In considering every aspect of economics and healthcare, it must be broken down into separate topics entirely. Such topics include; health insurance benefits, Medicare and Medicaid, personal choices and the reduction of the incentive of purchasing healthcare while you are healthy. While considering each of these, further information will include how much Americans spend on health care, why prices have risen so rapidly, what is likely to happen to health care prices in the future and what can be done to improve the delivery of health care services.
Starting with the structure of the healthcare industry – in most of the high-income countries, healthcare is a socialized industry. In such countries, hospitals are controlled and operated by the government meaning such services are paid for through taxes. Because no country can effectively offer free healthcare, certain services may be unaccounted for in what a country is capable of offering for “free.” There are political factors, waiting lists and the exclusion of high-cost procedures such as MRIs. In the United States, there is a combination of the use of both private and government operated enterprises within the healthcare industry. Some privately-owned hospitals are for-profit organizations while others are operated solely by charities. Most healthcare spending is paid for by a third party which consists of taxpayers and private insurance companies.
Medicare and Medicaid programs cover most of the health care costs of the elderly and the poor since their creation in the 60s. Medicare funds are derived from payroll taxes, general revenues and beneficiary programs. Medicaid, on the other hand, provides low income families with healthcare access either for free or at a lesser cost. The funding for Medicaid comes directly from the federal government, which covers up to sixty percent of all total medical costs. Since the introduction of such programs, spending has increased at a very quick rate. Within four years of initial introduction, spending between both programs reached a staggering 79 billion dollars. Real expenditures within the Medicaid program alone doubled over a ten-year span, and again ten years later. As of the year 2014, spending on the Medicaid program alone exceeded 496 million dollars. Spending on Medicaid today is now eighty percent of overall spending on Medicare.
An important aspect of health care is health insurance. Nearly 70 percent of all adults have health insurance provided through their employers, employee compensation in the form of such health insurance is not subject to taxation. This incentive was originally intended to attract individuals to the work force after the second world war despite the wage controls that were imposed during that era. Though healthcare offered through employers is not subject to taxation, the remainder of the amount owed after insurance must be paid for with after-tax income. Because employees have an income in addition to health insurance benefits, their additional income is in fact taxed. This makes purchasing healthcare from a provider outside of the workplace far more expensive. This is a discriminatory tax treatment in which causes employees to demand a low deductible rate in return. To break it down, the actual expenses covered by insurance provided by employers are tax deductible.
After both Medicaid and Medicare programs were established in the late 60s, medical bills paid for directly by the patient declined while third party payments increased greatly. By the year 2014, nearly 90 percent of all medical payments were funded by third parties. Because of this, prices are continually increasing. This is happening because subsidies will greatly increase in demand and the growth of such third-party payments essentially lowers the desire for consumers to find the cheapest option. Economic theories indicate that a higher subsidy and an increase in the level of third party payments being made will overall increase the demand for medical services which in turn decreases the need to economize, which means prices will increase due to an equal increase in organizational expenditures. As both prices and expenditures increase, the third parties will begin limiting how much they are willing to pay, or they will create requirements for what providers their customers can and cannot see. Though this is very difficult to implement, considering this becomes a conflict of interest between patient care and wellbeing and the care providers they wish to see. This generally leads to very dissatisfied customers and even life-threatening decisions while trying to work around such restrictions.
It is known that as we age, we need more medical attention and the number of elderly Americans is continually increasing. This increase causes problems for the healthcare industry as a whole. For obvious reasons, healthcare for the elderly is much more expensive and there is a much greater demand. This again causes a large increase in the spending of third-parties, causing an equal increase in both prices and expenditures, as explained previously.
Though it seems like a well put together system, the flaws and lacks are very costly. The total estimate of current unfunded promises by the Medicaid program is nearing 28 trillion dollars (over fifty percent of the total national debt). The attempts of correcting this debt have failed and have ultimately caused the government to step in. Though every attempt made by the government has been less than successful. There are four reasons to explain the lack of performance within the healthcare industry. First, the overall structure of government-based programs relies solely on the third-party payments. Because such a small amount of healthcare is actually purchased by the consumer, most has to be paid for through taxes and insurance premiums. Second, each state has different regulations regarding the way insurers operate and how much they can and will cover. Some states require services such as marriage counselling and massages to be covered, on top of vital medical care. This in turn causes costs of coverage to skyrocket, decreasing the desire to purchase healthcare. Third, purchasing health care is seen as a tax advantage when it is purchased outside of the workplace. This process essentially threatens the competition. Because it is so expensive to purchase personal healthcare outside of the work place, the government pushes individuals to accept coverage from employers that does not necessarily suit their personal needs. Finally, there are regulations that actually keep individuals from buying coverage plans from a state outside of their home state. All in all, the government has created a monopoly out of the health care industry, wherein each state has a completely different system.
In an attempt to fix some of the stated problems, president Obama implemented the Affordable Care Act back in 2010. There are four goals in which Obama implicitly stated in this act; mandated health insurance requirement, mandated provision of health insurance by employers, health care exchanges and subsidies for the purchase of insurance and expanded coverage. In considering the mandated health insurance requirement, Obama simply required everyone to have an approved health insurance plan. For those who do not have such a plan will suffer a tax penalty of 695 dollars a year for one individual and 2.5 percent of the total household income for families. In further considering the second mandate, the provision of health insurance by employers, this simply means that employers with over fifty full-time employees are required by law to provide health insurance to each of their employees or suffer a two thousand dollar yearly fine. The third mandate is a little more complex. Healthcare exchanges and subsidies for the purchase of insurance more simply means a sort of reward for individuals purchasing insurance outside of what is offered by their workplace. There are four separate plans in which range based on the individual’s income level. Finally, the mandate of expanded coverage simply requires insurers to cover children until they reach the age twenty-six and absolutely restricts charging more because of any pre-existing health condition. Though this is a seemingly straightforward plan, there are far too many unknown factors to consider, there is no way to estimate how effective this plan will be. It is assumed that the rate of part-time employment will increase due to employers being unwilling to offer coverage and attempting to avoid the monetary fine. It is also assumed that workplaces with a large amount of middle and lower-class employees will decrease their coverage plans because it will be more expensive to insure individuals who make 250 percent less than the poverty level.
Assumptions aside, the real impacts the Affordable Care Act have had on the economy were originally intended to increase the level of competition among insurance providers while decreasing the overall price of health insurance. But there are aspects of the act that have actually caused the opposite effect. The requirement of insurers to offer plans to absolutely everyone, disregarding pre-existing health conditions essentially gives healthy individuals to “play the system,” by which they choose to simply disregard the mandate and just pay the fine while remaining completely uninsured until they become ill, and then and only then purchasing coverage. If enough people do this, there will be an imbalance in the ratio of unhealthy individuals and individuals with higher medical expenses. Considering the way we all know and understand the works of supply and demand, there is no reason to believe that the Affordable Care Act will actually reduce any of the cost of medical care. There are though ways to improve the industry as a whole without the Affordable Care Act at all. The textbook provides five potentially effective ideas to consider; equalizing the tax treatment of out of pocket medical expenses with the direct purchase of health insurance with that of health insurance purchased through an employer, allowing the residents of each state to purchase health care from out of state providers, encouraging health savings accounts and the direct payment of medical bills from the accounts, encouraging the purchase of catastrophic health insurance and discourage the purchase of policies with first-dollar coverage and small copayments and finally placing more emphasis on the supply side of the health care market.
Though the healthcare market we are living under today is very flawed, there are strides being made in attempt to fix certain issues previously mentioned. There are things we can do to fix the holes that have been created, but it is not an inexpensive task to go about. Because the debt is continually increasing at such a rapid pace, it will be difficult to ever subside.