Healthcare and Aging

Maybe some of you remember this post about how healthcare can be looked at as something not fit for a market because of the many brief instances of monopoly power it exercises by the nature of the service itself.

Recently, I watched the video here, 'Hidden Costs of Aging.' It's quite good - as is the rest of the series - and even though the video itself doesn't cover a lot of information, the text on the page got me thinking.

Here are, more or less, the results of that thinking...

Does Age Create More Instances of Monopoly Power?

Obviously, older people require more healthcare. This creates more demand, driving up prices. However, do they also require care faster or more urgently? I'm thinking the answer is yes, although I have yet to do the analysis to determine if it is so - that would be cheating, and I'm doing it well after writing this.

Regardless. If that were to be the case, this would warp the market for healthcare to an incredible degree when you have an aging population, at least with current advances and all that jazz.

Why? Because highly inelastic demand to the point of requiring instant satisfaction, i.e. requiring care immediately after having a heart attack, is what creates instances of monopoly power in the healthcare industry.

When you absolutely require something now, the most convenient method of acquiring that thing has effective monopoly power over your purchase.

More instances of this in a given market brings the price of whatever the market provides closer and closer to a monopoly price. If the instances of monopoly are intrinsic to the good or service, rather than to how the market is structured, this means there can be no easy cure for the problem while the good or service remains in a market system - a situation I believe healthcare to be in.

Data

In an attempt to show whether or not this occurs in the way I believe it does, I'm going to make a graph, because everyone loves graphs, right?

What I'm going to do is graph healthcare costs versus age of the population for several developed nations. If I happen to be correct in the ideas I went through above, there should be a more than linear increase in cost associated with an increase in age.

Here's the graph...



And here's the graph somewhat corrected for an important metric that might cause instances of monopoly power - distance from a hospital...

Looking at the first graph, there really isn't a whole lot of anything. Possibly it's a linear upwards trend? Very difficult to tell.

Part of the reason here is that we're not adjusting for a very important cause of monopoly power that changes drastically from nation to nation - the average distance to a hospital.

As that exact data is not easily available, the second graph attempts to correct for the problem, leaving out two drastic outlying data points - Monaco and San Marino. It now looks more like the non-linear increase I predicted above, although the data is still less meaningful than if I had access to the information I actually desired.

Regardless. From this somewhat simple analysis I can at least say that I don't know if I'm wrong, which is better than saying I'm definitely wrong. Considering the somewhat strong theoretical backing, I'm thinking chances are better that I'm right than that I'm wrong, but we'll have to wait on further analysis before I can say for sure one way or the other.

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And there you have it! I hope you enjoyed the read, as well as the video. I'd highly suggest taking a look at some of the other videos in the series, as they can spawn a lot of interesting thoughts and conversations. As always, you can follow over to the right and all comments and such are welcome down below.