Free Custom «Healthcare Economics» Essay Sample
Market failure is a situation that occurs in a free market under conditions of inefficient resource allocation. Resources in this case refer to goods and services available in the market. Furthermore, it can also be described as a situation whereby there is a lack of certain economically ideal factors that prevent market equilibrium from being realized. Folland, Goodman, and Stano (2016) opine that this is caused by the fact that the quantity of products demanded by consumers fails to equate to the amount supplied. When market failure occurs, it can result in an individual being better off, while not making someone else worse off. Therefore, the main result of market failure is inefficiency.
Scarcity and Choice
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Scarcity and choice are two terms in economics, which go hand in hand and can be used to explain human behavior. The first refers to the limitation of available resources. According to Folland et al. (2016), scarcity occurs when the demand for something is greater than its supply. In this regard, it takes place when human wants become greater and available resources cannot meet them sufficiently. Choice usually comes into play after scarcity has occurred. Consequently, it is a term that describes the situation when individuals are forced to choose between their unlimited demands, particularly which one to satisfy and which to sacrifice.
Cost Benefit Analysis
Cost benefit analysis refers to a systematic approach applied in the estimation of related strengths and weaknesses of alternatives that effectively provide satisfaction with a given transaction or certain functional requirements for a business project. It can also be described as a process that is used to guide many noncritical financial decisions. In the views of Folland et al. (2016), in most instances, these decisions are usually considered mission critical or involve a substantial amount of money. Through the CBA process, it is possible to total up the equivalent money value of benefis expected and costs to be incurred. In this sense, the worthwhile nature of a given project can be easily determined.
The Role of Competition in Healthcare
The role of competition in healthcare has been a topic of debates with some asserting that it should not be present in such an industry given the life and death situation and others affirming that it is a necessity. In line with this, it cannot be disregarded that competition has a place in healthcare. Folland et al. (2016) reiterate that competition functions to improve processes and methods resulting in the reduction of cost. In addition, through it, the quality of services provided in healthcare institutions rises. It further increases patient satisfaction and cultivates a culture of trust between patients and service providers. Another role of competition in healthcare is that it encourages innovation in the sector. It is vital leading to the development of better healthcare equipment and procedures.
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Cost of Illness
The cost of illness (COI) refers to personal expenses incurred as a result of an acute or chronic disease. It is essential to note that they are not necessarily in the monetary form. In this regard, apart from the cost being economic in nature, it can also be social or psychological. According to Folland et al. (2016), it can affect the individual suffering from the associated disease, family, or the entire community. The COI has a significant impact on healthcare, which is mostly negative in nature, for example, overburdening the healthcare system. It has a stronger effect when it comes to public healthcare plans, such as Medicaid and Medicare, which require paying large sums of money to cover this cost. Another impact of the COI on healthcare is an increase in the resources required to treat a disease.
Market Externalities and Public Goods
Market externalities and public goods are two terms, which are closely related because they influence each other. Folland et al. (2016) define the first as economic side effects that influence the lives of uninvolved individuals. In this regard, an externality takes place when the wellbeing of a person is directly impacted by actions of others. Market externalities may thus be positive or negative in nature. Positive ones make a beneficial effect on the uninvolved individual, such as the provision of education and vaccination. Negative externalities are harmful to the third party. Public goods are such items, which can be consumed by many consumers and are usually provided by the government since they do offer much profit. They have a distinct characteristic of being non-excludable and non-rivalrous.
Fee-for-service (FFS) refers to a payment system, whereby services are usually unbundled and paid for independently. In this regard, healthcare providers are usually paid only for each service they provide. Folland et al. (2016) postulate that in this kind of payment system, each state develops its own rate for FFS. The latter impacts the reimbursement for providers in the following way. It enables them to receive the known predetermined amount of payment for each service delivered. It is sometimes referred to as a fixed reimbursement. Another impact is that the reimbursement is paid to providers in the amount equal to costs incurred for treatment in addition to a percentage above the cost.
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Quality and Its Significance in Healthcare Economics
Quality refers to the extent of excellence that can be detected in something. In relation to healthcare, it is a degree, to which health services increase the likelihood of a desired outcome. It is consistency in healthcare delivery, which creates satisfaction in patients. Quality is essential when it comes to healthcare economics. According to Folland et al. (2016), one critical reason for it is its importance when it comes to cost reduction. In this sense, the higher the quality, the lower the cost. It can be attributed to the fact that there are fewer procedures conducted following a mess-up situation preventing extra cost.
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