Rural Healthcare Economics: The Demand for the Supply of Healthcare Services

The demand for healthcare services is often determined by how price sensitive consumers of these services are. For the poor, the decision to seek healthcare often involves a tradeoff, where the alternative serves a more immediate purpose, e.g., food, clothing, shelter, etc. Generally speaking, they are willing to pay substantially less in monetary terms than the wealthy for healthcare services, but this is, in part, because the price for the service(s) as a percentage of their income is substantially higher than for that of the wealthy. Consumers pay the price at which they value the service, and while the service is the same, the value is different among various income groups depending on their income and preferences.

This explanation is disputed, however, when looking at cases of rural health. Specifically, transportation, which comprises a significant portion of the cost of getting care, shows a patient’s high willingness to pay. Studies show that healthcare consumers are willing to travel further and bypass health facilities for services at specific facilities where they perceive a higher quality of care. In fact, consumers understand the parallels between their conditions and the relative qualities of the health facilities they seek.[1] When consumers of healthcare travel beyond the nearest facilities, they are causing inefficiencies in the system. First, they are spending their resources on transportation rather than the actual services. Second, there is an opportunity cost for traveling additional distances. That time could be spent on other activities, but is instead an additional cost of obtaining services, in the form of time. Thus, with low-income patients, the opportunity costs for seeking and/or receiving healthcare services are greater than that of high-income patients, which are not measured in the willingness to pay. Thus, in fact, the issue in this case is not in the demand for healthcare services, but in the supply.

Consequently, it is difficult to discuss the demand for healthcare without also mentioning the supply and accessibility. Both developed and developing nations struggle with rationing of services because it is difficult to put a value on one’s health. Providers of healthcare services are only willing to supply care if the amount they get paid exceeds the cost of providing the service, but often times patients cannot afford to pay the price. It is argued that this is when governments step in to subsidize healthcare. Specifically, the government subsidies should be higher for those whose demand is more elastic to help pay for services for those who are more sensitive to prices. Yet, in the aforementioned case, consumers were willing to pay based on preferences rather than just their level of income. When the government subsidizes the individual costs of patients, it is attempting to affect the demand side of the healthcare equation. Rather than trying to impact a population’s health by improving the ability to pay, the subsidies should focus on ways to change the supply. For example, if the government focused on ways to get providers to travel to or relocate to local communities, patients could save both transportation and opportunity costs. The sum of these savings for all individuals could be reallocated to providers for services within the community. Any remaining savings could increase the wealth of the individuals, which have a corresponding impact on overall health from sanitary conditions, clean water, proper nutrition, etc.

In determining the equilibrium between the supply and demand of healthcare services, it is important not only to explore the patients’ preferences, but also the quality, access and variety of healthcare services provided. People are always going to demand some level of healthcare, and governments are ultimately going to try to address the issue because health is considered a human right; however, different patients have different needs, and the system should be able to cater to the most basic needs, particularly when it comes to low-income or rural areas. There will always be cases where individuals have to choose basic needs over paying for healthcare services, but perhaps governments should look beyond resources for individuals to receive healthcare and focus on ways to fill the gaps between the supply and demand of healthcare services.

[1] Kenneth L. Leonard, et al. “Bypassing Health Centres in Tanzania: Revealed Preferences for Quality,” Journal of African Economies, Vol. 11, No. 4, 2003.


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