When the price of oranges goes too high, a consumer could also always substitute goods such as apples or grapefruit, at a lower price. In contrast, a diabetic cannot decide not to buy his or her insulin because of insulin’s rising cost. Health and medical services are not very responsive or elastic to changes in price because they are always in demand out of necessity.Other than the compatibility of some generic drugs, people have little choice regarding their medical costs, and even then, Carbaugh points out, out of the desire to have a doctor whom they think is qualified and knows them well, and for comfort and familiarity’s sake patients are often reluctant to switch physicians or even drug brands. Conversely, lowering the price of insulin will not make non-diabetics wish to buy more insulin.
The more inelastic the demand of a good or service, the higher the incentive there will be for the provider to charge a high price. After all, if people had to buy oranges no matter what their circumstances, wouldn’t it make sense to charge, for example, a dollar an orange, even if the provider could make a profit off a twenty or fifty cent orange? Another factor that affects health care demand, regardless of price is that most people do not pay for health care but are dependant upon private insurance or the government to pay for these expenses.This can result in people availing themselves of excessive health care services if they have good insurance.
People may receive more care than necessary with a very low added benefit because they do not pay for the cost of the care directly. In contrast, it would be unlikely for someone to spend twice as much on their monthly grocery bill, just in case a crowd of friends dropped over for a party-even if there likelihood of this happening might be on par, for say, a mammogram for a young woman without a history of breast cancer.Combined with an aging population and the incentive of physicians to charge more for their services in a way they believe will not penalize the insured patient, health care costs have spiral out of control. To deal with such problems, insurance companies have increased deductibles and co-payments. This is not a full solution however, for the millions of uninsured patients who are essentially paying for some of the excesses of the insured population.