1. The third-party-payment plays a key role in the increasing demand for medical care. First, it inadvertently creates an incentive for overconsumption and overprovision. Since the consumers are not directly responsible for the entire cost of medical care, they tend to overconsume medical services, thereby shifting the demand for medical service to the right. As the demand increases, the providers have to increase the price in order to reach a new equilibrium, which in turn drives up the medical care price. Consequently, the behavior of overconsumption leads to moral hazards, in which the provider renders unnecessary and expensive tests, and the consumer continue to obtain services until the marginal cost of providing a given service surpasses the marginal benefit to the consumer.
2. Several events lead to the origin of employer-provided health insurance. One of this event is, the enactment of “wage and price control”, by the congress during WWII. As a consequences of the passage of these bills, many employers, who could not afford to increase wages, resorted to proving a substantial fringe benefits such as health insurance to attract employee. In addition, “the U.S Supreme Court”, also fueled the demand for employer-provided health insurance, “by ruling that employee-provided health …show more content…
Some ways of limiting the role of third-party-payers in health care is, 1: removing a price ceiling that is created by a third-party per and using a free market approach which limits the role of government interventions, allowing the market to correct itself based on the law of demand and supply, 2: limiting the role of health insurances to only covering rare, uncertain and catastrophic expenses which ensures the achievement of the law of large number, thereby allowing insurances to operate according to conditions. The author predicted that, treating health insurance just like any other goods and services, would decrease price, and increase quality and consumer
2. Several events lead to the origin of employer-provided health insurance. One of this event is, the enactment of “wage and price control”, by the congress during WWII. As a consequences of the passage of these bills, many employers, who could not afford to increase wages, resorted to proving a substantial fringe benefits such as health insurance to attract employee. In addition, “the U.S Supreme Court”, also fueled the demand for employer-provided health insurance, “by ruling that employee-provided health …show more content…
Some ways of limiting the role of third-party-payers in health care is, 1: removing a price ceiling that is created by a third-party per and using a free market approach which limits the role of government interventions, allowing the market to correct itself based on the law of demand and supply, 2: limiting the role of health insurances to only covering rare, uncertain and catastrophic expenses which ensures the achievement of the law of large number, thereby allowing insurances to operate according to conditions. The author predicted that, treating health insurance just like any other goods and services, would decrease price, and increase quality and consumer