Economics is a diverse concept that applies to many disciplines. Many people thought that there is no such thing as health economics. However, in my capacity as an economist, it is my pleasure to boldly-express that health economics exists and it simply entails the study of the allocation of resources in the field of health care. Health economics is equally important because it helps in the distribution of scarce healthcare resources in the society. In this paper, I would like to use Joseph Newhouse’s “Consumer-Directed Health Plans and the RAND Health Insurance Experiment” to provide an insight on the concept of health economics, its significance, and its related principles.
“Consumer-Directed Health Plans and the RAND Health Insurance Experiment” is an article that was authored by Joseph Newhouse. Here, the author was aiming at presenting a comprehensive analysis of the intrigues in health economics. The article is purely on the allocation of healthcare insurance services amongst the individual consumers. Healthcare, in this case, is viewed as scarce resources that the people must work hard and sacrifice to obtain. The author centered on the analysis of the RAND Health Insurance Experiment (RAND HIE) that had been rolled-out in the USA between 1974 and 1982.
According to his understanding, Newhouse explains that the RAND HIE was actually an experimental study that was done in the USA to find out the costs, utilization, and outcomes of healthcare services in the country. The experiment used the randomized-controlled trial to conduct the study. According to the experiment, cost-sharing was identified to be the most effective way of providing health insurance services in the country because of the many benefits such as the promotion of full-utilization of health care as well as the elimination of unnecessary overuse of the service (Newhouse, 2004). After exploring the experiment, the author went ahead to provide an insightful analysis of the currently-used Consumer-Directed Health Plans. According to his research, Consumer-Directed Health Plan is more effective because it helps in minimizing the costs of healthcare services.
In this article, Newhouse used his knowledge in Health Policy and Management to write a purely health economics paper. The scholar used his experience to present an in-depth and critical discussion on the health economics. The discussions he presented on RAND HIE and the Consumer-Directed Health Plan were purely economical. This is because, he did concentrate on the economic values of sharing and allocating the scarce healthcare services to the individual consumers each of whom has different levels of income. This demonstrates the article encompassed the following principles of economics:
This is the first principle that is applicable in this discussion. According to this principle, it is not economically-possible for an individual to get everything that he or she wants. Meaning, for one to get something, one must forfeit the other alternative (Muennig & Bounthavong, 2016). The principle is applicable when making economic decisions particularly in situation in which there is a need to prioritize one wants over the other. The principle applies in the article because it gives a clue on how the scarce healthcare services can be shared amongst the people. In the experiment, it was found out that the use of cost-sharing strategy impacted on the consumers by increasing the costs of healthcare services because of the pressure it piled on the inpatient services (Newhouse, 2004). This ended up hindering the patients from seeking for medication no matter how important it was for them. That implies that anyone who wants to get access to healthcare services must choose to sacrifice resources. The sacrifice might be higher if one wants to acquire a wide range of services because the charges might be more (Phelps, 2016). This must happen because no service can be given for free as the proponents of this principle acclaim that there is nothing like a free lunch.
This is the second principle that applies to this case. According to this principle, individuals can be motivated to act if they are given rewards. The use of rewards is applicable in economics because it can help in explaining and understanding human behaviors. When incentives are used in healthcare, there can be a possibility of allocating resources and making them to be fully-utilized by the consumers (Golberstein, Busch, Zaha, Greenfield, Beardslee & Meara, 2015). During the experiment, it was established that the healthcare services were not optimally used because the people were demotivated. There were no enough incentives to attract the people to do so. That is why when the new Consumer-Managed Care Plan was introduced; it got a warm reception since it was associated with certain rewards. For example, the author recounts that the new plan was embraced on the grounds of affordability and flexibility (Newhouse, 2004). Meaning, individual users would get an opportunity to enjoy a wide range of quality healthcare services at affordable rates. Meaning, the managed care plan would bring more incentives that had not been provided in the past. Hence, it implies that the use of incentives is economically-viable because it promotes the culture of consumption and increases the demand for services in the market.
This is the third principle that remains relevant to this discussion. According to this principle, consumers have to make a choice o what to acquire and be ready to forgo some alternatives that would have otherwise been chosen. Meaning, human beings always have limited resources to meet their unlimited needs. This principle is applicable in the article because Newhouse used it to discuss about the allocation and utilization of scarce resources. During the experiment, it was discovered that healthcare services are on a high demand. However, not everyone is able to get access to all the services that they require because of lack of affordability (Barnes, Unruh, Chukmaitov & van Ginneken, 2014). Whenever a patient is confronted with such a situation, he must apply the principle of opportunity cost because he has to choose only one alternative and be ready to forgo the other. The same applies to the managed care plan in which the consumers have to prioritize their health need as and forgo the other alternatives no matter how essential they might be.
Conclusion
“Consumer-Directed Health Plans and the RAND Health Insurance Experiment” is an invaluable article that presents insightful information on health economics. Newhouse used the article to prove his economic prowess and prove to the readers that he was actually writing about what he knows best. All the information in the article is important because they can educate the readers on the significant contributions of economical understanding in health management. All the discussions given on the RAND HIE and managed care plan are suitable for anyone who wants to have a sound knowledge of health economics.
The article has been of a great contribution to me because it has enabled me to learn some new things that I did not know before. For example, now I understand that healthcare resources are scarce and should be managed well. The article has sensitized me that the success in the healthcare sector relies on the decisions made by individual consumers, healthcare organizations, and the policy makers. Each of these stakeholders should apply the relevant principles of economics in order to make rational decisions that can be relied upon by the public to guarantee the provision of affordable, safe, and quality healthcare services that can effectively meet the needs of everyone in the country (Sanders, Neumann, Basu, Brock, Feeny, Krahn & Salomon, 2016).
References
Barnes, A. J., Unruh, L., Chukmaitov, A., & van Ginneken, E. (2014). Accountable care
organizations in the USA: types, developments and challenges. Health Policy, 118(1), 1-7.
Golberstein, E., Busch, S. H., Zaha, R., Greenfield, S. F., Beardslee, W. R., & Meara, E. (2015).
Effect of the Affordable Care Act’s young adult insurance expansions on hospital-
based mental health care. American Journal of Psychiatry, 172(2), 182-189.
Muennig, P., & Bounthavong, M. (2016). Cost-effectiveness analysis in health: a practical
approach. New York: John Wiley & Sons.
Newhouse, J. P. (2004). Consumer-directed health plans and the RAND Health Insurance
Experiment. Health Affairs, 23(6), 107-113.
Phelps, C. E. (2016). Health economics. New York: Routledge.
Sanders, G. D., Neumann, P. J., Basu, A., Brock, D. W., Feeny, D., Krahn, M., … & Salomon, J.
A. (2016). Recommendations for conduct, methodological practices, and reporting of
cost-effectiveness analyses: second panel on cost-effectiveness in health and medicine.
Jama, 316(10), 1093-1103.
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