Two basic principles of microeconomic theory are supply and demand, both of which are affected by price. A simple illustration of the relationship between supply and demand is provided in Figure 5-1. The upward-sloping supply curve represents the seller’s side of the market, and the downward-sloping demand curve reflects the buyer’s desire for a given product. As shown here, suppliers are willing to offer increasing amounts of a good or service in the market for an increasing price (Colander, 2008). The demand curve represents the amount of a good or service the consumer is willing to purchase at a certain price. This curve illustrates that when few quantities of a good or service are available in the marketplace, the price tends to be higher than when larger quantities are available. The point on the curve where the supply and demand curves cross is the equilibrium, or the point where producer and consumer desires meet. Supply and demand curves can shift up or down as a result of the following factors (McPate and Normand, 2008):

Box 5-1 provides a review of the laws of supply and demand.

Using the example of industry-offered health care, it is not likely that a small industry of fewer than 50 employees may be able to offer incentive based on-site illness prevention services. The demand may be great to keep employees healthy and on the job. The supply is limited by the cost and numbers of services available in the community. Therefore, the cost is likely to be higher for the small business than for the large industry that offers its own services.

Two other terms are related to microeconomics: efficiency and effectiveness. Efficiency refers to producing maximal output, such as a good or service, using a given set of resources (or inputs), such as labor, time, and available money. Efficiency suggests that the inputs are combined and used in such a way that there is no better way to produce the service, or output, and that no other improvements can be made. The word efficiency often focuses on time, or speed in performing tasks, and the minimizing of waste, or unused input, during production. Although these notions are true, efficiency depends on tasks as well as processes of producing a good or service and the improvements made (Veney and Kaluzny, 2005).

Effectiveness, on the other hand, refers to the extent to which a health care service meets a stated goal or objective, or how well a program or service achieves what is intended. For example, the effectiveness of a mass immunization program is related to the level of “herd immunity” developed to reduce the problem that the program was addressing (see Chapter 12). Box 5-2 illustrates the differences between efficiency and effectiveness (Veney and Kaluzny, 2005).

The human capital approach is a measure of macroeconomic theory (Goodwin et al, 2008). In this approach improving human qualities, such as health, are a focus for developing and spending money on goods and services because health is valued; it increases productivity, enhances the income-earning ability of people, and improves the economy. Therefore, there is a positive rate of return on the “investment in human capital.” The individual, population, community, and nation all benefit. If the population is healthy, premature morbidity and mortality is reduced, chronic disease and disability are reduced, and economic losses to the nation are reduced.

Economic growth reflects an increase in the output of a nation. Two common measures of economic growth are the gross national product (GNP) and the gross domestic product (GDP). GNP is the total market value of all goods and services produced in an economy during a period of time (e.g., quarterly or annually). GDP is the total market value of the output of labor and property located in the United States (USDHHS, 2004). GDP reflects only the national U.S. output, whereas GNP reflects national output plus income earned by U.S. businesses or citizens, whether within the United States or internationally. This discussion focuses on GDP, because U.S. health care spending reports are based on GDP (NCHS, 2010).

Nurses face microeconomic and macroeconomic issues every day. For example, they are influenced by microeconomics when referring clients for services, informing clients and others of the cost of services, assessing community need for a particular service, evaluating client access to services, and determining health provider and agency response to client needs. Nurses who work with aggregates of individuals and communities are faced with macroeconomic issues, such as health policies that make the development of new programs possible; local, state, and federal budgets that support certain programs; and the total effect that services will have on improving the health of the community and reducing the poverty level of the population. In short, knowledge about health economics can enhance a nurse’s ability to understand and argue a position for meeting population health needs.

An objective commonly used when CEA is performed in health care is improvement in quality of adjusted life-years (QALYs) for clients. QALYs are the sum of years of life multiplied by the quality of life in each of those years. The QALY assigns a value, ranging between 0 (death) and 1 (perfect health), to reflect quality of life during a given period of years (Hazen, 2007). In conducting a CEA, the cost of a program or an intervention is compared with real or expected improvements in clients’ quality of life. The How To box lists the steps involved in conducting a CEA. The QALY is often used in malpractice suits to award money to clients who have been injured by health care.

In 1996 68% of the total U.S. population had private health insurance. An additional 15% received insurance through public programs, and 17%, or 37 million, were uninsured. In 2006 the number of uninsured persons had increased to 46 million. The typical uninsured person is a member of the workforce or a dependent of this worker. Uninsured workers are likely to be in low-paying jobs, part-time or temporary jobs, or jobs at small businesses (Kaiser Family Foundation, 2009). These uninsured workers cannot afford to purchase health insurance, or their employers may not offer health insurance as a benefit. Others who are typically uninsured are young adults (especially young men), minorities, persons less than 65 years of age in good or fair health, and the poor or near poor. These individuals may be unable to afford insurance, may lack access to job-based coverage, or, because of their age or good health status, may not perceive the need for insurance. Because of the eligibility requirements for Medicaid, the near poor are actually more likely to be uninsured than the poor.

Because of frustrations with the problems of lack of health insurance, The Patient Protection and Affordable Care Act was passed in 2010. This bill became law as a result of a promise to the American public by President Obama that health care reform would occur as part of his presidential agenda. Basically this law speaks to the following:

Prior to the passing of this act,

As the health care reform debate progresses, the impact of federal reform on states will have differential effects. In general, states with more extensive poverty, higher budget shortfalls, lower eligibility levels for public programs, higher rates of uninsured, and more primary care shortages will be greatly affected (Kaiser Family Foundation, 2010a).

Socioeconomic status is inversely related to mortality and morbidity for almost every disease. Poor Americans with an income below poverty level have a mortality rate nearly several times greater than that of middle-income Americans, even after accounting for age, sex, race, education, and risky health behaviors (e.g., smoking, drinking, overeating, and lack of exercise). Historically, the link between poor health and socioeconomic status resulted from poor housing, malnutrition, inadequate sanitation, and hazardous occupations. Today, explanations include the cumulative effects of a number of characteristics that explain the concept of poverty. These characteristics include low educational levels, unemployment or low occupational status (blue collar or unskilled laborer), low wages, being a child or an older person over the age of 65 years, or being a member of a minority group (NCHS, 2010).

Access to care is a public health issue (Healthy People 2020). Medicaid is intended to improve access to health care for the poor. Although persons with Medicaid have improved access compared with the uninsured, Medicaid recipients are only about half as likely to obtain needed health services (e.g., medical-surgical care, dental care, prescription drugs, and eyeglasses) as the privately insured. Specifically, the poorest Americans have Medicaid insurance, yet they also have the worst health (Kaiser Family Foundation, 2009).

The primary reasons for delay, difficulty, or failure to access care include inability to afford health care and a variety of insurance-related reasons, including the insurer not approving, covering, or paying for care; the client having preexisting conditions; and physicians refusing to accept the insurance plan. Other barriers include lack of transportation, physical barriers, communication problems, child care needs, lack of time or information, or refusal of services by providers. In addition, lack of after-hours care, long office waits, and long travel distance are cited as access barriers. Community characteristics also contribute to individuals’ ability to access care. For example, the limited prevalence of managed care and the limited number of safety net providers, as well as the wealth and size of the community, affect accessibility.

Because reimbursement for services provided to Medicaid recipients has been low, physicians are discouraged from serving this population. Thus, people on Medicaid frequently have no primary care provider and may rely on the emergency department for primary care services. Although physicians can respond to monetary incentives in client selection, emergency departments are required by law to evaluate every client regardless of ability to pay. Emergency department co-payments are modest and are frequently waived if the client is unable to pay. Thus, low out-of-pocket costs provide incentives for Medicaid clients and the uninsured to use emergency departments for primary care services.

With the Patient Protection and Affordable Health Care Act (PL 111-148), some of the issues and barriers that have previously existed may disappear. This depends on whether Congress decides to repeal all or part of PL 111-148 or change some of the mandates in the law. By 2014 Medicaid recipients may benefit from the law in its current structure as follows: (1) expansion of Medicaid to include all non-Medicare eligible persons under age 65 with incomes up to 133% of federal poverty level, (2) all Medicaid-eligible persons will be guaranteed a benchmark benefit package, and (3) states will be given the option to develop a basic health plan for uninsured individuals who do not qualify for the Medicaid program, at 133% to 200% of poverty level.

Poverty level income is adjusted annually for each state by the federal government to indicate how much money an individual or families may earn to qualify for subsidies such as food stamps, Medicaid, and Children’s Health Insurance Program. In 2010 the federal poverty level for an individual was $10,830; for a family of four the poverty level was $22,050. If an individual was 133% of poverty level, then the individual earned no more than $14,403 (USDHHS, 2010).