ch.3 role of Government in a market economy

http://hbswk.hbs.edu/item/5645.html

summary

Healthcare is becoming a big issue in US. US. Healthcare currently costs approximately $2 trillion each year. However, the amount that the government receives does not entirely all go towards healthcare. 31% of that amount goes towards administration instead of going towards people who need healthcare. On top of that, the healthcare leaves over 40 million Americans without insurance either because they are not employed or have very low incomes. More than half of 98$ billion administrative costs goes for insurance companies but doesn’t include cost of doctors and hospitals. If there are no changes made to fix these problems, US could have economic impact.

Connections

According to the chapter, a connection would be excise tax. If the excise tax increases the price of healthcare such as medicine, it would shift the supply curve upwards but not necessarily shift the demand curve down. The demand would still remain high since healthcare is an important issue. Another connection would be third party effects. Illness will be less likely to spread if people in the neighbour are guaranteed at least a level of care. A negative effect would mean the producers of healthcare would be losing their profit as the people among the population will be gaining a benefit such as less paying for medicine.

Reflections

i think there needs to be changes made for Healthcare because it costs 2 trillion a year but 31% doesn’t go towards it. This could make a difference for those people who really need to see doctors or afford paying for medicine. There is a major concern for those people who have low income. They will not be able to afford adequate health care. The government should place an appropriate price ceiling which can help those individuals who can not pay adequate treatment. Moreover, I think the excise tax should be lowered, because healthcare is such an important part of everyone’s lives. It is not like alcohol or cigarettes, so it’s only fitting to low the tax so that people would not have to worry about the income.