The Economics of Health Care Delivery in the U.S.

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8th Feb 2020 Health Reference this

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The heath care in the United States has been the topic of conversation over the past few years. It has also gone through many changes. One of the questions that have gone unanswered in the U.S. for many years has been, is health care a right or a privilege? Some people believe that it is a right for example, Bernie Sanders, a U.S. Senator said, “Health care must be recognized as a right, not a privilege. Every man, woman and child in our country should be able to access the health care they need regardless of their income” (Bernie.) Other people feel it is a privilege such as, John Mackey, Co-Founder and Chief Executive Officer of Whole Foods Market, when he said, “Health care is a service that we all need, but just like food and shelter it is best provided through voluntary and mutually beneficial market exchanges. A careful reading of both the Declaration of Independence and the Constitution will not reveal any intrinsic right to health care, food or shelter. That’s because there isn’t any. This “right” has never existed in America” (Mackey.) The biggest problems with health care in the United States is the cost. The high administration cost, high pharmaceutical cost and high salary of doctors, are the major contributor of the large Gross Domestic Product of health care in the United States.

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Health care systems differ from country to country. There are four basic system of health care that is used around the world they are The Beveridge Model, The Bismarck Model, The National Health Insurance Model and The Out-of-Pocket Model. All of these systems strive to meet “the three basic goals of a health care system: keeping people healthy, treating the sick, and protecting families against financial ruin from medical bills” (PBS.) Under the Beveridge model, the government controls and provides the health care for its citizens. These governments use tax dollars to pay for the health care system in their countries. The reasons they are able to provide this level of health care is because they control all aspect of it. They own the hospital and employ the doctors. There is good thing with this program and bad things. The good part is that no one has to pay out-of-pocket fee to see a doctor and will not get a bill. The bad things about this program is that the government has the final say of what doctors can treat and how much these doctors make. Great Britain for example is a country that uses the Beveridge model. Germany uses the Bismarck model. Only employees and employers pay for this program through the payroll system. The good part of this system is that everyone is covered under the insurance even if they pay into it or not. The bad part is that the prices are high because only everyone can afford to pay the insurance. Countries, such as Canada, uses the National Health Insurance model or NHI. With this model, the country uses a mix of both the Beveridge and Bismarck models. The NHI model can keep its costs down because everyone pays into the insurance and because it uses a non-for-profit insurance program. The good part is that everyone is covered and everyone helps pay for it. The bad part is that the insurance company says what services they will pay for and they make patients wait long periods of time to be seen by doctors. The last model is the Out-of-pocket model. An article on PBS.com says, “Only the developed, industrialized countries — perhaps 40 of the world’s 200 countries — have established health care systems” (PBS.) The poorest countries use this model because under this model only the rich people can afford health care. “The basic rule in such countries is that the rich get medical care; the poor stay sick or die” (PBS.) The United States is different from all of these other countries because it uses all of these models depending on the class of its citizens. This graph below shows how the people in the U.S. receive their health insurance. In the macroeconomic book it says written by Hubbard says, “In 2016, about 49 percent of people received health insurance through their employer and about 7 percent directly purchased an individual or family health insurance policy from an insurance company. About 35 percent of people received health insurance through a government program, including Medicaid, Medicare, and other public insurance (including the program run by the Department of Veterans Affairs). About 9 percent of people were uninsured” (Hubbard.)

The cost of healthcare in the United States is much higher than most countries and will only grow larger if our government does not fix the problems with its cost. The graph below shows the growth in National Health Expenditures, Gross Domestic Product (GDP), and the Health Share of Gross Domestic Product from 1990 to projected 2026 (NHE.) In 2016 the U.S GDP was 17.9% while other wealthy country’s GDP was much lower. For Example, Australia’s was only “9.6 percent” (Feldscher) and Switzerland’s was “12.4 percent” (Feldscher.)

Just because the U.S. spends more money one health care does not mean that U.S. citizens live longer. In fact, the life expectancy in the U.S. is lower than other countries that spend less on their health care. The US. life expectancy in 2016 is only “78.8 years; the range for other countries was 80.7 to 83.9 years. The proportion of the U.S. population with health insurance was 90 percent, lower than all the other countries, which ranged from 99 to 100 percent coverage” (Feldscher.)

The things that have led to the U.S. having such a high GPD in health care are the Administrative costs, spending for pharmaceuticals, and the salaries of the doctors.

 Some would say that the reason for the high administrative cost in the U.S. is due to the doctors having to generating bills and collect payments. In the article, The Astonishingly High Administrative Costs of U.S. Health Care, in The New York Times written by Austin Frakt it said, “doctors spend about three hours per week dealing with billing-related matters. For each doctor, a further 19 hours per week are spent by medical support workers. And 36 hours per week of administrators’ time is consumed in this way. Added together, this time costs an additional $68,000 per year per physician (in 2006). Because these are administrative costs, that’s above and beyond the cost associated with direct provision of medical care” (Frakt.) This spending is only going to rise in the future unless we can find a better way of billing for doctor’s visits. How is works now is the insurance company is the middle man in this system. The doctors first bill the insurance companies and then the doctors will bill the rest that is not covered under the insurance to the patients.

 The spending on pharmaceuticals is high because “the government pays more than 40% of the retail prescription drug tab, rising spending on drugs is putting pressure on the federal budget. It also contributes to rising health insurance premiums” (Olson.) The government also does not regulate the cost of new drugs coming out on the market. The pharmaceutical companies in the U.S. are always coming up with new prescription drugs and getting them patented. With these patents they can charge what they want for these new drugs, because the government does not regulate the price on new drugs. Generic drugs can only be made after the patents have expired. If the government would shorten the length of the patent years, generic drugs can be made faster and save the government more money. This graph shows Retail prescription drug spending on the GDP from 1960 to 2015.

The Economic principles that can play a factor in the high prices of health care are, normal good, moral hazard, externalities, and adverse selection. Heath care is a normal good because when people are willing to pay more for health care when their income increase and are willing to pay less when their income decreases. This is a bad thing because people with a lower income are unable to pay for health insurance and will have to either go without medical care or use the out-of-pocket model. This is not a good thing because it is expensive to receive service. When lower- or middle-class people use the out-of-pocket model they usually cannot afford to pay their bills and will have to file bankruptcy. Moral hazard is when people get health insurance they change their behaviors. These people become risk takers because they know they are covered by insurance and will not have to worry about a bill if something happens. The macroeconomic book explains externalities as “a benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service” (Hubbard.) Vaccinations are a positive externality because flu shots do not only protect the person that gets the shot, but it also protects the people that could have gotten the flu for this person. This is explained in the chart below.

A large problem with health insurance is adverse selection. The macroeconomic book says, adverse selection as “when one party to a transaction takes advantage of knowing more than the other party to the transaction” (Hubbard.) This affects everyone because if a person does not tell the insurance company they have a preexisting health problem the insurance will not know the right price to change them for their premiums and may undercharge them. This will affect others because the insurance company will have to raise the premiums for everyone else to cover the cost of the people that are not telling the truth about their medical problems.

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 The people that are affect the most by the rising cost of health cost are the middle- and lower-income classes. The middle income-class is affected because they can afford insurance, however, their deductibles keep rising to cover the people that can’t afford insurance. An article written on bloomberg.com written by Mr. Tozzi said, “Insurance and medical costs are draining the incomes of the middle class—tens of millions of people who earn too much to qualify for government-subsidized coverage, but not so much that they don’t feel the bite of medical bills” (Tozzi.) The lower class is affected because the government is trying to cut the cost of Medicaid. Mr. Tozzi also said, “The Obamacare replacement proposed by Senate Majority Leader Mitch McConnell would leave 15 million more uninsured next year and 22 million by 2026, according to the nonpartisan Congressional Budget Office, and allow insurers to sell policies that cover fewer benefits and pay for less medical care” (Tozzi.)

 There is no one way to fix the problems with the delivery of health care in the United States. We need to cut spending and lower the price people pay for insurance. If the U.S. can lower the cost of insurance more people can afford it and be able to get the medical treatment they need. However, finding the right ways to cut the spending will be a problem. If we let the government take over health care like it did with the Affordable Care Act they would have to do a better job of lowering the cost of premiums. Because Affordable Care Act that the U.S. has right now has such high premiums, citizen rather pay the individual share responsibility payment. This payment is lower then the cost of the insurance. The government should step in and control the cost of life saving drugs in the U.S. With the way our government cannot work together to solve any real big issue, it does not seem they could fix our health care system anytime soon.

Works Cited

The heath care in the United States has been the topic of conversation over the past few years. It has also gone through many changes. One of the questions that have gone unanswered in the U.S. for many years has been, is health care a right or a privilege? Some people believe that it is a right for example, Bernie Sanders, a U.S. Senator said, “Health care must be recognized as a right, not a privilege. Every man, woman and child in our country should be able to access the health care they need regardless of their income” (Bernie.) Other people feel it is a privilege such as, John Mackey, Co-Founder and Chief Executive Officer of Whole Foods Market, when he said, “Health care is a service that we all need, but just like food and shelter it is best provided through voluntary and mutually beneficial market exchanges. A careful reading of both the Declaration of Independence and the Constitution will not reveal any intrinsic right to health care, food or shelter. That’s because there isn’t any. This “right” has never existed in America” (Mackey.) The biggest problems with health care in the United States is the cost. The high administration cost, high pharmaceutical cost and high salary of doctors, are the major contributor of the large Gross Domestic Product of health care in the United States.

Health care systems differ from country to country. There are four basic system of health care that is used around the world they are The Beveridge Model, The Bismarck Model, The National Health Insurance Model and The Out-of-Pocket Model. All of these systems strive to meet “the three basic goals of a health care system: keeping people healthy, treating the sick, and protecting families against financial ruin from medical bills” (PBS.) Under the Beveridge model, the government controls and provides the health care for its citizens. These governments use tax dollars to pay for the health care system in their countries. The reasons they are able to provide this level of health care is because they control all aspect of it. They own the hospital and employ the doctors. There is good thing with this program and bad things. The good part is that no one has to pay out-of-pocket fee to see a doctor and will not get a bill. The bad things about this program is that the government has the final say of what doctors can treat and how much these doctors make. Great Britain for example is a country that uses the Beveridge model. Germany uses the Bismarck model. Only employees and employers pay for this program through the payroll system. The good part of this system is that everyone is covered under the insurance even if they pay into it or not. The bad part is that the prices are high because only everyone can afford to pay the insurance. Countries, such as Canada, uses the National Health Insurance model or NHI. With this model, the country uses a mix of both the Beveridge and Bismarck models. The NHI model can keep its costs down because everyone pays into the insurance and because it uses a non-for-profit insurance program. The good part is that everyone is covered and everyone helps pay for it. The bad part is that the insurance company says what services they will pay for and they make patients wait long periods of time to be seen by doctors. The last model is the Out-of-pocket model. An article on PBS.com says, “Only the developed, industrialized countries — perhaps 40 of the world’s 200 countries — have established health care systems” (PBS.) The poorest countries use this model because under this model only the rich people can afford health care. “The basic rule in such countries is that the rich get medical care; the poor stay sick or die” (PBS.) The United States is different from all of these other countries because it uses all of these models depending on the class of its citizens. This graph below shows how the people in the U.S. receive their health insurance. In the macroeconomic book it says written by Hubbard says, “In 2016, about 49 percent of people received health insurance through their employer and about 7 percent directly purchased an individual or family health insurance policy from an insurance company. About 35 percent of people received health insurance through a government program, including Medicaid, Medicare, and other public insurance (including the program run by the Department of Veterans Affairs). About 9 percent of people were uninsured” (Hubbard.)

The cost of healthcare in the United States is much higher than most countries and will only grow larger if our government does not fix the problems with its cost. The graph below shows the growth in National Health Expenditures, Gross Domestic Product (GDP), and the Health Share of Gross Domestic Product from 1990 to projected 2026 (NHE.) In 2016 the U.S GDP was 17.9% while other wealthy country’s GDP was much lower. For Example, Australia’s was only “9.6 percent” (Feldscher) and Switzerland’s was “12.4 percent” (Feldscher.)

Just because the U.S. spends more money one health care does not mean that U.S. citizens live longer. In fact, the life expectancy in the U.S. is lower than other countries that spend less on their health care. The US. life expectancy in 2016 is only “78.8 years; the range for other countries was 80.7 to 83.9 years. The proportion of the U.S. population with health insurance was 90 percent, lower than all the other countries, which ranged from 99 to 100 percent coverage” (Feldscher.)

The things that have led to the U.S. having such a high GPD in health care are the Administrative costs, spending for pharmaceuticals, and the salaries of the doctors.

 Some would say that the reason for the high administrative cost in the U.S. is due to the doctors having to generating bills and collect payments. In the article, The Astonishingly High Administrative Costs of U.S. Health Care, in The New York Times written by Austin Frakt it said, “doctors spend about three hours per week dealing with billing-related matters. For each doctor, a further 19 hours per week are spent by medical support workers. And 36 hours per week of administrators’ time is consumed in this way. Added together, this time costs an additional $68,000 per year per physician (in 2006). Because these are administrative costs, that’s above and beyond the cost associated with direct provision of medical care” (Frakt.) This spending is only going to rise in the future unless we can find a better way of billing for doctor’s visits. How is works now is the insurance company is the middle man in this system. The doctors first bill the insurance companies and then the doctors will bill the rest that is not covered under the insurance to the patients.

 The spending on pharmaceuticals is high because “the government pays more than 40% of the retail prescription drug tab, rising spending on drugs is putting pressure on the federal budget. It also contributes to rising health insurance premiums” (Olson.) The government also does not regulate the cost of new drugs coming out on the market. The pharmaceutical companies in the U.S. are always coming up with new prescription drugs and getting them patented. With these patents they can charge what they want for these new drugs, because the government does not regulate the price on new drugs. Generic drugs can only be made after the patents have expired. If the government would shorten the length of the patent years, generic drugs can be made faster and save the government more money. This graph shows Retail prescription drug spending on the GDP from 1960 to 2015.

The Economic principles that can play a factor in the high prices of health care are, normal good, moral hazard, externalities, and adverse selection. Heath care is a normal good because when people are willing to pay more for health care when their income increase and are willing to pay less when their income decreases. This is a bad thing because people with a lower income are unable to pay for health insurance and will have to either go without medical care or use the out-of-pocket model. This is not a good thing because it is expensive to receive service. When lower- or middle-class people use the out-of-pocket model they usually cannot afford to pay their bills and will have to file bankruptcy. Moral hazard is when people get health insurance they change their behaviors. These people become risk takers because they know they are covered by insurance and will not have to worry about a bill if something happens. The macroeconomic book explains externalities as “a benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service” (Hubbard.) Vaccinations are a positive externality because flu shots do not only protect the person that gets the shot, but it also protects the people that could have gotten the flu for this person. This is explained in the chart below.

A large problem with health insurance is adverse selection. The macroeconomic book says, adverse selection as “when one party to a transaction takes advantage of knowing more than the other party to the transaction” (Hubbard.) This affects everyone because if a person does not tell the insurance company they have a preexisting health problem the insurance will not know the right price to change them for their premiums and may undercharge them. This will affect others because the insurance company will have to raise the premiums for everyone else to cover the cost of the people that are not telling the truth about their medical problems.

 The people that are affect the most by the rising cost of health cost are the middle- and lower-income classes. The middle income-class is affected because they can afford insurance, however, their deductibles keep rising to cover the people that can’t afford insurance. An article written on bloomberg.com written by Mr. Tozzi said, “Insurance and medical costs are draining the incomes of the middle class—tens of millions of people who earn too much to qualify for government-subsidized coverage, but not so much that they don’t feel the bite of medical bills” (Tozzi.) The lower class is affected because the government is trying to cut the cost of Medicaid. Mr. Tozzi also said, “The Obamacare replacement proposed by Senate Majority Leader Mitch McConnell would leave 15 million more uninsured next year and 22 million by 2026, according to the nonpartisan Congressional Budget Office, and allow insurers to sell policies that cover fewer benefits and pay for less medical care” (Tozzi.)

 There is no one way to fix the problems with the delivery of health care in the United States. We need to cut spending and lower the price people pay for insurance. If the U.S. can lower the cost of insurance more people can afford it and be able to get the medical treatment they need. However, finding the right ways to cut the spending will be a problem. If we let the government take over health care like it did with the Affordable Care Act they would have to do a better job of lowering the cost of premiums. Because Affordable Care Act that the U.S. has right now has such high premiums, citizen rather pay the individual share responsibility payment. This payment is lower then the cost of the insurance. The government should step in and control the cost of life saving drugs in the U.S. With the way our government cannot work together to solve any real big issue, it does not seem they could fix our health care system anytime soon.

Works Cited

  • Bernie S. Medicare for All: Leaving No One Behind. berniesanders.com. Retrieved from https://berniesanders.com /medicareforall
  • Feldscher, K. (2018, March 13). U.S. pays more for health care with worse population health outcomes. Retrieved from: https://news.harvard.edu/gazette/story/2018/03/u-s-pays-more-for-health-care-with-worse-population-health-outcomes/
  • Frakt, A. (2018, July 16). The Astonishingly High Administrative Costs of U.S. Health Care. Retrieved from: https://www.nytimes.com/2018/07/16/upshot/costs-health-care-us.html
  • Hubbard, R. G., & OBrien, A. P. (2019). Macroeconomics. New York, NY: Pearson.
  • Mackey, J. (2009, August 11). The Whole Foods Alternative to ObamaCare. wsj.com. Retrieved from: https://www.wsj.com/articles/SB1000142405297020425140457434217007 2865070
  • NHE-Fact-Sheet. (2018, April 17). Retrieved from: https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/nhe-fact-sheet.html
  • PBS, Public Broadcasting Service, (15 Apr. 2008), Health Care Systems—The Four Basic Models, Retrieved from: www.pbs.org/wgbh/pages/frontline/sickaroundtheworld/ countries/models.html.
  • Olson, P., & Sheiner, L. (2017, October 03). The Hutchins Center Explains: Prescription drug spending. Retrieved from: https://www.brookings.edu/blog/up-front/2017/04/26/the-hutchins-center-explains-prescription-drug-spending/
  • Tozzi, J. (2017, July 27). With or Without Obamacare, Health-Care Costs Are Battering the Middle Class. Retrieved from https://www.bloomberg.com/news/articles/2017-07-27/with-or-without-obamacare-health-care-costs-are-battering-the-middle-class

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