Question

In considering the principles of supply, demand, and market structures, describe how health insurance affects both consumer and producer decisions.

Answer 1

Supply is defined as the availability of an item, while demand is the want or need to have that item.

In health care, uncertainty effects both demand and supply. There is a irregular demand for health care because of an uncertainty of health status, need for care or due to the effectiveness of outcomes. In view to supply- people are unaware of the innovation coming, the quality of treatment, effectiveness of treatment. Uncertainty of demand effects the supply and cannot build inventory. Insurance weakens the price which increases the demand for medical care. Patients do not have to pay the full cost. This is a moral hazard since it causes people to behave differently with insurance than without it. Patients increases the number of the claims and doctors increase the size of the claims.

The main function of health insurance is to protect the people from uncertainty and risks. One distinct problem for market-oriented solutions to health insurance is that, when consumers are offered a choice of health insurance options, the healthy consumers may sort themselves into certain plans and the more risky consumers into others. Consequently, some plans will allure a disproportionate share of less costly low risk consumers, while others with more costly health insurance plans.