"As Health Costs Soar, G.O.P and Insurers Differ on Cause"

The article I chose is from The New York Times and it is called “As Health Costs Soar, G.O.P. and Insurers Differ on Cause.” This article is about how companies and small businesses are being affected by rising premiums for health insurance. Economists are saying that health insurance is expensive simply because health care is expensive; premiums are rising because of the underlying cost of care and the growing demand for it. The cost of living in the country is barely rising 1-2% while increases in health insurance costs are rising as much as 20-45%. The problem is not just the increasing costs but the fact that the given coverage on insurance plans are also shrinking. Robert I. Woodland, the president of the Woodland Design Group in Manchester New Hampshire, stated: “Essentially, we have been paying a lot more for a lot less” (Pear, 1).

The author of the article states that the new federal health care law may eventually “bend the cost curve” downward. But as is appears now, the rising cost of health care is causing insurance premiums to rapidly increase while coverage given is shrinking. If we were to graph a general demand curve for health care, there would be movement up along the demand curve to show an increase in price. The law of demand states that there is a negative relationship between price and quantity; in other words, when the price of a good rises, with all other things constant, buyers tend to buy less of the product. When it comes to an essential good, such as health care, prices do not have as much of an effect on whether consumers will purchase this item. When a good is a necessity, or an inelastic good like health care, an increase in price will alter consumption of that good but not by much. The opposite of inelastic goods are called elastic goods. Elastic goods are considered to have lots of substitutes, causing consumers to be more sensitive to prices changes.

Looking to the future, President Obama’s administration and officials hope that starting in 2014, “each state will have a central market where consumers and small businesses can pool their purchasing power and buy insurance. In theory, the exchange could bring more insurers into the market, increase competition and drive down prices” (Pear, 2). Bringing more insurers into the market will cause an increase in suppliers. If we were to graph a supply curve for this to show an increase in supply, there would be an outward shift to the right of the supply curve. And if we were to graph a demand curve for this scenario, there would be a downward movement along the demand curve to show a decrease in prices.

Source:

Pear, Robert. “As Health Costs Soar, G.O.P. and Insurers Differ on Cause.” The New York Times. The New York Times, 4 March 2011.Web. 20 March 2011. http://www.nytimes.com/2011/03/05/health/policy/05cost.html?ref=healthcare