Price Elasticity

Price Elasticity and Healthcare
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Price Elasticity and Healthcare
When discussing the concept of price elasticity in healthcare we are looking at the change in demand that is, the number of people who will seek healthcare as the price increases or reduces. Price elasticity shows how the demand for a consumer changes as the prices change. For example, the price elasticity of health care is explained as the quantity of medical care that is demanded divided by the difference in percentage in the price of the same commodity. Price elasticity of health care is between 0 and -1. It means that the demand for the healthcare services can reduce when the price that the patients have to pay for the services rise. Hence, the apparent conclusion that healthcare is inelastic.
The world leaders are now faced with the increasing cost of healthcare and are discussing the methods in which they will reduce expenditures. Various externalities affect the concept; for instance, some people frequently visit the doctor because they are very sick or have good medical insurance. For the essential services like maternity, outpatient services and ambulance services the prices are relatively stable despite the income differences among various individuals (Yu, 2016). That is to say, the spending for essential commodities is the same for both high and low-income earners. To the contrary, the demand for discretionary services is quite income inelastic.

This means that the demand doesn’t change with increase or decrease in the price level hence low-income earners seeking discretionary services from the hospital are highly elastic to the price changes thus bringing down the need to cut on the cost for both essential and discretionary spending.
One factor determining the price elasticity in healthcare is the economic standing. This is because income profoundly influences the demand for healthcare. Income elasticity measures the change in the percentage of demand for medical services as an individual’s income increases The higher the income level, the higher the spending of an individual.Furthermore, income and education levels are significantly correlated (Yu, 2016). This is because with higher education one can recognize signs and symptoms of specific ailments as well as increase the consciousness about his health, which increases the demand for health. For example, the need for the optional services like the cosmetic surgeries which are very expensive may be quite income elastic because changes in price will not affect consumption of the service (Yu, 2016). Because of their higher price sensitivity low-income earners are most vulnerable because much of their healthcare is not discretionary; hence those with chronic diseases with a high nominal cost are most vulnerable and likely to succumb to the illness
The other factor influencing price elasticity in health care is the price. This is because many individuals are ordinarily low-income earners and would only opt for the essential services, which are mostly provided at a lower cost compared to the discretionary services. This will also limit the number of visits that an individual makes to the healthcare facilities unless it is somewhat necessary (Yu, 2016). The health status also plays a very vital role in determining the number of visits one makes to the doctor. For those with good health; they will visit the doctor only when necessary. In conclusion, it has been estimated that the number of appointments one makes to the healthcare facilities clarifies at least a third of the price elasticity.
Reference
Yu, H. (2016). China’s medical savings accounts: an analysis of the price elasticity of demand for health care. The European Journal Of Health Economics, 18(6), 773-785. http://dx.doi.org/10.1007/s10198-016-0827-9