of managerial economics, although this narrow focus is somewhat misleading in terms of the breadth of analysis that is possible. As the various things are examined, further medical cost will be discussed. In order to examine pricing it is necessary to consider demand and supply forces; in managerial economics supply forces are discussed under the theory costs, will be explained.

Impact of rapidly rising medical costs

Medical costs have risen faster than GDP (Gross Domestic Product) in the United States since the 1960s. This rise is reflected in the increased cost of health care insurance purchased by both employers and individuals. In 2006, the cost began to moderate slightly from its highest annual increase of over 14% in 2003 but still outpaced inflation and other consumer price by a wide margin. The percentage of GDP spent on medical in the US had been consistently higher than in Germany, Denmark, Sweden and other European countries. The US has also had the highest expenditure per capita for medical among OECD countries. Medical Cost has risen steadily and in 2006 was more than twice among spent per capita by Denmark, Germany and Sweden.

Critics argue that the favorable tax treatment of employer-provided health insurance has led to an inefficiently high level of coverage. Health insurance has become less health insurance and more health care financing, with benefits including small, regular expenses such as checkups, in addition to the coverage of, big-ticket, unpredictable expenses. More generous benefits lead in turn to more potential for moral hazard, as patients become increasingly insulated from the full marginal cost of care. As discussed above, the amount of inefficiency caused by this moral hazard depends on how elastic the demand for medical care is.

What is the evidence on elasticity of demand for health care? Estimating the elasticity of demand for health care by varying levels of co-payments patients pay is subject to selection bias since, as we have described below, individuals choose their level of coverage based in part on their health status. In other words, consumers who are relatively unhealthy are more likely to opt for fuller insurance coverage with lower patient out-of-pocket expenses. The health insurance study provides the cleanest estimates of the elasticity of demand for health care. In this study, individuals were randomized to different levels of health insurance coverage, and their medical care use was tracked, so their level of insurance was uncorrelated with their health status. For most services, the estimated demand elasticities were quite inelastic. Inelastic demand for medical care then implies relatively small losses from moral hazard (Dranove, 61).

Utilize indifference curve analysis

Cost of medical care in the United States has gone up so rapidly that the total cost is about $2 billion a day, or nearly $3000 annually for every person in the United States. Government pays about 30 percent of the individual health care bill and business 28 percent. Individuals pay 41.5 percent, and charity, less than 1 percent. These data ...