Thursday, August 27, 2009

Great description of elasticity modeling in healthcare

In economics, several of the words that you might hear, are elasticity, inelasticity, and contractility.

Jason over at Healthcare Economist does a great job describing price elasticity in medical services in a relatively straightforward manner.

Price elasticity estimates how consumer demand changes as prices change. For instance, the price elasticity of medical service is defined as the percentage change in quantity of medical care demanded divided by the percentage change in price of the same commodity. Most academics believe that the price elasticity for medical services is between 0 and -1. This means that if prices increase by 10%, the demand for medical services decreases, but by less than 10%. This means that medical goods are inelastic.

This is in large part, the reason we are seeing a failure of the medical markets to respond to the pressures of the current recession.


Anonymous said...

"This means that medical goods are inelastic", is only a correct affirmation in the light of economic theories, which would also provide evidence for it being a "superior good", meaning that you use more of it the more money you have...

But what if it is a "public good"? Something that goes beyond private utility, and has wider social "externalities" than their private "consumption"?

Economics are good to "measure" health spending, as good as a thermometer is a good indicator for fever, but the thermometer is not "the temperature".

Michael Halasy, MS, PA-C said...

Agreed, but you need measurements. Economics models, regardless of which modeling technique you use, will not accurately depict the "social externalities" that you discuss. But excellent point.