Question

1. What controls the supply of physicians in the United States? Distinguish between short and long-term and between proximate and fundamental factors.

2. How does the law of diminishing marginal utility fit into an analysis of the demand for health care? Give some examples of decisions concerning health care where you personally are indifferent between getting medical care or doing without medical care.

3. What is the projected spending of health care as a percentage of GDP by 2040? How would this impact our economy?

Answer 1

Q1. The real barrier to entry into the market for physicians is the mandatory certification which can be obtained only after investing into the 11 to 14 year long process (source: Google) needed to become a licensed doctor in the US. Thus it can be said to be the medical licensing regulatory authority which controls supply of physicians.

Note: The supply of specialized physicians is a different matter. There are 24 boards that certify physician specialists in the United States, although there is no legal requirement for a physician to attain it. Some hospitals may demand that physicians be board certified to receive privileges.

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Proximate cause is an event which is closest to, or immediately responsible for causing, some observed result.

Distal or fundamental causes are further back in the causal chain and act via a number of intermediary causes

Instead of answering it myself, allow me to share an excerpt from Nassir Ghaemi's book "On Depression" where provides perspective on the "causes" of clinical depression, and whether all causes are made equal.

(Translate "first" cause as Proximate and "efficient" as Fundamental)

Depression and its causes Excerpt from Nassir Ghaemi's "On Depression" This mix of biology and environment needs to be examined, though, like the recipe of an entree: What are its ingredients? Let's start with the environment part, and to do so, we'll go back to that old sage, Aristotle, and take some ideas about causes from him (what follows is not solely what Aristotle said, but what I would derive from his ideas, adding my own views, as relevant to understanding depression). Aristotle's key insight was that if we want to understand what causes what, we have to appreciate that there are different types of causes. In my interpretation of how these ideas are relevant to depression today, I think we can at least clarify two basic classes of causes: those that reflect an underlying susceptibility to depression and those

that trigger, or immediately precede, a period of depression. Let's call the former the "first cause" and the latter the "efficient cause.' (For Aristotle, the first cause was the initial efficient cause that set everything else in motion. Though this idea has mostly been discussed in relation to proving God's existence what Aristotle called the Unmoved Mover- it is relevant to understanding diseases like depression.) The first cause is the initial biological susceptibility to depression; without it, later efficient causes would have no effect. One of the greatest errors in understanding depression is to mistake first and efficient causes, or susceptibility and triggers. The first cause in depression is genetics and early life environment; without these unchanging susceptibilities, later efficient causes could never produce a clinical depressive episode. The efficient causes are the immediate life events that trigger a clinical depression at that time – the divorce, the job loss, or the death

that precedes this episode of depression. The first cause is necessary for later depression though not sufficient; it usually is not enough to lead to the actual depressive episodes of adult life. The efficient causes are not necessary depression can occur without them, and the same life events occur without depression in other people, and even in the same person they do not invariably produce depression but they sometimes are sufficient: in some persons they can lead to depression whenever they occur. So first causes are necessary but usually not sufficient; efficient causes are often sufficient but not necessary. One usually needs both, and neither alone is the cause of depression.

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Q2) The two primary components of medical expenditure are physician services and hospital services. Utility theory seeks to understand why people demand health in general and healthcare services by extension.

People with good health derive benefit by being able to achieve life goals. Poor health consumes a persons time, energy, and money. Good health allows better living standards.

There are two broadly two non-conflicting perspectives. First, health is something valuable in and of itself. Second, health is valuable insofar as it saves the individual the opportunity costs of not availing health viz. time taken to visit doctor, doctor fees, sick leave and related income contraction.

The law of diminishing marginal utility implies that each additional unit of healthcare availed makes progressively smaller additions to the total benefit derived. Thus sometimes healthcare service will be foregone if the incremental gain in utility cannot justify the increment in cost.

Personal examples: mild fever, headache, stomach cramp

Caveat: The Value of the intrinsic "benefit" derived from healthcare consumption is subjective and dependent on context. In the context of COVID-19 the increment in Value/ Utility for a risk-averse economic agent is signficantly higher and arguably no fever is so mild as to be overlooked.

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Q3) (from CRFB.com, Committee for a Responsible Federal Budget)

Overall, health care spending is projected to grow from 5.2 percent of GDP in 2015 to 8 percent by 2040. Growth over the next 25 years (article published in 2015) will mostly be driven by aging of the population (43 percent) and excess health care cost growth (45 percent), and also to a much lesser extent by the coverage expansions in the Affordable Care Act (12 percent).

The aging population will most likely have their cost covered by medical insurance. So one reasonable predication is that the market for medical insurance will expand.