Healthcare Supply and Demand -- Chapter 2

The 2008 census report reported that 15.3% of people in the United States are without health insurance, a decrease of 45.7 million people from the 2007 study claiming 15.8%.

Using a simple supply and demand model, if universal health care is implemented and the 15.3% of the population that was not covered before would now have access to the health care system, then demand for health care related services will increase.

Supply is currently based on number of practicing physicians (MD and DO), number of students in medical school, number of medical professionals (NP and PA) current medical school graduation rates, number of physicians retiring, taking leave of absence, sabbaticals, etc. Taking this into consideration, supply, will at most, stay the same, though the additional patients merged into the system will likely create a shortage with rural areas suffering the most from the shortage.

With an increasing demand and stagnant/decreasing supply the price will increase until supply catches up with demand (so much for controlling health care costs).

This may seem a simple fix, graduate more physicians into healthcare, but physicians are not the only piece of the health care puzzle.

Nurses (Registered Nurses and Licensed Practical Nurses) are required to run/staff hospitals, surgery centers, Intensive Care Units, Emergency and Accident Centers, clinics, quick-care centers, school health, telephone referral programs, community wellness centers, and health care in general. Nursing has long been known to have a shortage. Currently the average age of a Registered Nurse is more than 46 years old, and the retirement planned age is 55. With an aging workforce and forecasted shortage of more than one million nurses through 2020, the supply side of healthcare is quickly diminishing. (This estimate did not include implementation of universal health care and the additional 45.7 million currently uncovered individuals which will greatly affect the number of nurses needed to staff current facilities, let alone increase the number of staffed facilities.)

"If 46 million more people are added to the demand side of the health-care equation without optimistic productivity gains in providing health care, we likely will see a trade-off between quality and quantity, particularly as services are rationed."

Case loads per provider will increase, wait times will increase, quality will decrease. Yes, healthcare reform is necessary, however, the 85% of the population that has care should not have to lose access to care to provide for those that have not secured health care coverage for themselves.

Chmura, C., Supply and demand may hinder health-care reform. Richmond Times-Dispatch. September 7, 2009.


Amelia said...

This article is looking at short-run supply for health care. While we may be short of health care professionals in the short-run, over the long-run students will be encouraged to enter into medical professions. This is seen all of the time in schools. There is a shortage for certain professions and there is a resulting "boom" in students in the career area.

Certainly, the short-run indicates that there will be a shortage of health care professionals. However, the increase in demand for health care will increase competition between suppliers. In the long-run, consumers will benefit from this because they will be able to pick the health care that they can afford and they will be able to choose doctors they trust.

According to pg. 103 in the text, "The freedom of entry and exit is the key difference between the short and long-run." Those professionals that cannot cover their costs will exit the industry, making room for others to enter the industry because they see that they will make a profit. Accordingly, the supply will eventually reach demand and establish equilibrium.

Dr. Tufte said...

Maya - your numbers in the first paragraph are way off. It should be a change of a few hundred thousand.

Demand will only increase if those people without insurance are actually also forgoing healthcare. If they're just paying for it out of pocket, then there won't be much change.

So ... having made those 2 points, the rest is OK. If we're really worried about costs, we need to do something to increase the supply of medical professionals so that they get paid less. The fact that you don't hear much about that ought to tell you that most proposals won't do much to reduce costs.

Amelia: I think you've made a good point, except for the fact that medical education explicitly does not allow for free entry. So, we shouldn't be surprised if this market doesn't work the way it is supposed to.

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