Topics: Cost-benefit analysis, Health economics, Welfare economics Pages: 5 (849 words) Published: April 19, 2015

Value and Consumer Preferences

Value and Consumer preference
The idea that value depends on consumers’ preferences is often considered radical since variety of people attend to health care facilities with different preferences hence very difficult to discuss and come up with a conclusion. Some economic theories that are germane to provision of health services are discussed below. Willing to Pay (WTP) is founded on what has been termed ‘new welfare economics’ (Enthoven, 2011). Within this paradigm individual preferences are explained by how consumers are assumed to behave in a ‘free’, and perfectly, competitive market. The consumer is assumed to have his own subjective ‘taste’, and to allocate his budget across all commodities in such a way that his utility (overall-wellbeing) is maximized. Importantly, individuals are assumed to be the best judge of their own welfare; the notion of ‘consumer sovereignty’. Social welfare is assumed to be simply a function of these individual utilities, such that when one individual’s utility increases, ceteris paribus, social welfare increases. One important condition for maximizing social welfare is that all commodities for which individuals are prepared to pay the social costs are available in the market (Enthoven, 2011) In economic point of view major focus is on the willingness to pay, and monetary valuation which are used in to conduct cost benefit analysis. This theoretical background is placed within the framework of the evaluation of health care programs, and in particular the context of priority setting and the concurrent use of cost effectiveness and cost utility analyses. In WTP an individual upon seeking health care facilities he/she is asked the maximum and minimum that he is willing to pay to access the services and the medics assess the affordable services that can be delivering with that much. Cost-benefit analysis does have a strong conceptual basis in welfare economics, whereas other techniques of economic evaluation do not. The advantage of this being that it provides cost-benefit analysis with a logical structure for guidance on issues such as what costs and benefits should be included, and how they should be measured (Folland, 2010). The comparison and contrast of economic challenges and incentives within health care also poses a serious concern in preferences. Economic challenges and incentives do affect the way health care operates as well the patients influence. Economics influence how medical care are organized, progresses and delivered. Most of the time payment of fees for service delivered encourages good service to be given unlike when the service given is free hence influences the choice of patient to go into a fees payment health care other than the non-paying. Normally incentives in health care works better in well large organized health care through global capitation but does not work well with independent practitioners who most cases are preferred due to proximity to people hence influences the preferences of patients. Patients prefer to go to health care where incentives has been given since the patients care will be taken much more. How would value (both in quality and impact of care) differ where you have increase in access and decrease in reimbursement rates set by most insurance companies? Reimbursement rates refers to when an individual spends a certain amount of money and is supposed to be refunded back by either the insurance or an organization and in most cases organizations has set a specific rates to it which an individual should not exceed. In most cases since heath cares set charges and negotiate the rates with private insurers which leads to payment being always above the costs incurred. Normally when setting this prices the medics don’t care whether the set prices are adequate to take care of the patients and these has led to increased unsatisfactory to the way patients are taken care hence...

References: Folland, S., Goodman, A. C., & Stano, M. (2010). The economics of health and health care (Vol. 6). New Jersey: Pearson Prentice Hall.
Enthoven, A. C. (2011). Consumer-choice health plan (first of two parts). Inflation and inequity in health care today: alternatives for cost control and an analysis of proposals for national health insurance. The New England Journal of Medicine, 298(12), 650-658.
Pelletier, K. R., & Astin, J. A. (2010). Integration and reimbursement of complementary and alternative medicine by managed care and insurance providers: 2000 update and cohort analysis. Alternative therapies in health and medicine, 8(1), 38-9.
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