The Economics of Healthcare

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The Economics of Healthcare 1) In a traditional economic market, basic rules of supply and demand create a variance in price and, depending on the situation and how the market is perceptually framed, a variance in the products or services being offered in the market (Prasch, 2008). These variances create and/or are created by relationships between consumers and producers, and an implicit agreement between these two basic parties regarding the value of a good or service is reached simply by determining what price producers can produce at and what price consumers are willing to pay; the connection between producer and consumer is direct (Prasch, 2008). Even in situations where this is complicated by the existence of separate manufacturers, wholesalers/distributors, and retailers, the basic relationship remains the same for each relationship and in the overall market scheme (Prasch, 2008). The healthcare market works quite differently, however, because there is a separation between the consumer and the producer as well as the payer that renders traditional market forces virtually obsolete (Krugman, 2009). Large medical expenses such as those for even basic surgeries are things most people cannot pay for out-of-pocket as they can for other goods and services, and that is why health insurance is used to spread costs out more evenly and provide access to healthcare that could normally not be afforded (Krugman, 2009). This means that the insurer is the payer, in large part,
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