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Explain the effect of a third-party-payer system on equilibrium price and quantity. I have a neighbor who had bi-pass surgery that cost us all $150,000 and he was 90 years old. This is a 3rd party example where he only has a few years left but was not able to pay to have the surgery done but we taxpayers paid it. Explain if this is an example of 3rd party payer system and it what way you believe it to be the case?
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This solution addresses third-party-payer system on equilibrium price and quantity.
Thanks for asking this.
This is not a bad article here: http://www.outsidethebeltway.com/health-care-costs-and-the-third-party-payer-problem/
What you have described here is a case of the third-party system in action. It is fairly simple: you buy insurance (or some other option) that they pays for whatever care you need. You pay a specific premium, and largely, doctors and others decide on the nature of your care.
This is a little different in Managed Care programs. Here, while still a third party system, doctors and hospitals work within the insurance regulations in terms of care. Here, diseases and specific problems have a set standard amount of treatment. This makes forecasting future expenses and profits much easier.
The situation of the old man you describe is probably a kind of pay for service - or a fee for service system. You take out insurance and from there, you decide on the care.
If your co-pay is low, then there is no reason NOT to go to the doctor for things. Insurance pays for the rest. If you were in charge of paying everything, you would only go when you absolutely needed. As of 2010, consumers directly pay only about 15 percent of all medical expenses.
Here is the equilibrium issue: price equilibrium is based on the rationality of both producers and consumers. Consumers will not pay over a certain price for goods that they really want, yet, the producers will not sell a good for less than what it costs to make it. ...
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