Public Policy Outlook and Trends: Driving Supply and Demand for Healthcare, Part I
By Alton E. Drew
The Obama Administration’s focus on providing an alternative, government sponsored health insurance plan ignores the basic concept of supply and demand for healthcare service, thus dooms any chance of serious healthcare reform. Specifically, any premise for government intervention into the healthcare market should be based on the market’s inability to deliver healthcare services to consumers. The government’s argument for intervention thus far has been that the average American cannot afford health insurance; therefore, intervening in the market and crafting a government plan that reduces a consumer’s cost is appropriate. An investment in modifying consumer behavior in terms of good health practices combined with promoting an increase of the supply of healthcare providers may provide a more practical and cost-effective long-term solution.
One mistake the Administration and the Congress are making is equating health insurance with the cost of healthcare. Health insurance allows a consumer to reduce the out-of-pocket expenses of purchasing healthcare services. Healthcare services include the diagnostic, treatment, recovery, and health maintenance services you receive from doctors, nurses, healthcare facilities, and other providers. Equating healthcare insurance with healthcare allows the Administration and Congress to ignore the demand-side drivers of healthcare costs while making insurance companies the corporate equivalents of Darth Vader and the other eleven Dark Lords of the Sith.
Ignoring what spurs demand in healthcare is an act we cannot afford health wise or financially. For example, according to a July 2007 report by the Greater New York Hospital Association (GNYHA), ambulatory care visits increased 36% between 1995 and 2005. According to the U.S. Department of Health and Human Services’ Centers for Disease Control and Prevention (CDC), there were over 1.1 billion visits to ambulatory care providers (doctors, nurses, hospitals) in 2006. For every 100 persons, there were approximately 382 annual visits to a physician’s office, hospital, or some other healthcare facility. Between 1996 and 2006, the number of ambulatory care visits increased by 26%, outpacing the 11% growth in the U.S. population for the same period. According to the CDC, this increase in visits is due to the aging of our population. The elderly seek medical care more often than other groups, according to GNYHA.
In 2006, the primary illness addressed during ambulatory visits was hypertension. This amounted to over 40 million visits. In addition, 18.3% of all ambulatory care, according to the CDC, involved visits to doctors’ offices for check-ups and pregnancies.
In 2004, Americans spent $1.9 trillion on health care services. Thirty-seven percent of this expenditure was spent on hospital visits while 26% was spent on visits to physicians’ offices. Among the health risk factors identified by the CDC are smoking, binge drinking and smoking marijuana, lack of exercise, overweight and obesity, and tooth decay. Almost 20% of women and 25% of men are smokers. Smoking is associated with heart disease, stroke, lung cancer, and other lung diseases. Binge drinking and marijuana usage, particularly amongst teenagers, impairs academic performance and encourages risky physical behavior. Lack of exercise is tied in with obesity. Inactivity leads to weight gain, height disease, diabetes, and hypertension.
These risks are driving the demand for healthcare and being that these risks result in part from behavior; by addressing behavior the demand for healthcare services can be reduced. Legislation should address the demand side of the healthcare services market, assuming of course that there is some market failure that deems government action appropriate in the first place. For the legislation to be effective, it should create a disincentive for bad behavior on the part of consumers. While politically unpalatable, any descriptions of a healthcare plan as one designed to contain costs would be disingenuous at best.
Published 30 June 2009