Publicly provided Healthcare is always a point of contention, especially around election time. Being from New Zealand, I am used to being mostly looked after by the Government. Recently I was involved in a discussion about the costs of taking an Ambulance to the hospital.
In New Zealand, the maximum amount St. John will charge for an Ambulance is $98. St. John is 80% tax-payer funded, with the remaining 20% funded via their near monopoly on First Aid courses, public donations & usage fees. Great, most people would agree that a cheap ambulance ride is a good thing, after all, tax paying residents should be looked after by their Government. No real room to be too badly hurt by this, the Government has got your back – or in Economist speak – Almost all those who demand an Ambulance ride, will be supplied one. Shown below:
As we can see, the supply without subsidy means that the price is high + the quantity demanded is lower.
However, once the subsidy is introduced, the quantity consumed increases, along with the price decreasing. Easy solution, and MOST people are happy.
Our nearest neighbours, Australia, have a similar take on Ambulances, but different mechanism for enforcing it. In Australia, Ambulance services are somewhat subsidized, but not to the extent that New Zealand is. Many aspects of general Ambulance use are heavily subsidized, however, more specialized emergency treatments are not. This means that your Ambulance ride can cost anywhere from $300 to $12,000 with the average cost being in excess $1200. For this reason, it is highly recommended that you have private ambulance insurance – which can cost as little as $100 per year. Let’s have a look at how we can represent this graphically.
As we can see here, if you are insured, you pay the cost of the insurance & the insurance company covers the rest (the difference between your deductible & the actual cost). Demand is essentially the same as the fully subsidized New Zealand solution. Unfortunately, this is not the only situation available in this economy – we haven’t yet represented those who do not have insurance. The downward slope in the demand curve shows that as price decreases, less ambulance rides will be demanded – and vice versa. Ambulance rides do not stick to this standard graph though, as they are often required & will be used regardless of the price. This causes the Demand Curve to be vertical as shown next.
Here we can see, the price is high (think that $12,000 fare) but it is still demanded – this is because often the riders do not have a choice, it is literally life or death! The rider may end up pissed off about being charged so much, but the $100/year they have saved by not having insurance has moved them from the last graph to this one, and in turn, caused them to get burned by the high cost.
This demand situation only really exemplifies those who are in dire need of an ambulance – and can not go without it. This isn’t always the case though, broken bones, burns, more minor accidents may often leave the victim wanting to use an ambulance, but maybe not needing it. This has the interesting effect of the severity of the injury altering the individual demand curve on a case-by-case basis, and only when the financial and physical pain of not getting an ambulance outweigh the financial and physical pain of getting an ambulance then the individual will “bite the bullet” and dial 911/111 whatever. The rest will either suck up the pain & drive themselves, get a mate to drive them – or even dial an Uber, much to the dislike of the driver in this case (fair enough).