The Demand For Medical

Care

Tareq Muhammad Shamsul Arefin

Associate Professor
Department of Economics
Jagannath University, Dhaka
 Demand for Health Services
Effect of Health Insurance
How much you demand may depends on type of insurance
• Co-insurance: consumer pays a fixed percent of the cost
(say 20%) and the insurance company picks up the rest.
• Co Payment: Pays a fixed amount for each type of
services (say $150 if you go to the emergency room).
• Deductibiles: consumer must pay out of pocket for all
health care, until reaches a threshold (such as $1000),
then is fully reimbursed for expenses above the
threshold.
 Demand for Health Services
Health Insurance: Coinsurance
Price of
Physician
Dwo: Demand without insurance
Services
Effective Price: Amount paid out of
pocket
Model using DWO curve
Assume: .5 co-insurance
Consumer pays
without insurance

50 Consumer Pays Demand

with insurance increased by
.5*50 one unit
Dwo

5 6 Quantity of Physician
Services
 Demand for Health Services
Health Insurance: Coinsurance
Price of
Physician Dwo: Demand without insurance
Services
Dwi: Demand with insurance
Dwi
Model by using market price
-Insurance makes her demand more
health care,
-makes demand less elastic: for the same
50 A
increase in price will reduce demand less
.5*50 with insurance.
Dwo

5 6 Quantity of Physician
Services
 Demand for Health Services
Health Insurance: Co Payment

Price of Pay $30 instead of 60 for a

Physician doctors visit.-demand more
Services
health care
-elasticity does not change.

Dwo $30
Dwi

60

5 Quantity of Physician
6
Services
 Demand for Health Services
Health Insurance: Deductible
Purpose of deductible is to lower cost for
insurance company
1. Reduce administrative costs because lower
number of small claims.
2. May lower demand for medical care
– Depends on cost of the medical episode
• Small costs small problem may not demand health
care, big costs you are more likely to get the health
care.
 Demand for Health Services
Health Insurance: Deductible Cont.
– Time when medical care is demanded
• If close to time when deductible is reset, may wait for
care
• If just after deductible has started more likely to have
care
– Probability of needing additional medical care in
the remainder of the deductible period.
• If know definitely will meet deductible, won’t wait to
go to doctor.
 Demand for Health Services
Prices of Substitutes and Complements

• Substitute: Herbal and Non-Western Medicine

– Price of substitute rises demand more medical
care.
• Complements: Drugs, if can’t afford the drugs
may not bother to go to doctor.
– Price of a complement rises demand less medical
care.
 Demand for Health Services
Education
• Relationship could be positive or negative
– Educated take more proactive action to keep
healthy so need less medical care (produce health
care at home)
– Want to keep healthy so can work more and earn
more, so demand more health care.
– Know when they need to get medical care – so
demand more medical care.
• Empirically not sure of direction, do find that
those who have more medical knowledge
demand more medical care.
 Demand for Health Services
Age, Health Status, Sex, Quality
• Very young and the elderly demand more
medical care.
• People with lower health status (sicker) tend
to demand more health
• Females tend to demand more health services
(child bearing)
• If quality of care is higher, tend to demand
more health care.
 Demand for Health Services
Travel Time Costs
Demand will depend on how long it takes to get
to the doctor and if there are waiting times.
• Important in developing countries