Economic Tools and Concepts

Topics: Health care, Health economics, Health insurance Pages: 6 (1610 words) Published: March 14, 2012
Economic Tools and Concepts
As one leader in the free world more money is spent on health care in this country than any other industrialized nation. The major expense to the health care system is managing chronic diseases and illnesses. Each year trillions of dollars are spent on health care, which continues to be an economic burden in this country. The impact on the economy can be attributed to increasing health care costs, declining health of Americans, and decrease productivity among workers (Preventive Medicine, 2009). The goal of this paper is to discuss the various economic tools and concepts such as supply and demand curves and price elasticity, and marginal analysis in the managed health industry.

The government has poured about 75%-80% of money dedicated to health care in treating not curing or preventing diseases such as hypertension, cardiovascular disease, and diabetes. The Centers for Disease Control (CDC) and evidence-based medicine confirmed that by eliminating poor diets, sedentary lifestyles, and smoking, the start of chronic diseases is prevented. This knowledge solidified the preventive medicine approach and led to an increased supply of health care providers, health and wellness programs, and increasing demand from consumers. Supply Curve

Changes in supply take place because of several determining factors such as shortages of preventive health care providers or an increase in health plan enrollments. If the level of cost changes the supply curve will shift. For example health care cost will increase if the income of the health care provider or other medical services increases. In addition, managed care plans have set rates and provide incentives to providers and patients by reducing or paying for preventive care services such as health risk appraisals, health screenings, and counseling.

One way to manage health care costs is through the use of Supply Management, which the health care providers determine what type of care the patient receives. The objective is to have a “gatekeeper” plan and decide appropriate and cost-effective health care. Supply management determines when and what type of care is provided such as colonoscopy and body scans after 50. The supply of health care also can be reduced by increasing deductibles and co-pays, eligibility requirements, and restrictions on service coverage (AIPM, 2011). Demand Curve

Chronic conditions and diseases affect about125 million people in America and hundreds are newly diagnosed daily. In 2006, nearly $2.3 trillion was spent on chronic disease management (Preventive Care, 2009). Currently, health care in this country is predetermined for monetary compensation and changes may occur because of the absence or presence of insurance plans. Historically basic health care cost and reimbursements have been funded by private insurers and third–party payers such as Medicare and Medicaid. The insurance plans paid for medical services and the insurance providers were billed. But because of greed and an increase in fraudulent claims, health care was subsequently switched to a managed care system in an effort to control excessive health care costs.

The high-demand for healthcare is an aging population, increasing incomes, and improvements in medical technology. Providing health care for the elderly has increased significantly and healthcare systems must anticipate and provide quality healthcare. The advances made in medical technology have provided better treatments, which has given the elderly a better quality of life as well as extended it. Other resources can cause managed care shifts such as land, labor, income, capital, goods, and services.

Increases in the health care cost leads to a reduction in revenue and the price of health care is more expensive in relation to other goods and services. So there is an inverse relationship between salary increases and demand. Unfortunately, any reduction in earnings will also decrease the amount of...

References: AIPM. (2002). Achieve an R.O.I. on Your Health Care Dollars. Retrieved Jan 21, 2012, from
American Institute for Preventive Medicine (AIPM):
Say Experts. Retrieved Jan 21, 2012, from American Academy of Family Physicians:
Preventive Services in U.S. Health Care Could Save Lives at Little or No Cost. Retrieved
Jan 23, 2012, from Health Affairs:
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