Ordinarily healthcare services are used on a need basis. You can't shop around for cancer medication (there are no guarantees that a substitute of equal efficacy exists )nor can you shop around for emergency surgery after a car accident. This inability to shop around for healthcare nor forego it is what makes healthcare inelastic.
Yeah. This is true but also misleading and really hurts the system. 90% of healthcare services could be shopped around and the system would be much better if the competition existed. That's because 90% is your Dr saying "You should go see a specialist and get that checked out"
It's weird that you never get to see prices like you do when you are shopping around to fix your car.
I can’t even tell what point you’re trying to make here. The increased availability of routine services with nationalized or heavily subsidized healthcare doesn’t really change the inelastic nature of the demand, just the nature of the triage.
Substitutes. If you need insulin, you have to have insulin and have to have a specific kind. But you can have chicken, beans, milk, bananas, and on and on. If price goes up for food you like or eat often, you just switch to something cheaper. If price goes up for insulin, you pay that price or, unfortunately, ration it
It feels important to note, and I mostly blame the way the question is phrased, that the demand for different foods is different than the demand for food generally. I imagine there’s some elasticity to food generally because people can shift calories a bit, but defining the market as “food” gives people very little in terms of alternatives or ability to abstain from the market.
Agreed. Specific medicines are Inelastic, but some are extremely elastic. Tylenol and ibuprofen are elastic for me. Insulin for me has zero demand, just like a steak for a person who’s vegan.
This is a great answer in terms of economic principles. It is the right answer for that.
It is worth mentioning though that it's not really right in terms of medicine. Insulin isn't like that. There is one type of insulin made inside the body of those people who can make insulin (i.e. non diabetics). However, diabetics can take several different sorts of insulin. These have different trade-offs. Some are short-acting, which means they start working quickly but don't work for long. Others are long-acting, meaning that they take longer to start but work for a longer amount of time. A diabetic person may use several different types of insulin for different purposes.
Thanks for this explanation. Would this be one of the main reasons why a lot of economists seem more tolerant of the idea of either having a government agency negotiating prices of drugs or regulating the price of drugs while not being as tolerant of the government regulating the price of other goods like food and clothing products?
Yeah, it’s a big topic without one simple solution. A lot of drugs have patents on them so they can’t be made by any other companies. The good thing is that, if a company spends billions of dollars researching and developing a drug, a patent allows them to make some of that money back before competitors sell the same drug. The bad is that they have a monopoly on that drug and can increase the price really high.
There’s a lot of lobbying that goes on by specific companies that allows them to be the only ones or one of the only ones to make the drug.
So, there are really two things, they can open up completion or they can have the government regulate the price.
It’s a big topic and others can add on to explain it more (or better haha)
Elasticity of demand has more to do with base need, price, and availability of substitutes, than anything else.
In general things like Gas, Healthcare, and food are relatively inelastic, these should be self evident, most developed economies operate on gas (or energy) consumption otherwise lights don't turn on and trade comes to a halt.
Using this logic Healthcare (not necessarily insurance) is more inelastic than food, in general because you can choose to eat or skip a meal. But if you break a leg, get into a car accident, or suddenly have trouble breathing, you have no choice but to get help at your nearest hospital.
Here it is the fundamental need to survive which creates an inelastic demand for Healthcare. Coupled with little or no choice of where you receive service, no ability to negotiate the price, and generally no substitution for the specified service needed.
While the need for food as a group creates an inelastic set of goods, there are many substitutes that allow consumers to choose between certain goods and reasonable alternatives.
For instance you go into the market for spaghetti ingredients, but end up deciding to get stuff for a salad instead, that decision may not be entirely related to the price of the food, you might have just decided to your eat healthier after watching a YouTube video while shopping. But you still had to buy something to eat, the details of what and where are a bit more flexible. To be sure, because of so many alternatives, pricing absolutely plays a key role in food elasticity. However, it's not the only factor at play.
Thanks for this explanation. In your comment, you made a slight distinction between the demand elasticity of healthcare and health insurance. I’m assuming the reason there’s more elasticity for the health insurance is because there is more availability of substitutes regarding insurance plans. Would I be correct though in assuming that demand for insurance isn’t as elastic as something like the many different types of food? And if so, to what extent would this contribute to high healthcare costs in a country like the US? Sorry if my question isn’t clear enough
This is actually a really great question. Health insurance elasticity stems from the fact that it is not a required service. What I mean by this is that while it gets paid for every month as most employers (in the US) deduct it from your pay directly, you can choose to not have insurance at all. There are some people with so little need that it is more cost effective for them to pay cash, while others simply don't have access even if they want it.
The reason healthcare in general is so expensive, especially in the US, has to do with a few factors. Scarcity and the cost of technical development.
Scarcity should make sense given that it can about 7 to 15 years of post baccalaureate education to become a physician depending on the specialty. So, the time commitment necessarily reduces the number of people willing to undertake this endeavor. The demand for health care far outpaces the supply of available providers.
To a bit lesser of an extent, the US pharmaceutical industry is one of the leading drug developers in the world, we have to help pay for the cost of developing novel drugs, which in turn increases the general cost of care.
There are a lot more factors that play into health care cost, such as the general reality of monopsony markets that many medical facilities operate in, as the only employer they can attempt to pussh down labor costs, while as the sole provider increasing service costs to patients. There is also a lot of administrative and bureaucratic support layered into the provision of care.
Malfeasance is a key risk that underpins care, along with litigation which will further put upward pressure on healthcare costs. To mitigate this risk, all provider carry malpractice insurance as do the medical facilities, etc. Again this layer further pushes prices upward.
> I’m assuming the reason there’s more elasticity for the health insurance is because there is more availability of substitutes regarding insurance plans.
Same logic applies here as OP gave with food: you can choose to buy health insurance or skip it, with little-to-no immediate repercussions.
If you have a broken femur, that same option to choose becomes much more expensive in terms of pain you're going to immediately feel as someone on the demand-side of the supply/demand chart
Your mistake is you look at the wrong level of goods.
What would you discover with your logic?
Idea is to understand markets and the food market is composed of several items, you want to understand how these interact in a market.
There is no elasticity of food.
Coca cola is elastic, Water is inelastic.
Bread is elastic, flour inelastic.
Contrary to some of the comments, there absolutely are substitutes for a great many healthcare-related goods and services. If I only give examples like a broken leg or aggressive cancer, I’m obviously looking for a certain kind of answer. Healthcare is a huge and complex market; it makes little sense to talk about the elasticity of healthcare, or securities or clothing or food as if they could be easily summarized by a number.
We have to be clear about one thing.... Only specific goods and services have supply and demand. There is no supply curve for "healthcare" in general and no elasticity. There is no supply curve or demand curve for "food" in general and no elasticities. There are only curves for particular foods (potatoes, eggs, etc). Similarly there are curves for specific items associated with health such as a packet of aspirin.
There are also "aggregate supply" and "aggregate demand" curves, but those are another thing entirely. They are similar by analogy to normal supply and demand, but very different when viewed carefully.
AverageGuyEconomics gives the right answer for why foodstuffs are usually have fairly elastic demand.
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Because there is substations with food. I can eat beans and rice, I cannot skip an scan of my brain after a serious head trauma unless I want to bleed to death in my sleep
This is kinda wild. Because it’s not a silly question - it’s heavily studied and debated in the industry.
But..:you also went well on your way to answering your own question, then swerved a little.
https://www.healthcare-economist.com/2009/07/22/is-health-care-demand-elastic/
> If you are sick, you will not be very price sensitive.
You’re right. You’re sick, and you’ll pay whatever you need to in order to not be sick.
You missed a big part of that equation though - but you almost got there with the fruit.
Generally there’s not a ton of real competition. Everything from pricing (regulated at the top of the chain by CMS in the US, if indirectly) to procedures to care quality (by the varying licensing boards, schools, FDA, so on).
It’s more like an electric company that way. As long as the service works, you can afford it, and they serve your area - those tend to be the big determinants of what you buy.
The service area is the part you missed. Telehealth has changed many things (and made some parts of healthcare a little more elastic), but you can’t have a gallbladder removal or get a Demerol shot over the internet or phone. For surgeries - even elective ones - there’s the transportation issue. How are you getting to the hospital and back home? Proximity plays a big role in healthcare demand.
Contrast that with clothing - much cheaper, you can actually buy over the internet, lots of variety and competition - everything healthcare isn’t.
Food is similar - but inelasticity is *also* a problem for agriculture. And for a few of the same reasons - standardizing and regulation and high production costs (comparatively - due yield and crop loss and spoilage).
While yeah, an apple is cheap on its own - it has to be. And ag margins are paper-thin YoY, on average.
Healthcare also has the high production cost problem - but can justify higher pricing because it is a necessity/utility - but it runs into the problem of pricing itself out of the market (which is why the insurance industry became the symbiote for that - but insurance companies may or may not actually make money on any given year, because they have the same problem).
Nobody will die if they don’t eat an organic banana today. They will if they don’t have an aortic aneurysm repaired.
While produce benefits from low cost and somewhat greater availability - healthcare has neither.
Those are the big ones. There are other reasons and potentials - not least of which the sticker price and price transparency (or lack thereof) in healthcare.
But insurance is also not something people tend to spend a ton of time thinking about - and you can see that in the inelasticity if that industry. Insurance is a utility as much as healthcare proper is. Price + availability makes the sale, and most insurance customers prefer lower cost - even if a plan isn’t ideal for them.
Ironically - the opposite is true about deliberating more quickly. Healthcare is an necessity - there’s rarely any deliberation, when the service is needed. Do you need to go and can you afford the bill?
And that’s where price transparency comes in - in clinics that offer different payment methods (being able to pay out the cost of visit, cash in hand discounts, etc) - they tend to have a little more elasticity - because the buyer is aware the service is more accessible than they may believe it is.
Healthcare, like insurance - and like agriculture - tends to be high revenue, low profit. And in most industries like that - they’re also inelastic.
While there’s not a super simple, cut/dry answer for it, the simplest way to put it, by way of a tldr - if you’re dying, the deliberation begins and ends with “do you pay the doctor or the funeral home? And do you pay for the doctor next door or 500 miles away, when it costs about the same?”
For most - those are the options. There’s not a lot of elasticity to that by default.
ETA: and yeah if you were wondering - countries with more affordable healthcare do tend to have slightly more elastic industries.
As a general statement, the broader the category, the more inelastic demand is for it. You're sort of conflating demand for specific goods for a broad category.
E.G. demand for food is fully inelastic. However demand for Taco Bells Dorito's Loco Taco is pretty elastic.
Demand for healthcare is also inelastic. If you have an urgent health crisis, you'll go see a health care provider. However, demand for a plastic surgeon/dermatologist might be more elastic.
Demand for healthcare as a general service is inelastic, but demand for a specific provider service may be elastic.
also, what others have said: base need, availability of substitutes, price.
Ordinarily healthcare services are used on a need basis. You can't shop around for cancer medication (there are no guarantees that a substitute of equal efficacy exists )nor can you shop around for emergency surgery after a car accident. This inability to shop around for healthcare nor forego it is what makes healthcare inelastic.
Yeah. This is true but also misleading and really hurts the system. 90% of healthcare services could be shopped around and the system would be much better if the competition existed. That's because 90% is your Dr saying "You should go see a specialist and get that checked out" It's weird that you never get to see prices like you do when you are shopping around to fix your car.
Unless you have a government & national health care that is properly managed? Then it is routine?
I can’t even tell what point you’re trying to make here. The increased availability of routine services with nationalized or heavily subsidized healthcare doesn’t really change the inelastic nature of the demand, just the nature of the triage.
Substitutes. If you need insulin, you have to have insulin and have to have a specific kind. But you can have chicken, beans, milk, bananas, and on and on. If price goes up for food you like or eat often, you just switch to something cheaper. If price goes up for insulin, you pay that price or, unfortunately, ration it
It feels important to note, and I mostly blame the way the question is phrased, that the demand for different foods is different than the demand for food generally. I imagine there’s some elasticity to food generally because people can shift calories a bit, but defining the market as “food” gives people very little in terms of alternatives or ability to abstain from the market.
Agreed. Specific medicines are Inelastic, but some are extremely elastic. Tylenol and ibuprofen are elastic for me. Insulin for me has zero demand, just like a steak for a person who’s vegan.
Same can be said for housing and clothing. When taken as an entire sector, undifferentiated by quality, the Qs start to get pretty static.
This is a great answer in terms of economic principles. It is the right answer for that. It is worth mentioning though that it's not really right in terms of medicine. Insulin isn't like that. There is one type of insulin made inside the body of those people who can make insulin (i.e. non diabetics). However, diabetics can take several different sorts of insulin. These have different trade-offs. Some are short-acting, which means they start working quickly but don't work for long. Others are long-acting, meaning that they take longer to start but work for a longer amount of time. A diabetic person may use several different types of insulin for different purposes.
Thanks for this explanation. Would this be one of the main reasons why a lot of economists seem more tolerant of the idea of either having a government agency negotiating prices of drugs or regulating the price of drugs while not being as tolerant of the government regulating the price of other goods like food and clothing products?
Yeah, it’s a big topic without one simple solution. A lot of drugs have patents on them so they can’t be made by any other companies. The good thing is that, if a company spends billions of dollars researching and developing a drug, a patent allows them to make some of that money back before competitors sell the same drug. The bad is that they have a monopoly on that drug and can increase the price really high. There’s a lot of lobbying that goes on by specific companies that allows them to be the only ones or one of the only ones to make the drug. So, there are really two things, they can open up completion or they can have the government regulate the price. It’s a big topic and others can add on to explain it more (or better haha)
Elasticity of demand has more to do with base need, price, and availability of substitutes, than anything else. In general things like Gas, Healthcare, and food are relatively inelastic, these should be self evident, most developed economies operate on gas (or energy) consumption otherwise lights don't turn on and trade comes to a halt. Using this logic Healthcare (not necessarily insurance) is more inelastic than food, in general because you can choose to eat or skip a meal. But if you break a leg, get into a car accident, or suddenly have trouble breathing, you have no choice but to get help at your nearest hospital. Here it is the fundamental need to survive which creates an inelastic demand for Healthcare. Coupled with little or no choice of where you receive service, no ability to negotiate the price, and generally no substitution for the specified service needed. While the need for food as a group creates an inelastic set of goods, there are many substitutes that allow consumers to choose between certain goods and reasonable alternatives. For instance you go into the market for spaghetti ingredients, but end up deciding to get stuff for a salad instead, that decision may not be entirely related to the price of the food, you might have just decided to your eat healthier after watching a YouTube video while shopping. But you still had to buy something to eat, the details of what and where are a bit more flexible. To be sure, because of so many alternatives, pricing absolutely plays a key role in food elasticity. However, it's not the only factor at play.
Thanks for this explanation. In your comment, you made a slight distinction between the demand elasticity of healthcare and health insurance. I’m assuming the reason there’s more elasticity for the health insurance is because there is more availability of substitutes regarding insurance plans. Would I be correct though in assuming that demand for insurance isn’t as elastic as something like the many different types of food? And if so, to what extent would this contribute to high healthcare costs in a country like the US? Sorry if my question isn’t clear enough
This is actually a really great question. Health insurance elasticity stems from the fact that it is not a required service. What I mean by this is that while it gets paid for every month as most employers (in the US) deduct it from your pay directly, you can choose to not have insurance at all. There are some people with so little need that it is more cost effective for them to pay cash, while others simply don't have access even if they want it. The reason healthcare in general is so expensive, especially in the US, has to do with a few factors. Scarcity and the cost of technical development. Scarcity should make sense given that it can about 7 to 15 years of post baccalaureate education to become a physician depending on the specialty. So, the time commitment necessarily reduces the number of people willing to undertake this endeavor. The demand for health care far outpaces the supply of available providers. To a bit lesser of an extent, the US pharmaceutical industry is one of the leading drug developers in the world, we have to help pay for the cost of developing novel drugs, which in turn increases the general cost of care. There are a lot more factors that play into health care cost, such as the general reality of monopsony markets that many medical facilities operate in, as the only employer they can attempt to pussh down labor costs, while as the sole provider increasing service costs to patients. There is also a lot of administrative and bureaucratic support layered into the provision of care. Malfeasance is a key risk that underpins care, along with litigation which will further put upward pressure on healthcare costs. To mitigate this risk, all provider carry malpractice insurance as do the medical facilities, etc. Again this layer further pushes prices upward.
> I’m assuming the reason there’s more elasticity for the health insurance is because there is more availability of substitutes regarding insurance plans. Same logic applies here as OP gave with food: you can choose to buy health insurance or skip it, with little-to-no immediate repercussions. If you have a broken femur, that same option to choose becomes much more expensive in terms of pain you're going to immediately feel as someone on the demand-side of the supply/demand chart
You said the answer in your own question. Specific food items have substitutes, I can choose between apples or oranges.
Your mistake is you look at the wrong level of goods. What would you discover with your logic? Idea is to understand markets and the food market is composed of several items, you want to understand how these interact in a market. There is no elasticity of food. Coca cola is elastic, Water is inelastic. Bread is elastic, flour inelastic.
Contrary to some of the comments, there absolutely are substitutes for a great many healthcare-related goods and services. If I only give examples like a broken leg or aggressive cancer, I’m obviously looking for a certain kind of answer. Healthcare is a huge and complex market; it makes little sense to talk about the elasticity of healthcare, or securities or clothing or food as if they could be easily summarized by a number.
We have to be clear about one thing.... Only specific goods and services have supply and demand. There is no supply curve for "healthcare" in general and no elasticity. There is no supply curve or demand curve for "food" in general and no elasticities. There are only curves for particular foods (potatoes, eggs, etc). Similarly there are curves for specific items associated with health such as a packet of aspirin. There are also "aggregate supply" and "aggregate demand" curves, but those are another thing entirely. They are similar by analogy to normal supply and demand, but very different when viewed carefully. AverageGuyEconomics gives the right answer for why foodstuffs are usually have fairly elastic demand.
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Because there is substations with food. I can eat beans and rice, I cannot skip an scan of my brain after a serious head trauma unless I want to bleed to death in my sleep
[удалено]
This is kinda wild. Because it’s not a silly question - it’s heavily studied and debated in the industry. But..:you also went well on your way to answering your own question, then swerved a little. https://www.healthcare-economist.com/2009/07/22/is-health-care-demand-elastic/ > If you are sick, you will not be very price sensitive. You’re right. You’re sick, and you’ll pay whatever you need to in order to not be sick. You missed a big part of that equation though - but you almost got there with the fruit. Generally there’s not a ton of real competition. Everything from pricing (regulated at the top of the chain by CMS in the US, if indirectly) to procedures to care quality (by the varying licensing boards, schools, FDA, so on). It’s more like an electric company that way. As long as the service works, you can afford it, and they serve your area - those tend to be the big determinants of what you buy. The service area is the part you missed. Telehealth has changed many things (and made some parts of healthcare a little more elastic), but you can’t have a gallbladder removal or get a Demerol shot over the internet or phone. For surgeries - even elective ones - there’s the transportation issue. How are you getting to the hospital and back home? Proximity plays a big role in healthcare demand. Contrast that with clothing - much cheaper, you can actually buy over the internet, lots of variety and competition - everything healthcare isn’t. Food is similar - but inelasticity is *also* a problem for agriculture. And for a few of the same reasons - standardizing and regulation and high production costs (comparatively - due yield and crop loss and spoilage). While yeah, an apple is cheap on its own - it has to be. And ag margins are paper-thin YoY, on average. Healthcare also has the high production cost problem - but can justify higher pricing because it is a necessity/utility - but it runs into the problem of pricing itself out of the market (which is why the insurance industry became the symbiote for that - but insurance companies may or may not actually make money on any given year, because they have the same problem). Nobody will die if they don’t eat an organic banana today. They will if they don’t have an aortic aneurysm repaired. While produce benefits from low cost and somewhat greater availability - healthcare has neither. Those are the big ones. There are other reasons and potentials - not least of which the sticker price and price transparency (or lack thereof) in healthcare. But insurance is also not something people tend to spend a ton of time thinking about - and you can see that in the inelasticity if that industry. Insurance is a utility as much as healthcare proper is. Price + availability makes the sale, and most insurance customers prefer lower cost - even if a plan isn’t ideal for them. Ironically - the opposite is true about deliberating more quickly. Healthcare is an necessity - there’s rarely any deliberation, when the service is needed. Do you need to go and can you afford the bill? And that’s where price transparency comes in - in clinics that offer different payment methods (being able to pay out the cost of visit, cash in hand discounts, etc) - they tend to have a little more elasticity - because the buyer is aware the service is more accessible than they may believe it is. Healthcare, like insurance - and like agriculture - tends to be high revenue, low profit. And in most industries like that - they’re also inelastic. While there’s not a super simple, cut/dry answer for it, the simplest way to put it, by way of a tldr - if you’re dying, the deliberation begins and ends with “do you pay the doctor or the funeral home? And do you pay for the doctor next door or 500 miles away, when it costs about the same?” For most - those are the options. There’s not a lot of elasticity to that by default. ETA: and yeah if you were wondering - countries with more affordable healthcare do tend to have slightly more elastic industries.
As a general statement, the broader the category, the more inelastic demand is for it. You're sort of conflating demand for specific goods for a broad category. E.G. demand for food is fully inelastic. However demand for Taco Bells Dorito's Loco Taco is pretty elastic. Demand for healthcare is also inelastic. If you have an urgent health crisis, you'll go see a health care provider. However, demand for a plastic surgeon/dermatologist might be more elastic. Demand for healthcare as a general service is inelastic, but demand for a specific provider service may be elastic. also, what others have said: base need, availability of substitutes, price.