Specific Characteristics of Health Care Services As an Economic Commodity

The issuance and price of health care services have many distinct characteristics that make them unique to many other economic commodities. Though some of these characteristics are beneficial to consumers with health insurance and to the manufacturers of medicine and equipment, these specific characteristics are not advantageous to other parties such as the government and the uninsured.

Risk Pooling

• The pooling of risk is one specific characteristic of the health care industry. Pooling risk means insurance companies are willing to cover all people under a health-care insurance policy with the belief that the least-risky will subsidize the most-risky. In essence, healthy younger people will pay more into their insurance to cover the costs of the sick, who pay less for the cost of care than what they use. Risk pooling is beneficial for large companies who have numerous employees. A smaller company, however, may be at a disadvantage if two out of five of its employees have a preexisting condition: The insurance companies may charge the group too high of a price for insurance as a result of too few people covering the "risk" for the sick employees.

Price of Service for Consumers

• The price of health care services for consumers is based on two things: If the consumer is covered by insurance, the expense for the service is based on whatever price was negotiated between the hospital and insurance company. If the consumer is not covered by insurance, the cost for consumers is based on whatever price the hospital determines. Arthur Garson and Carolyn Engelhard, authors of the book “Health Care Half-Truths,” explain how people have far less bargaining power than insurance companies when it comes to negotiating the cost of health care services. Thus, consumers without insurance pay more for these services or they go without care.

Pricing of Goods and Services

• The cost of the negotiated goods and services depends on patents and the length of time the product has been on the market. For instance, if a new prescription drug is introduced on the market and has a patent, its cost will be exponentially higher than 20 years from now. The price is also influenced by basic rules of supply and demand. A common, routine checkup that every physician knows how to perform will be less expensive than a brain surgery that only a few doctors can perform.

  Who pays the bill is a third factor: if a manufacturer knows their product’s sale will be covered by Medicare, they can charge a higher price, knowing the customer can pass the full cost to the government. Roger LeRoy Miller, author of “Economics Today: The Micro View,” explains this overuse of service as a result of the government paying for Medicare as one reason for the high cost of American health care.