Why Preventive Healthcare Fails More Than Curative, and Whether to Target Its Supply

Answer

Part (a) — Why preventive healthcare fails to a greater extent [10]

Positive externality in consumption. When individuals consume preventive healthcare (e.g. flu vaccinations), they are less likely to fall ill and so less likely to spread disease to family and co-workers — a positive externality. Marginal social benefit exceeds marginal private benefit, so the free market under-consumes at Qe (MPB = MPC) relative to the social optimum Qs (MSB = MSC), with a deadweight welfare loss — allocative inefficiency.

Imperfect information. Consumers also underestimate the private benefit of preventive healthcare such as health screenings — the benefit (cheaper treatment from early detection) accrues in the long run, and consumers, as short-term utility maximisers, may be unaware of it. So perceived demand (with imperfect information) lies below demand with perfect information, deepening the under-consumption and the deadweight loss.

Comparison. Curative healthcare also has a positive externality and some imperfect information, but its imperfect information is less severe — a sick patient is acutely aware of the benefit of treatment. Preventive healthcare suffers both sources of failure to a greater degree, so its under-consumption — and hence market failure — is greater than for curative healthcare.

Part (b) — Should the government target supply, not just demand? [15]

Since the market fails, the government should intervene to correct the under-consumption.

Demand-side policy: education and campaigns. Singapore currently uses education and campaigns (e.g. HPB roadshows on cancer screening) to give consumers information so they no longer underestimate the private benefit; demand shifts from D₁ (imperfect info) toward D₂ (perfect info), raising consumption toward Qs and correcting the failure. Limitations: education is not legally enforceable — stubborn or habit-bound consumers may not respond, so demand may not rise fully — and it works only slowly, offering no immediate solution.

Supply-side policy 1: subsidies. A subsidy to health-screening producers equal to the marginal external benefit lowers their cost, raising supply (MPC → MPC − subsidy) and consumption to Qs, eliminating the deadweight loss. A bonus: the lower price makes screenings more affordable to lower-income households, improving equity. Limitations: government failure if the MEB is mis-estimated (over-subsidy causes over-consumption), and large government expenditure with an opportunity cost.

Supply-side policy 2: joint provision. The government can directly provide the under-consumed QeQs, raising equilibrium quantity to Qs and removing the deadweight loss. Limitations: opportunity cost, plus the absence of a profit motive in government-owned provision — weak incentives to control cost or raise quality, and possible complacency since losses are covered by taxpayers.

Judgement. Whether to target supply rather than rely on demand depends on the main source of failure. If the failure is mainly imperfect information, education and campaigns target the root cause and are appropriate. But because that policy works only in the long run and cannot be enforced, it should be complemented by supply-side policies — subsidies in particular — that act in the short run and improve equity. Given Singapore’s ageing population, preventive healthcare is increasingly important (prevention beats cure, and it raises quality of life). The defensible conclusion is therefore not “supply instead of demand” but both: retain education to address the informational root cause, and add supply-side subsidies (and where appropriate joint provision or legislation) to deliver faster, more equitable correction of the under-consumption.