Medical Costs

Medical Costs and the Impact on Us

Professor Robert Hudson from the London School of Economics define the indifference curve as a graph showing different bundles of goods between which a consumer is indifferent. That is, at each point on the curve, the consumer has no preference for one bundle over another. One can equivalently refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer. Utility is then a device to represent preferences rather than something from which preferences come. The main use of indifference curves is in the representation of potentially observable demand patterns for individual consumers over commodity bundles. There are infinitely many indifference
curves: one passes through each combination. A collection of (selected) indifference curves, illustrated graphically, is referred to as an indifference map. Now that we have explained the indifference curve let’s apply it to how the constant risen of medical expenses affect us every day.

Medical costs have been rising consistently over the last two decades.
Research has shown that not only was the gap between the price of all goods (that includes medical expenses) and medical expenses high in the recent years but that the gap has been growing. In this sense the relative costs of medical care have been rising. ‘Health care spending has risen about 2.4% points faster than GDP since 1970’-according to the Kaiser Family Foundation. The causes of this rise can be traced to many policy reasons that include-increasing role of third party insurers which pay the bills, and the increasing role and scope of government intervention in policy and finances of health care. Experts point out that the main problem is that the final user does not pay the cost anymore and this distorts the market and pricing mechanism of health care. Also, the demographic status of USA is such that the older people are rising in numbers, and they need more care-which raises medical care for the economy. Thus, a combination of wrong policies, and demographic factors, along with the current recession conditions have lead to a galloping of medical care bills for the entire economy. The share of medical care costs in GDP is rising
consistently. Medical services are a necessity people will get them even if the prices shoot through the roof.
This has major consequences for our overall economic health. To see how let us take the standard economic analysis that the economists undertake: one using indifference curves and budget lines. Everyone tries to maximize his or her benefit given the constraints they face. People want to consume everything, but they cannot, given their incomes, and hence they have to make choices. This gives rise to what are called convex indifference curves: people are assumed to be indifferent between consuming any two bundles on the line. The want to consume more of every good, hence the further the curve moves out the better it is for consumers. But, they can only go as far as their budget allows, and hence economists assume that people will go to the farthest curve reachable using their income. When medical services become costly the consumer will have to cut down on spending on other goods, since he does not have enough money to buy the same amount of medical and other goods. Since medical services are essential he cannot say he will take less medication, and therefore is left with no choice but to reduce consumption of other
goods. This has consequences for other sectors since if people lower their consumption of other goods other sectors of the economy will lose markets, and that will lead to closure of some industries while others reduce their size. This will further hurt the consuming power of the people who lost their jobs, and hence will further lower consumption of other goods. This cycle will lower our total output and hurt our economic well-being.

Therefore, there is a need for controlling escalating prices in the medical services. To do that one has to look at the root cause of why this is happening. Medical school is costly and can easily cost over $200000 for every student. The government will have to find a way to bring down this cost: a lower cost in school will mean doctors will have lower salary expectations and demands. We also need to increase the number of hospitals and provide incentives for students to opt for medical field. Another aspect that needs to be addressed is that of consumer law pertaining to medicine. Doctors may make genuine mistakes that the lawyers will paint as gross negligence and sue them. To cope with this doctors have to go for very costly malpractice insurance which they then add on to the cost of providing their services. There is also the need to modify the medical insurance industry and make it more competitive. All these steps will lower the cost of setting up the infrastructure, and hence of providing medical service.

BIBLIOGRAPHY

Hudson, Robert – London School of Economics. The Health of the World Pg 65 ed 4
Clarkson, Kelly – Macroeconomics in Health. Newsfeed 2013 April
No Author – Newsweek June 2012 – Obama Care Part II – Pg 16