Authors libby rittenberg 216

When we speak of “health care,” we are speaking of the entire health-care
industry. This industry produces services ranging from heart transplant
operations to therapeutic massages; it produces goods ranging from X-ray
machines to aspirin tablets. Clearly each of these goods and services is
exchanged in a particular market. To assess the market forces affecting
health care, we will focus first on just one of these markets: the market for
physician office visits. When you go to the doctor, you are part of the
demand for these visits. Your doctor, by seeing you, is part of the supply.
Figure 4.15 "Total Spending for Physician Office Visits" shows the market,
assuming that it operates in a fashion similar to other markets. The
demand curve D1 and the supply curve S1 intersect at point E, with an
equilibrium price of $30 per office visit. The equilibrium quantity of office
visits per week is 1,000,000.
We can use the demand and supply graph to show total spending, which
equals the price per unit (in this case, $30 per visit) times the quantity
consumed (in this case, 1,000,000 visits per week). Total spending for
physician office visits thus equals $30,000,000 per week ($30 times
1,000,000 visits). We show total spending as the area of a rectangle
bounded by the price and the quantity. It is the shaded region in Figure
4.15 "Total Spending for Physician Office Visits".
The picture in Figure 4.15 "Total Spending for Physician Office
Visits" misses a crucial feature of the market. Most people in the United
States have health insurance, provided either by private firms, by private
purchases, or by the government. With health insurance, people agree to
pay a fixed amount to the insurer in exchange for the insurer’s agreement
to pay for most of the health-care expenses they incur. While insurance
plans differ in their specific provisions, let us suppose that all individuals
Attributed to Libby Rittenberg and Timothy Tregarthen
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