Market Failure

1. Market Failure Case Study 4

2. P DD’ SS’ DD P’ P Q Q Qs Qd Q’ Introduction: Dd and ss of healthcare has changed over the years. Generally, health care priceshave risenand this implies that dd has risen more than ss. SS Adj process Initial eqm is OP and OQ. Data shows that healthcare prices have been rising → DD to DD’ > SS to SS’. At OP→ Qd> Qs→ shortage → pressure on prices to rise. ↑Qty ss &↑qty dd falls. 0P ↑ 0P’ , 0Q ↑ 0Q’.

3. Devt1: Ddhas risen from DD1 to DD2 Subsidies (Consumers) – Government policies Extract 1→ govtsubsidisesconsumptn of healthcare through policies like MediShield and Medifund. MediShield … Medifund …These policies increases affordability of medical services & hence, demand. Age composition of popn • Table 1→Rising life expectancy and the growg proportion of aged popn →↑dd for health care & hence P of healthcare services. The elderly are likely to encounter more frequent and prolonged spells of illness. Furthermore, health care expenditure for this group is extraordinarily high in their last years of their life. Accessibility of services and availability of information Extract 1 → Availability of more information on healthcare services on government websites such as quality, safety and health outcomes →↑dd for healthcare as the public is more aware of the benefits and accessibility of healthcare.

4. Devt2: ↑Ss of healthcare. Increase in supply of healthcare Table 2→↑ doctors, nurses & hospital beds over the years→↑no. of healthcare providers & ↑ ss of healthcare. Increased competition leading to lowering of costs Extract 1 describes that privatization has led to cost savings due to increased efficiency and better decision making replacing old bureaucratic ones, causing healthcare cost to fall. Conclusion: Prices of healthcare are likely to continue rising because of the greyingpopn. The government will have to constantly find ways to increase supply so as to counter the increase in prices due to constant increases in demand.

5. Price S1 =MPC =MSC B E2 P2 Figure 1 P1 E1 D2= MSB D 1=MPB Quantity Q1 Q2 Q3 Q2 cii) If you were the healthcare minister of United Kingdom, would you recommend that the government adopt the healthcare policy of China? Justify your answer. [10m] Introduction: Limitations of UK healthcare system? • UK’s healthcare ~ zero charge excess dd for HC some patients are not treated. • HC expend is rising as a proportion of GDPnot sustainable as spending on other areas have to be scaled back or ↑ taxes to fund healthcare.  alternative HC policies will have to address the problems of over-consumpn& high govt expenditure. Thesis: Recommend China’s HCP i) Avoid overconsumption

6. cii) If you were the healthcare minister of United Kingdom, would you recommend that the government adopt the healthcare policy of China? Justify your answer. [10m] (ii) Decrease govtspendg on HC • ↓T  greater incentive to work, savings and investmentpositive effects on long-term economic growth. • The UK govt can also divert the funds to more productive uses, e.g. on increasing labour productivity to promote growth. Anti-Thesis: NOT recommend China’s HCP (i) Limitations of China’s HCP underconsumption of healthcare Extract 3  those who are unable to afford the high medical bills are rationed out of the market .Besides that, the inherent market failure of healthcare (information failure and external benefits in consumption) is not resolved by China. Diag. Explain underconsumptn of HC Services

7. (ii) Other better alternative HCP ( in S’pore) to tackle the problem that the UK govt faces. • partial subsidy  raise dd towards the SOpL OQ2 while avoiding over-consumption. ↓G, ↓T  positive effects on LT economic growth thro’ greater incentive to work, savings and investment. impose compulsory savings scheme such as the Medisave or co-payment scheme  medical bills are financed out of the consumer’s own pocket  citizens more cost conscious reduce excess dd more people complying because of punitive measures , more prudence

8. ↓ reliance on govt while ↑ competition in HC mkt  ↑ cost efficiency more affordable & better quality HCS  consumption of HCS will increase towards SOpL. ↓G, ↓T  positive effects on LT economic growth through greater incentive to work, savings and investment. increase the quality and years of healthy life and prevent illness, disability and premature death via campaigns and initiatives . Eg. HPB • healthier population ↓excessive dd for HCS as people fall sick less easily.

9. Conclusion: China’s policy may not appropriate as it does not address the market failure and leads to inefficient allocation of resources. Examine S’pore’s policies & consider using a myriad of policies to improve the current one they have.