A Critique of an Aspect of Grossman’s Model of Demand for Health Care

Abstract

The model of demand for health care developed by Michael Grossman is generally accepted by health economists as the standard. But in spite of its general acceptance and its longevity, Grossman’s model has some troublesome features. One such feature is the inadequacy of the human capital model for analyzing the demand for curative medical care. Given that preventive care is utilized in anticipation of illness, and its utilization and accruing benefits occur in different and sequenced time periods, preventive care is rightly viewed as a capital investment (as Grossman does) with current expenditures yielding future benefits. On the other hand, curative health care is distinguished by the fact that a person gets ill first and then seeks the care in order to cure (or, at least, treat) existing illness, and the utilization of curative care and the resulting cure are presumed contemporaneous, curative care is more like the standard consumer goods such as food; in which case, any future benefit is an added benefit. From this analogy, it can be argued that curative care is better suited to the standard consumer model rather than the human capital model. Grossman’s model neglects the distinction between curative care and preventive care, and instead generalizes the human capital model of demand for health care as if all health care is preventive. Also, Grossman's model ignores illness processes entirely as if all health decreases are due to aging or (natural) health depreciation. The present essay attempts to correct these faults.