THE ECONOMICS OF HEALTH CARE - Term Paper Example

s within the demand and supply model, the factors operating in isolation or together contribute to the shift in demand curve to the right, resulting in realization of higher price and quantity of medical care over time. In addition, expenditure on medical care, the product of price and quantity has at the same time increased (Santerre and Neun, 2009). On the supply side, when wages outpace productivity, the demand and supply curves shift to the left, and as a result, the price of medical care increase; however, since demand for medical care in most cases appear to be price inelastic, the increase in price leads to increase in healthcare (Santerre and Neun, 2009).

Another factor on the supply side seen to contribute to increase in healthcare costs has been identified to be cost-enhancing technologies. Information asymmetry has been associated with imperfect market or malfunctioning of the market, as health care suppliers and consumers remain separated with degree of how they know each other. Theoretical economics and empirical data have postulated that an insurance market can distort and result into disequilibrium due to adverse selection whenever there are several plan options offering different benefits and pricing structures (Farley, Wynn and Rand Corporation, 2002).

For instance, healthier people usually get inclined towards leaner, expensive plans while sicker people are willing to pay more for richer benefits (Farley, Wynn and Rand Corporation, 2002). As a result, richer plans may experience adverse selection and higher health care costs, which force an increase in premiums to cover for the costs. This leads to more undesirable selection and market segmentation (Farley, Wynn and Rand Corporation, 2002). In the process, some plans are forced to drop out of the market, leaving high cost consumers with undesirable benefits options (Farley, Wynn and Rand Corporation, 2002).

Information asymmetry therefore results into ineffective plan choices, where again,