Globally, the United States is the leading country with the highest expenses in health care. In 2018, $3.65 trillion was spent on health expenditure. This amount represents $11, 212 per person, with approximately 59% of the money going to clinical services, physicians and hospitals (Sherman, 2018). Over the years, prescription drugs have consistently spent 3.3% of the amount. Further, the average amount spent by people under private health insurance rose to 4.5% in the period between the years 2017 to 2018. Such economic increase is a threat to the entire nation as it poses future challenges in obtaining health care. As such, the writings in this paper explains the economic principles governing the American healthcare system.
There are various reasons as to why the U.S government is spending hugely on health care while it is not among the top-ranked countries with quality health services. First, the administrative costs are so high. When compared to Canada, the United States has 44% more administrative personnel and the doctors are reported to dedicate an estimate of 50% more time on management tasks. Second, the cost of drugs is far much higher than other developed countries. Unlike governments of other countries that negotiate the price of drugs with the drug makers ( Papanicolas et al., 2018) . the U.S government does not negotiate with the drug makers as the Medicare Part D did away with negotiations on drug prices. Third, the defensive is yet another contributor to high health expenses. Because of the presence of strict laws on misdiagnosed treatments. For this reason, Health professionals use a lot of resources to arrive at a certified diagnosis.
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Forth, an expensive mix of treatments. A report made by OECD showed that a GDP of 17.1% was spent by the U.S government in 2017 whereas Turkey used a GDP of 4.2%. It was revealed that the treatments that could be done at a primary-care level were done by specialists and so the higher fees (Sherman, 2018). Subsequently, wages and staffing. Healthcare costs are also increased by the high reimbursements made to health specialists, and the over-utilization of professionals.
The healthcare market has customers (patients) and producers (nurses and physicians). However, the common characteristics of the supply and demand describe the general market or the economy of various businesses. These characteristics are not practical in the health sector and so this field has its unique features. Usually, the main player in the market is a buyer and a seller but in health care, third party like insurers and government are involved. Buyers predict the relevancy of wanted goods, however, patients cannot predict the outcome of treatment. Unlike the buyers who pay their goods directly to the producer. The payment in the healthcare market is done through a third party. Consequently, in the general market, prices control the decisions made for marketing while healthcare is guided by insurers.
Healthcare has many challenges when it comes to financing. First, the prevalence of externalities. An externality occurs when done activity affects a bystander who does not receive compensation for damage done. Even so, there are positive externalities that benefit the bystander. For instance, the market outcome for vaccination is likely to be affected by the government through the provisions of subsidies. Second, it is difficult to evaluate the quality of healthcare services (Jung, 2016). The inability of patients to evaluate and monitor the quality of the product (treatment) leads to numerous regulations. These include licensing and procedures of accrediting medical schools. Alternatively, the inability to monitor quality may create uncertainties of the relationships in private and public hospitals.
The other cause of finance instabilities in the healthcare market is the imperfections of insurers. The unpredictability of someone’s’ health is the reason as to why the insurers exist. The moral hazard hinders the tasks of the insurance market. Clients may exploit their insurance covers by seeking treatment in minor cases. On the other hand, physicians may also take advantage of a minor case by charging or doing clinical examinations of dubious value. Adverse selection can also hamper the insurance market. People with health problems are more likely to buy insurance covers than healthy people. This makes it expensive for the insurers to cover health problems and so the need for high charges for insurance. Ideally, the reflected price of buying insurance will indicate the cost of a sicker-than-average person. Therefore, the insurance market will be affected as its objective of eradicating the financial risk from ailments is already hindered.
In 2001, 62% of the adult population bought insurance covers from private companies. About 26% of the population had insurance covers from government-sponsored Medicaid or Medicare. However, over the years the private insurance firms have ever since lost its clients to Medicare and Medicare. In 2017, Gallup’s annual Health and Healthcare survey revealed that 52% of the adults were using private-based insurance covers while 37% used government-sponsored insurance. This may lead to an assumption that majority are likely working on contact-based employment in the sense that private industries are avoiding the payment of health insurance for their employees. For that reason, most employees remain uninsured.
Managed care has been all about lowering costs. It mechanisms are capitalization, utilization review, gatekeeping, bulk purchasing of health services, creation of preferred networks and ambulatory care. Medicaid is perceived to be serving poor people. Even so, it pays much attention to the elderly and the disabled population. However, the reimbursements rates made by private insurers and Medicare have been dramatically reduced. As a result, Medicaid patients have been left with a limited selection of physicians in both public and municipal hospitals. In turn, many patients under Medicare have been moving to managed care because of the financial crisis (Wendel et al., 2017).
Majority of the seniors in the U.S enroll for both Medicare part A and part B to get additional benefits in covering the high deductibles ( Nickitas et al., 2016) . Medicaid offers these benefits but many people prefer the private firm, Medigap. Purchasers of Medigap are employers or the pension plans for the retired people. Being the only purchaser of healthcare, Medicare sets the standards for reimbursements to control the private firms.
In recent years, states in the U.S have been expanding Medicaid programs, a step towards the expanse of government-sponsored healthcare. In contrast to the Canadian hearsay that claims healthcare if free, 30 % of the expenditure spent in Canada for healthcare is from the private sector. Unlike the U.S, prescription drugs and other subordinate health practices are not covered by the government. In the U.S the private health insurance firms work under greatly regulated and extreme bureaucratic schemes. It only leaves fewer Americans to purchase private insurance covers. It is no longer a market healthcare system but rather a government healthcare system that only shows the expanse of the government in the context of health spending.
With the inclusion of the federal government among the major players in healthcare. And more so a sole plyer for healthcare purchases, the healthcare is left with no operational market pricing system. The healthcare industry is now controlled by government contracts, spending and government principles on healthcare services. Consequently, prices for these services continue to increase because of the government interventions that ultimately subsidize healthcare. To worsen the matter, the policymakers are unable to control these prices and so the people are denied care or they are provisioned with poor health services. In conclusion, the goal of the free-market reformer should be to focus on illuminating the role of the market by advocating for a free fee-for-service economy to enable the development of the healthcare system.
References
Jung, J., & Tran, C. (2016). Market inefficiency, insurance mandate and welfare: US health care reform 2010. Review of Economic Dynamics , 20 , 132-159.
Nickitas, D.M., Middaugh, D.J., & Aries, N. (2016). Policy and politc for nurses and other healthcare professions (2 nd ED).
Papanicolas, I., Woskie, L. R., & Jha, A. K. (2018). Health care spending in the United States and other high-income countries. Jama , 319 (10), 1024-1039.
Sherman, E. (2019). U.S. Health Care Costs Skyrocketed to $3.65 Trillion in 2018. Retrieved 17 September 2019, from https://fortune.com/2019/02/21/us-health-care-costs-2/
Wendel, J., Serratt, T. D., & O'Donohue, W. (2017). Understanding healthcare economics: Managing your career in an evolving healthcare system . Productivity Press.
