Although most individuals do not need acute medical services frequently, when care is needed, the cost can be burdensome unless services are paid for by private insurance or another third-party payer such as the government. Provision of affordable medical care is important to society at large because basic medical services, such as vaccinations, protect society through the reduction in the incidence, severity, or spread of certain diseases. The financial risk to an individual or to society at large for provision of medical services is a risk that is managed in a variety of ways worldwide. The health care delivery and financing system in a given country reflects the cultural, economic, and political character of that nation and points up the difficult choices made in allocating scarce health resources across the population. For example, many industrialized countries place great value on equal access to health care by individuals, even if it means that some must wait for or be denied certain specialized medical services. Most provide basic universal coverage to all, although certain high-technology procedures and treatments may not be readily available. To those who are well insured, the United States provides nearly instantaneous access to state-of-the-art technology, but those with no medical insurance find expensive treatment less accessible. The U.S. culture generally places relatively less value on social equity (equal access) and relatively greater value on private market solutions to financing health care.
The level of health care services provided within a nation corresponds to the stage of economic development within the country. Typically, developed market economy countries or industrialized countries with relatively high per capita income have modern health care services available to most of the population. A country may finance services for certain portions of the population differently from the way it finances services for other portions. In 1996, the average percentage of gross domestic product (GDP) devoted to health care among 29 OECD countries was about 7.8 percent.
The economics market imperfections
In a perfectly competitive market, buyers decide what to purchase based on full information about the quality and price of goods and services. Buyers, not sellers, determine the demand for goods and services, and demand for normal goods or services decreases with an increase in price, other things being equal. Price rationing occurs because buyers base purchasing decisions on the relative quality and price of the good as well as on their willingness and ability to pay. In a perfectly competitive market, no barriers to entry exist. In the real world, of course, the health care market has imperfections, and these imperfections help shape health care financing. Services may be financed (1) out of general tax revenues, (2) under a social insurance model, (3) through a voluntary private insurance system, or (4) a combination of these.
Health care market imperfections
The comparison of the health care market with a perfectly competitive market provides insight into how cost and quality problems arise, and facilitates identifying potential inefficiencies that can lead to service quality or pricing problems that negatively affect patients, providers, and insurers within the health care system. Examination of market imperfections also helps explain the difficulty of reforming health care financing and delivery systems.