Comments on: Cost Controls are Important http://www.plain-sense.com/2009/07/26/cost-controls-are-important/ For students and friends of economics Tue, 20 Jul 2010 11:02:28 -0400 http://wordpress.org/?v=2.8 hourly 1 By: Doug Gentry http://www.plain-sense.com/2009/07/26/cost-controls-are-important/comment-page-1/#comment-2029 Doug Gentry Mon, 14 Sep 2009 16:32:09 +0000 http://www.plain-sense.com/?p=134#comment-2029 Hmm - I'd have to reserve judgment on whether we'd see more professionals as a result of healthcare reform. First - the micro theory piece - When demand rises, as shown in the graph, supply increases <strong>along the demand curve</strong>. In this case going from Pt. A to Pt. B. It would take a change in some other determinant of supply to actually shift supply to the right. In English, we might expect existing providers to respond to an increase in price by increasing office hours, or making better use of ancillary staff to get more patients through the door during the day. If something else changes, such as liberalizing of scope of practice laws which would allow other, non physician providers to provide more basic services, then we would see a shift in supply. Now the thing that always saves economists' bacon is <em>ceteris paribus</em> (all things being equal). I'd have to ask about the international studies to see what other things changed in the healthcare system - in addition to demand and price. Thanks for digging into this Paul! Hmm – I’d have to reserve judgment on whether we’d see more professionals as a result of healthcare reform.

First – the micro theory piece – When demand rises, as shown in the graph, supply increases along the demand curve. In this case going from Pt. A to Pt. B. It would take a change in some other determinant of supply to actually shift supply to the right. In English, we might expect existing providers to respond to an increase in price by increasing office hours, or making better use of ancillary staff to get more patients through the door during the day.

If something else changes, such as liberalizing of scope of practice laws which would allow other, non physician providers to provide more basic services, then we would see a shift in supply.

Now the thing that always saves economists’ bacon is ceteris paribus (all things being equal). I’d have to ask about the international studies to see what other things changed in the healthcare system – in addition to demand and price.

Thanks for digging into this Paul!

]]> By: Paul Jenkins http://www.plain-sense.com/2009/07/26/cost-controls-are-important/comment-page-1/#comment-1943 Paul Jenkins Fri, 11 Sep 2009 10:39:03 +0000 http://www.plain-sense.com/?p=134#comment-1943 Great article! There might be one more important consideration, however: As demand shifts and price goes up, new players will enter the market on the supply side, shifting the supply curve to the right as more health care professionals enter the market. Over time, this will move E2 (Point B on your graph) down, resulting in lower prices as the quantity of services goes up. This is backed by hard data from the WHO and UN studies, as well. In every industrialized nation with universal coverage, the number of medical professionals in the population is considerably higher (as much as 25% for the Netherlands and Germany) than in the United States, and cost per capita is substantially lowered as a result. Those markets have all had time to stabilize, mind you. The short term prospects are exactly as you say, but it's important to remember the long term outlook, as well. Market forces don't exist in a vacuum, after all. One other thought might be that we could accelerate the supply shift by providing government subsidization for medical and nursing students. Deficit hawks would no doubt rail against the idea, but in the long run such an investment would be very likely to repay itself in lowered costs. :) Great article! There might be one more important consideration, however:

As demand shifts and price goes up, new players will enter the market on the supply side, shifting the supply curve to the right as more health care professionals enter the market. Over time, this will move E2 (Point B on your graph) down, resulting in lower prices as the quantity of services goes up.

This is backed by hard data from the WHO and UN studies, as well. In every industrialized nation with universal coverage, the number of medical professionals in the population is considerably higher (as much as 25% for the Netherlands and Germany) than in the United States, and cost per capita is substantially lowered as a result. Those markets have all had time to stabilize, mind you. The short term prospects are exactly as you say, but it’s important to remember the long term outlook, as well. Market forces don’t exist in a vacuum, after all.

One other thought might be that we could accelerate the supply shift by providing government subsidization for medical and nursing students. Deficit hawks would no doubt rail against the idea, but in the long run such an investment would be very likely to repay itself in lowered costs. :)

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