Supply-induced demand in the private healthcare sector: Theoretical considerations

Recently announced increases to medical scheme premiums were met with great surprise by many medical scheme members, who now have to absorb some of the highest premium increases of the past few years. Both the Government Employees Medical Scheme (GEMS) and Discovery Health have made statements in the popular press, suggesting that (amongst other factors) an increase in the supply of private hospital beds is to blame. Given Econex’s interest and previous research investigating the drivers of utilisation in the South African private healthcare market, this note approaches the concept of supply-induced demand (SID) from an academic perspective. The focus is on the relevant economic theory and theoretical considerations if one were to attempt measuring this phenomenon. This research note therefore argues that, in measuring SID, a comprehensive understanding of the phenomenon and a robust econometric model are required, especially if results are to be used for policy formation.