Business Environment: Medical Costs and Consumer Preferences

This report examines the impact of rising medical costs on consumer choice and preferences within the U.S. business environment. It utilizes the indifference curve theory to analyze how increased healthcare expenditures influence consumer decisions, including trade-offs between goods and services. The report highlights the significant growth in medical expenses from 2007 to 2020, and the role of both private and public insurance in shaping consumer behavior. It also discusses the implications of high doctor visit costs, medicine expenses, and administrative costs. The report suggests policy recommendations, such as emphasizing the accessibility of insurance services and promoting collaboration between public and private insurance providers, referencing the Affordable Care Act. Ultimately, the report concludes that the government should analyze opportunity costs when implementing new policy frameworks for the U.S. healthcare sector and ensure that the insurance costs are set at a level that maximizes benefits without further escalating medical costs.

Running head: Business Environment
Business Environment
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction......................................................................................................................................2
Discussion........................................................................................................................................2
Conclusion.......................................................................................................................................4
Reference List..................................................................................................................................5

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Introduction
As per the study, medical costs have been reported to grow faster than other consumer
costs over the past decade. In this context, the paper attains to analyze how this rising cost
impacts the consumer choice and preferences with the help of the indifference curve. Further,
some legislative suggestions have been proposed to the Senator about this economic issue.
Discussion
Figure 1: Medical cost changes over 2007 to 2020 in the USA
Source: (Statista, 2020)
The figure 1 exhibits that medical expenses have intensified by around 6% in 2018. The
growth rate in the medical expenses is expected to remain same in 2019 and 2020. This growing
healthcare expenses are the intrinsic consequences of the country’s health system. The U.S.
health system is comprised of both private and public insurances which makes the healthcare

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expenditure for the general public in the USA. This out of pocket healthcare expenditure gives
detrimental impact on the choice of bundles for the consumers. In response to that, the
consumers are being compelled to sacrifice something in order to bear the higher healthcare
expenditure. Contextually, the Indifference Curve (IC) theory can be introduced to analyze the
marginal utility changes with respect to change in the cost. IC analyses how much utility a
consumer compromises with respect to gain utility from the consumption of other commodity
(Komlos, 2014). The USA government spends around 18% of GDP on health sector. The high
doctor visit, high per capita medicine expenditure and inflated administration cost in the USA are
the key influential factors for this augmented medical cost. By 2027, the health care outlay is
expected to be surpass six trillion dollars in the USA. It has been observed that the ideal
consumption gets obtained when budget line touches the utility curve. The optimal way to
leverage the purchasing power is to minimize the opportunity cost and maximize the utility
through trade-off system (Kumar et al., 2014). If a consumer incurs relatively more opportunity
cost, while spending for the medical treatment then their utility level will be reduced.
As a part of the legislative service, the paper suggests the Senator to emphasize on the
accessibility of these insurance services. The USA administration has initiated the Affordable
Care Act in 2014. This act is aimed at providing health care service at affordable cost to the USA
citizens (Vox.Com, 2020). It provides some mandatory health insurance facilities to the public.
However, the consumers make huge medical expenses due to inappropriate access to the
insurance policy. It expects that appropriate collaboration of public and private insurances will
enhance the access to the medical facility as well as reduce the cost.

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Conclusion
The paper concludes that the Senators should analyse the opportunity cost related to the
new policy framework for the U.S. healthcare sector. As per the IC, the consumer will have to
sacrifice utility of one good in order to enhance more utility from another cost. This sacrificing
amount is determined by the opportunity cost. The insurance cost should be fixed at such a level
which will augment the benefit of medical insurance without further enhancement in the medical
cost.

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Reference List
Komlos, J. (2014). Behavioral indifference curves (No. w20240). National Bureau of Economic
Research.
Kumar, N., Singh, A., Ranganath, M. S., & Kaur, A. (2014). Portfolio optimization: Indifference
curve approach. International Journal, 2(1), 127-133.
Statista. (2020). Medical cost increase U.S. 2007-2020
https://www.statista.com/statistics/720767/medical-cost-trend-in-us/
Vox.Com. (2020). A CT scan costs $1,100 in the US — and $140 in Holland.
https://www.vox.com/policy-and-politics/2019/12/17/21024614/us-health-care-costs-
medical-prices