Question

Indicate whether the following statements are true/false/uncertain. Why or why not? Explain your answer clearly and concisely. [5 points] The social gradient in health is explained primarily by common, behaviour-based risk factors for disease. [5 points] The concept of need in healthcare derives from the presence of externalities in healthcare markets.

Answer 1

The social gradient in health is explained primarily by common, behavior-based risk factors for disease - True.

The chance of being sick depends on a lot of criteria and the most important among them is how healthy that person is and what habits he has got. If a person lives a sub-standard life (unhealthy life) i.e. leading an unhealthy life where such a person does not take his meals regularly, prone to addictions like tobacco and alcohol, or does not do much physical work to keep himself healthy. All such factors how a person is living affect the chances of getting a disease. So a person who is leading an unhealthy life with a lot of bad habits including drug and alcohol use is expected to fall sick faster than a person who leads a healthy life.

If a person takes care of his health then he will be more immune to diseases since his body parts both external and internal will be healthy and will be able to fight against diseases which will keep him from falling sick. Whereas a person who smokes or drinks or does not work-out may fall sick more frequently since smoking will affect the respiratory system and the lungs and heart, smoking increases the chances of a heart attack and alcohol on the other hand damages liver, so this person who is doing both can get lung and liver diseases and will be less immune to other diseases as well due to damaged internal organs.

So we can see how the behavior of a person is affecting his health and the chances of him falling sick. And a person who does not do such activities will be more healthy. So the social gradient of health is measured based on the fact whether a person does or does not do particular activities which can make him fall sick. Similarly, if someone plans to take a healthcare plan, a person with such an unhealthy habit of smoking and drinking is charged more for premiums as he is prone to fall sick and a healthy person is charged less for his premiums since that person can stay healthy and can bear the cost of the sick people by paying premiums instead.

Thus we can see how a person leads his life and his behaviors affect the chances of falling sick or contracting diseases. The same way social gradient explains the theory of the chances of a healthy person falling sick is less rather than a person who is accustomed to an unhealthy lifestyle. Therefore the above statement is true.

The concept of need in healthcare derives from the presence of externalities in healthcare markets - True.

The concept of the need for healthcare is generally derived based on the fact whether the person taking the healthcare plan is expected to fall ill. But the presence of externalities in the healthcare market also affects the choice of such a person who is opting for healthcare plans. So even though healthcare is needed, someone may not take the healthcare plan if he is not going to get the benefits for the same due to some externalities in the healthcare market. Externalities mean the positive or negative effect others have on the healthcare market. For example, if more people do not get diseases and are healthy then they have a positive externality on the healthcare market since they will pay for the healthcare plans but will not be enjoying the benefit of healthcare since they are healthy and are not expected to fall ill, so such positive externality will ultimately benefit the people who are actually suffering from illness and the ultimate cost for their treatment will be paid from the premiums received from such healthy people since their money is left with the healthcare companies and will be utilized to provide treatment to the needful. But if more people are unhealthy and are used to living sub-standard livelihood they are expected to fall sick more often and will work as a negative externality since more people will fall sick and the premium received will be utilized by the payers themselves. So the burden of the ill people will not be carried by the others since they are also expected to fall sick and will need their own premium paid earlier, to get themselves treated at the time of sickness. Thus the company will be paying for most of the people who are taking the healthcare plans. So if more person is expected to fall sick healthcare plan should be taken in order for them to pay for their medical expenses during their time of ill-health and sickness.

Now if more people are expected to fall sick due to negative externality, healthcare companies may raise the premiums in order to cover for the expenses that are to be incurred in the future when the policy takers fall sick. This raised prices will eventually affect everyone taking healthcare plans since the price for the premiums will be increased. But if there is a positive externality in the healthcare market and more people are healthy, the healthcare companies will reduce the premiums that are to be paid and such decrease will lead more people to take healthcare plans. It will be cheaper for the policy takers to opt for healthcare plans and get the necessary treatment during the time of need.

So basically the number of people expected to fall sick is the main criterion affecting the price of healthcare plans. If more people are expected to fall sick the price will be higher and if people are healthy then it will be cheaper. But the need to take a healthcare plan for an individual depends on the fact whether such a person is expected to fall sick or is healthy. So if more people are healthy the premiums will be less and this cheaper rate will help everyone to take healthcare plans and use the same when they are sick. But if the price is higher due to the unhealthy population then it will affect the scenario negatively and it will not be possible for a significant number of people to take healthcare plans due to higher prices for the same. Thus we can see that how externalities are affecting the choice and need to take healthcare plans.

Suppose if there is a negative externality then it may happen that the medical expenses incurred in a year are less than the price of the premiums for a certain number of people since the price of the premiums is so high. This will make it unnecessary for a lot of people to take the healthcare plans since the cost of medical expenses is less than the pricy healthcare plans. Whereas with positive externality in the healthcare market will benefit everyone with a cheaper premium and thus the huge medical expenses of the sick people can be paid by taking healthcare plans rather than paying for high medical expenses since the premiums are cheaper in this scenario. So we can come to the conclusion that the need to take healthcare plan largely depend on the externalities in the healthcare market.