Health Economics and Finance

Running head: HEALTH ECONOMICS AND FINANCE
HEALTH ECONOMICS AND FINANCE
Name of the Student
Name of the University
Author note

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HEALTH ECONOMICS AND FINANCE
Introduction
According to the Ellis and McGuire (1993) there is a huge misbalance between the
healthcare supply and their demands. In other words the demands are always increasing
whereas the demands are not met at that rate1. This is creating an impact on the healthcare
expenses. This paper thus, suggests two alternate strategies that will be helpful in controlling
the various healthcare expenditure. The strategies that has been described in the paper
includes demand-side cost sharing and supply side cost sharing. In demand-side cost sharing
the patients must pay more in terms of health insurance policies or deductibles whereas
supply-side cost sharing aims at altering or changing the incentives of the healthcare
personnel in order to provide certain expenses2. Thus, the goals of any healthcare financial
services include protecting the consumers against the financial risk of healthcare facilities,
provide efficient quality of healthcare services and also to be fair to the consumers. This
paper is thus, reviewing the comparative advantage of the supply and demand side cost
sharing, limits and rationale of the various healthcare expenses that in turn affects the
healthcare expenditure3.
1 Ellis, Randall P., and Thomas G. McGuire. "Supply-side and demand-side cost sharing in health care." Journal
of Economic Perspectives 7, no. 4 (1993): 135-151.
2 Sinaiko, Anna D., Ateev Mehrotra, and Neeraj Sood. "Cost-sharing obligations, high-deductible health plan
growth, and shopping for health care: enrollees with skin in the game." JAMA internal medicine 176, no. 3
(2016): 395-397.
3 Rasiah, Rajah, Nik Rosnah Wan Abdullah, and Makmor Tumin. "Markets and healthcare services in Malaysia:
Critical issues." Institutions and Economies (2017): 467-486.

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HEALTH ECONOMICS AND FINANCE
Discussion
Author’s Central Argument
This paper is aimed to shed light on the difference between prospective payment
system and cost based payment system and the effects produce by both of the matter on the
health sector. Also the impactful effect of those policies on the patient’s lifestyle is also
overviewed by this article4. The following sections below put forward the central arguments
of the author that includes the various advantages of supply-cost sharing and the limitations
of the demand-side cost sharing. The author has explained the difficulties in the supply and
demand-side cost sharing with the help of an example that explains the hip-replacement
surgery and has given evidence in order to support the arguments.
Limitations of Demand-Side Cost Sharing
Health economics is based on the one instrument which is insurance policies or
coverage. This helps in creating the incentives for the overuse of healthcare services. On the
other hand the limitation of the insurance policies are the deductibles or coverage limits or
co-payments5. However, the paper emphasizes on the fact that the health insurance policies is
sold on the basis of the utilization of the medical care facilities that creates a financial
imbalance for the uninsured patients and thus the prevalence of the health insurance schemes
will lead to a demand for the greater medical care. However under the medical insurance
providing system, the hospital bills a lump-sum average amount. As a result if the patient is
less expensive in the use of resources then the hospital will earn a profit on that patient6.
4 Obama, Barack. "United States health care reform: progress to date and next steps." Jama 316, no. 5 (2016):
525-532
5 Sinaiko, Anna D., Ateev Mehrotra, and Neeraj Sood. "Cost-sharing obligations, high-deductible health plan
growth, and shopping for health care: enrollees with skin in the game." JAMA internal medicine 176, no. 3
(2016): 395-397.
6 Rasiah, Rajah, Nik Rosnah Wan Abdullah, and Makmor Tumin. "Markets and healthcare services in Malaysia:
Critical issues." Institutions and Economies (2017): 467-486.