This essay will discuss the budget constraint model to understand the consumer behaviors towards health care and the Issue of adverse selection will also be analyzed, followed by the production of health care and the role f the government in the production of health care. This essay will conclude with suggestion of the lessons that policy makers in Canada can learn. Any of the economic models that exist must have assumptions; assumptions must be fulfilled to assert constancy.
In the standard budget constraint model, there are three assumptions: (1) consumers are rational and have perfect information about quantity, pricing and the key players in healthcare, (2) there Is no uncertainty about the future, and (3) Important decisions are made as If the future Is known with certainty. Consumers can choose any affordable combination of healthcare and other odds. Among these bundles, consumer has a set of preference which provided different levels of satisfaction. The budget constraint model states that the demand for medical services is derived from the demand for health care and how the consumer produces health.
Consumers do not purchase health. Indeed, they medical care inputs. An example of the Indian health market supports this model. India has a universal health care system of which government covers most medical services provided, similar to Canada. In India, many of the healthcare consumers are not able to produce health. Their ability to produce health is reduced by the poor vying conditions and living style. Patina in India is a slum; it is characterized with poverty, which encompasses low levels of health and income. People in this town are suffering in poverty and disease.
Patina has been hit by the epidemics and develops symptoms that are attributed to tuberculosis due to poor sanitation and ventilation. They repeatedly require medical care. However, public-health system lacks the medical resources, leaving poor people at risk. This has forced consumer to switch to the private healthcare, but they cannot afford it. These poor people are often the cities, caught between lousy care and unaffordable care (Specter, 2010). Consumers have limited budget and, hence, healthcare production is restricted by their budget, so they have to look for the best affordable bundle of goods to meet their needs.
Under lousy universal health care system, consumers are very much constrained in their choices. Policy makers must understand the budget constraints that the consumer faces. To formulate successful policies, policy makers must also consider the bundles that the consumer is permitted and regulate the private healthcare services to reasonable price (Specter, 2010). Government should also devote sufficient resources to improve the quality of care in the public sector and raise the level of nutrition and the standard of living of its people to reduce healthcare costs.
Similar policies could also apply in Canada to improve our public healthcare system. Private companies that offer health insurance often encounter adverse selection. This phenomenon can be explained by asymmetric information when insurance attracts higher than average utilizes than an actual fair premium suggest. Clients purchasing insurance know their actual expenditures whereas the insurance many only knows the distribution of expected expenditures. In this market, the higher health risks tend to drive out the lower health risk people until no market is left; this is known as the Lemons Principle.
This is inefficient since insurance company is not able to sufficiently pool its risks. In the U. S, congress passed the Genetic information Nondiscrimination act. This act prohibits insurance company from using genetic information to determine rates (Coursework, 2010). Genetic testing provides the insurance company with pre-existing conditions, which gives insurer incentive to deny coverage or set a higher premium. This bill was unanimously supported by congress such that insurer cannot charge higher premiums based on pre-existing conditions.
The main idea of this bill is to protect the community from exploitation by insurance companies, which lead to community rating. At this time, private insurers cannot rely on medical underwriting. However, this act turns the insurance companies into oppression. The only factors they will be allowed to take into account in determining rates will be age, region, and whether or not someone smokes. While the government supports the community rating and universal access, it conflicts with its insistence of that the healthcare reform is dependent on private insurance companies (Coursework, 2010).
Yet, the fact is that healthcare system could do Just fine without an insurance system with community rating. Medicare is a and people with disabilities. It may be true to say that private sectors are better in terms of managing costs and providing services, but Medicare’s spending on healthcare over the past decade has risen more slowly than that of private sectors (Coursework, 2010). Economists all agreed that Medicare is a successful program, but that it needs efficiency improvements to be sustainable in the future (Walker, 2010). Canada can imitate from the success of Medicare in the US.
Medicare in Canada is framed by the Canada Health Act; it is designed to ensure that all residents have reasonable access to medical services, on a prepaid basis. Using our existing insurance system, policy makers should expand the government-run health care regardless of risks. Instead of replacing private insurance companies, it would be more sensible to turn them into public utilities. Netherlands and Switzerland have adopted this proposal, which turns out with reasonably good results. Government has a very large role to play in the production of health services.
Production of health services is the relationship between health and the health inputs that are needed to produce health. The Case in most developed countries is that the government plays a significant role in health production (Coursework, 2010). The government provides health care which is either paid with taxes it collects or subsidy that are given to individuals. The government provides other inputs such as controlling pollution and legislation to regulate health safety. The government also carries out health promotion. This is done by promoting healthy lifestyles such as exercise and also raising awareness about diseases.
The government also puts regulation on excessive consumption of harmful substances. All this defines the role the government is supposed to play in the provision of healthcare. In conclusion, policymakers in Canada can learn from the lessons discussed. Starting with the example of the Indian health market, policy makers should consider budget constraints particularly for the poor people to devote sufficient resources into public health care to improve the laity and regulate the private health care system with reasonable prices.
Government could also raise the level of nutrition and the standard of living of its people to reduce healthcare costs. Secondly, from the US example, it is proven that the healthcare reform does not depend on private insurance companies. Medicare in Canada should also be expanded and private insurer can be turned into public utilities. Finally, though the Canadian government provides medical care, it is important for them to promote health as well. Provision of medical care must go hand in hand with the promotion of health as the case with other developed entries.
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