Comparative Analysis of Health Economics and Finance Report

This report critically analyzes the strategies for controlling healthcare costs, focusing on demand-side and supply-side cost sharing. It examines the central arguments, advantages, and limitations of each approach, using examples like hip-replacement surgery to illustrate key points. The report highlights how demand-side cost sharing, through insurance policies, deductibles, and co-payments, can create financial imbalances and impact healthcare utilization. It also discusses the advantages of supply-side cost sharing, such as prospective payment systems, in altering incentives for healthcare providers and improving efficiency. Furthermore, the report emphasizes the importance of combining both strategies and the role of information in ensuring effective healthcare policies, while also acknowledging the limitations and other factors influencing healthcare expenditure. The author synthesizes the important aspects of healthcare expenses with respect to the healthcare supply and demand.

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

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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.

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HEALTH ECONOMICS AND FINANCE
Hence, it can be deliberately stated that the transforming from a cost based system of
payment to prospective system of payment vividly alters the incentives of the organisation of
a hospital in keeping a patient longer, inserting a better technology of surgery. On the other
hand author argued that all the people having proper insurance policy do not know about the
rules and regulations regarding to the insurance. Now, due to lack of information those
people cannot able to get all advantages regarding to the health insurance7. Hence, this can be
clearly stated that, all the insured people have right to claim each and every advantages
present among their policies. An insuring agent should have enough responsibility to educate
their client about the terms of the policies.
Another argument has described both the demand-side cost sharing and supply-side
cost sharing is used as a payment parameter. In which the payment system can do an
excellent job in shifting both social goals of risk saving and skilful health are provision8.
People from developed urban area or central part of a nation are very much aware of the
expenditure of the hip replacement surgery because they can communicate or correlate with
educated people9. Therefore, this can be clearly stated that again due to lack of proper
information the people in remote regions cannot get all the opportunities regarding the
insurance policies.
Advantages of the Supply-Side Cost Sharing
The level of medical care that is being demanded by the patients is heavily influenced
by the amount of healthcare supplies. The supply side cost sharing aims directly at altering
7 Quercioli, C., F. Nisticò, G. Troiano, M. Maccari, G. Messina, M. Barducci, G. Carriero, D. Golinelli, and N.
Nante. "Developing a new predictor of health expenditure: preliminary results from a primary healthcare
setting." Public health 163 (2018): 121-127.
8 Obama, Barack. "United States health care reform: progress to date and next steps." Jama 316, no. 5 (2016):
525-532.
9 Martin, A. B. "Healthcare expenditure increasing in USA." PharmacoEconomics & Outcomes News 768
(2016): 17-17.

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HEALTH ECONOMICS AND FINANCE
the incentives of the healthcare suppliers. The payers who have substantial market power
have to pay only the cost of the hospital services while the small suppliers have to pay the
cost that has been set by the hospital10. The paper highlights the various program that has
been introduced at that time and one such program is Prospective Payment System that has
the central goal of altering the incentives given to all the hospitals and also to improve the
efficiency.
Prospective payment is a form of supply-side cost sharing that has led to certain
observations and there are certain analogies to the demand-side cost sharing11. The two
extremities of the demand-side cost sharing are the complete insurance sharing and no
insurance sharing at all. These extremes are a result of the pre cost- based reimbursement and
pure prospective payment. The author also focussed on the fact that the ability of the health
care suppliers in shaping the amount of care provided might hamper the quality of care12.
Combining Demand and Supply-Side Cost Sharing
This can be done by completely informing the consumer about the various policies of
healthcare that will be helpful to select the right level of care that will be specific for that
patient. Along with this the system involved with health payment can help in promoting the
goals of risk protection and also to improve efficiency of the health care provision13. The
10 Kumara, Ajantha Sisira, and Ramanie Samaratunge. "Relationship between healthcare utilization and
household out-of-pocket healthcare expenditure: Evidence from an emerging economy with a free healthcare
policy." Social Science & Medicine (2019): 112364.
11 Iuga, Aurel O., and Maura J. McGuire. "Adherence and health care costs." Risk management and healthcare
policy 7 (2014): 35.
12 Brot-Goldberg, Zarek C., Amitabh Chandra, Benjamin R. Handel, and Jonathan T. Kolstad. "What does a
deductible do? The impact of cost-sharing on health care prices, quantities, and spending dynamics." The
Quarterly Journal of Economics 132, no. 3 (2017): 1261-1318.
13 Bedir, Serap. "Healthcare expenditure and economic growth in developing countries." Advances in
Economics and Business 4, no. 2 (2016): 76-86.

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HEALTH ECONOMICS AND FINANCE
healthcare system should include the supply-side cost sharing in order to achieve targets of
healthcare utilization and the demand-side cost sharing should involve the protection of the
patients from economic risk. The paper also proposes a policy that will regulate the supply-
side cost sharing that involves universal insurance and then specifying a minimum amount of
coverage that must be fulfilled by everyone and all of this will help in limiting the amount of
demand-side cost sharing. The other ways in which the government encourages supply-side
cost sharing is by providing the private sector with better tools for supporting the healthcare
system.
Lack of Information
The author has tried to bridge the gap between the supply and demand-side cost
sharing, however has not explained the other factors that act as drivers of healthcare
expenditure. These factors include age, chronic illness like diabetes and cardiovascular
diseases, and the Government policies. These factors are not explained in the paper and thus
lacks a lot of information in that aspect. The paper somehow tries to explain all the factors of
the supply and demand cost but it could not give the complete information on the recent
changes in the healthcare sector. This paper thus comparatively lacks the reasons that can
explain the various reasons that are actually responsible for growth of the cost in the
healthcare sector.
Conclusion
Thus, from the critical analysis of the paper it is clear that the author has explained all
the central arguments and then the paper is also explained with the help of evidences in the
form of charts and graphs that explain the demand-side and supply side-cost sharing.
However, the author has not explained anything about the healthcare expenditure that is
driven by the various chronic diseases like stroke or cardiovascular diseases. It can be

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HEALTH ECONOMICS AND FINANCE
concluded that the author has tried to synthesize all the important aspects of the health care
expenses with respect to the healthcare supply and demand.

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References
Bedir, Serap. "Healthcare expenditure and economic growth in developing
countries." Advances in Economics and Business 4, no. 2 (2016): 76-86.
Brot-Goldberg, Zarek C., Amitabh Chandra, Benjamin R. Handel, and Jonathan T. Kolstad.
"What does a deductible do? The impact of cost-sharing on health care prices, quantities, and
spending dynamics." The Quarterly Journal of Economics 132, no. 3 (2017): 1261-1318.
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.
Iuga, Aurel O., and Maura J. McGuire. "Adherence and health care costs." Risk management
and healthcare policy 7 (2014): 35.
Kumara, Ajantha Sisira, and Ramanie Samaratunge. "Relationship between healthcare
utilization and household out-of-pocket healthcare expenditure: Evidence from an emerging
economy with a free healthcare policy." Social Science & Medicine (2019): 112364.
Martin, A. B. "Healthcare expenditure increasing in USA." PharmacoEconomics &
Outcomes News 768 (2016): 17-17.
Obama, Barack. "United States health care reform: progress to date and next
steps." Jama 316, no. 5 (2016): 525-532.
Quercioli, C., F. Nisticò, G. Troiano, M. Maccari, G. Messina, M. Barducci, G. Carriero, D.
Golinelli, and N. Nante. "Developing a new predictor of health expenditure: preliminary
results from a primary healthcare setting." Public health 163 (2018): 121-127.

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HEALTH ECONOMICS AND FINANCE
Rasiah, Rajah, Nik Rosnah Wan Abdullah, and Makmor Tumin. "Markets and healthcare
services in Malaysia: Critical issues." Institutions and Economies (2017): 467-486.
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.