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Running head: HEALTHCARE ECONOMICS 1

Healthcare Economics

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HEALTHCARE ECONOMICS 2

Healthcare Economics

Economic Foundation of the US Healthcare Delivery

In the healthcare delivery field, the government has an active role to play. In the US, the

government plays its part in raising the health and living standards of the citizens. The federal

government managed two reachable and expanded healthcare programs that aim at ensuring the

provision of these services to the indigent and elderly namely Medicaid and Medicare (Barr,

2016). These systems are supported by tax as they are initiated by the national government. It

includes the expenses of services that are provided in the country’s private market (Drummond,

Sculpher, Claxton, Stoddart, & Torrance, 2015). Currently, the households’ medical expenditure

seems to be is subsidized by the modern United States income tax code with most of them being

are neither sick nor elderly. In case, the federal government alters health services price.

Moreover, the US Government may also intervene in the effort to regulate the medical

services quality which mostly happens when the consumers seem reasonably ignorant. Such

regulations on the variety of services are aimed at the structure of the operation (Baum, 2016).

One of the typical cases is where one of a government agency requires all its medical workers to

be professionally licensed. The same organization may direct the management to maintain a

specific staff-to-patient ratio as its minimum (Drummond et al., 2015). Higher quality level

requirements in the medical structures encourage an increased quality in the delivery process as

well as the outcome stages. However, the perception is that the regulations imply higher

production costs which eventually involve a reduced medical services supply.

The role of the government in regulating the price of medical services depends on various

factors such as a third-party involvement, level of competition, the baseline for the price ceiling

applied as well as the health insurance moral hazards (Folland, Goodman, & Stano, 2016).

HEALTHCARE ECONOMICS 3

However, price controls generate supply shortages which could lead to unintended effects like

longer waiting lines, group-based discrimination, and reduced quality. The popularity of

managed care has increased the country gradually over the past one century. The government

and employers increased demand for more access to improved quality of healthcare.

The State governments and the Federal government place more importance on the types

of care that can be provided by the social security scheme (Grosse, Nelson, Nyarko, Richardson,

& Raskob, 2016). These include the restrictions on the amount of payment that will be availed to

the hospitals and the doctors for the care. It could be discouraging because the patients are

suffering from different illnesses and some wish they could pay from their pockets (Stiglitz, &

Rosengard, 2015). The low reimbursement rates available for this scheme, a significant number

of the physicians and specialists providing primary care are reluctant to accept payments via this

plan. This means that the option that patients are left with is opting to pay from their pocket.

The health insurance industry or market in the United States is highly concentrated. The

top insurers have executed approximately 400 mergers in the last decade (Stiglitz, & Rosengard,

2015). Majority of the markets that are providing services such as hospitals seem to be overly

concentrated. This implies that these insurers are left with little choice which translates to low

leverage which they can use to control prices they will pay. However, regularly, large insurers

negotiate MFN clauses to consent to an increase in the rates (Folland, Goodman, & Stano, 2016).

In the case a few firms are operating at various price levels, it becomes an Oligopoly market

structure. Some other small producers may be working in the same market, but the market is

already dominated by the few large firms. This causes information asymmetry and leads to social

welfare loss, and it is always meant to happen.

Economic models that explain the role of economics

HEALTHCARE ECONOMICS 4

The economic models of healthcare in the US include social, public, organizational, and

financial health models. The healthcare perspectives are quality, access, delivery, availability,

effectiveness, and efficiency. It is challenging to identify the differences between the concepts

when used with the four models (Baum, 2016). The Organizational Model in the US is a

collection of numerous informal systems which are fragmented as well as uncoordinated but also

interchangeable. The basic concept here is that this model emphasizes on focusing resources on

the four essential medical care components that are defined. These elements include financing,

delivery, personnel, as well as knowledge and technology.

The Social Model embarks on the universal objective of realizing “Equity Of Access” to

health care. This model of healthcare economics aims to achieve this through the three

principles. These principles include, right to health care, finite resources are committed to health

care, and developing the mechanism for assigning scarce resources is the primary concern of

healthcare (Baum, 2016). The objective of achieving equity in the medical care access depends

on the organizational values or their understanding of the just and capital.

The Economic Model focuses on efficiency. In this model of healthcare, productivity is

defined based on three fundamental assumptions. The model assumes that there are scarce

resources, there are alternative uses of the limited resources, and different individuals want

different things. Therefore, in this model, based on these principles, the goal is efficiency and not

equity. This model uses the assumptions in line with various economic laws such as the principle

of Behavior, Benefit, Demand, Value, Policy Issues, as well as Economic Incentives to achieve

an equilibrium.

Lastly, the Public Model of health care has a definite mission which is to fulfill the

interest of the society in making sure that people are in healthy environment or conditions. This

HEALTHCARE ECONOMICS 5

model has its focus on the culture as it organizes communities, public and private organizations,

as well as local and national governments. This is done to fulfill its core functions including

assessment, policy designation as well as assurance. There is a significant influence as well as

the changes that have been brought about by the Public Health in the US health status through

education, research, regulation, as well as the implementation of care technology. However, the

Public Model is parallel to the Organizational Model, but it adopts Social Model’s objectives

(Folland, Goodman, & Stano, 2016). The Public Model has achieved significant results but

relies a lot on the financial support from the government which means it has no political power

foundation.

Role of Production of Health and Demand and Supply

The demand and supply of healthcare by households faces the challenge of informational

asymmetry. However, besides informational problems, government intervention and suppliers

power in the market makes it hard to analyze the healthcare market using the standard supply-

and-demand curves. Moreover, the spending behavior on medical care today has impacts on the

individual’s future health status (Gilks et al., 2006). Therefore, current spending serves as a

future investment.

Moreover, the demand for medical services, just like other goods, is dependent on

personal income as well as the price of the health services. However, unlike human need for

different types of products, the demand for medical services is affected or influenced by health

insurance costs Gilks et al., 2006). Additionally, unlike in several other types of goods, in health

care services, consumers demanding them seem to be relatively less informed or uninformed

about various types of service they are purchasing (Chang, Lin, Galla, Clayton, & Eatock, 2015).

HEALTHCARE ECONOMICS 6

Therefore, healthcare production function takes inputs, including and machines, doctors, and

nurses and then produces different health-care services.

Economic Benefits and Challenges of Individual vs. Population Health

Individual health approach focuses and concentrates its efforts on individuals identified

as high-risk because they have a risk factor level that is above a specified threshold. However,

when these people have preventive measures targeted at them because they are high-risk, the risk

factor level distribution can only shift a little to the low-level direction which is indicated as a

curve with a relatively higher gradient in the curve (Chang et al., 2015). This approach identifies

high-risk or susceptible people and offers such people personal protection. This method is more

appropriate to individuals, but it has less or limited impact at the population level (Chang et al.,

2015). This approach fails to alter the underlying causes of ailments. The Individual health

approach requires expensive and continuous screening procedures to identify the individuals who

are high-risk.

Population health approach is a strategy that seeks to shift the entire distribution of the

risk factor to a lower level. Moreover, the whole risk-factor level distribution curves towards to

lower the values in a curve with a relatively higher gradient than the Individual-based approach

curve (Chang et al., 2015). This approach also strives to promote the healthy behavior of

individuals to achieve a general lowering of risk within the total population. The population

health approach aims at controlling the health determinants in the entire community (Chang et

al., 2015). This method may be disregarded for the individual plan but it is less expensive and

not tedious because it does not engage all members of the whole population in some continuous

screening processes.

HEALTHCARE ECONOMICS 7

International Comparisons of Health

In the United States, spending on health care services exceeds that various other high-

income countries (Bradley, Canavan, Rogan, Talbert-Slagle, Ndumele, Taylor, & Curry, 2016).

Although the rate of growth of the spending in America, as well as many other countries, has

slowed down in recent years, the level of spending is still high in the US than in countries such

as Canada, Netherlands Australia, Denmark, Germany, France, and Japan. Additionally, even

though America is the only nation in the list of 14 countries that had no universal public health

system by 2015, it had the highest spending rate of federal funds on health care than ten

countries in the list (Squires, & Anderson, 2015).

However, although Americans exhibit a relatively lowest number of physician visits and

hospital admissions compared to other high-earning countries, they are signed using expensive

technologies compared to others, and such include MRI machines (Squires, & Anderson, 2015).

Additionally, the latest cross-national pricing report suggests that the medical prices in America

are remarkably higher than in other areas. This is a potential explanation as to why there is a

higher health care spending. It is clear that the country spends heavily on quality medication by

purchasing quality equipment (Bradley, Canavan, Rogan, Talbert-Slagle, Ndumele, Taylor, &

Curry, 2016). In the same way, Americans value quality health care services because they spend

more on machine supported medication as compared to people from other developed countries.

On the contrary, America allocates less share of the country’s budget or revenue to

crucial social services. Services such as employment programs, food security housing assistance,

and disability benefits are allocated the smaller portion of the economy when compared to the

same services in other developed countries (Squires, & Anderson, 2015). The culture of United

States that determines the pattern of health and service provision is different to that of other

HEALTHCARE ECONOMICS 8

countries. This means that the United States of America does very little to improve the health

status of its citizens through enhanced social provision (Bradley et al., 2016). America does not

provide a safe environment for its citizens when compared to other developed countries.

Despite the substantial investment by the United States’ government in health care, the

citizens and the country at large are still experiencing more unfortunate results. Significantly,

several significant health outcome measures see and report poor results including chronic

conditions the prevalence as well as life expectancy. However, in the US, cancer-related

mortality rates are low. Such prices have gone down more quickly in America compared to other

nations (Squires, & Anderson, 2015). However, the ischemic heart ailment mortality rate in the

US is higher than in other developed countries.

HEALTHCARE ECONOMICS 9

References

Barr, D. A. (2016). Introduction to US Health Policy: the organization, financing, and delivery

of health care in America. JHU Press.

Baum, F. (2016). The new public health (No. Ed. 4). Oxford University Press.

Bradley, E. H., Canavan, M., Rogan, E., Talbert-Slagle, K., Ndumele, C., Taylor, L., & Curry, L.

A. (2016). Variation in health outcomes: the role of spending on social services, public

health, and health care, 2000–09. Health Affairs, 35(5), 760-768.

Chang, E. T., Lin, Y. T., Galla, T., Clayton, R. H., & Eatock, J. (2015). Modelling the

progression of atrial fibrillation: A stochastic individual-based approach. arXiv preprint

arXiv:1507.07358.

Drummond, M. F., Sculpher, M. J., Claxton, K., Stoddart, G. L., & Torrance, G. W. (2015).

Methods for the economic evaluation of health care programmes. Oxford university

press.

Folland, S., Goodman, A. C., & Stano, M. (2016). The Economics of Health and Health Care:

Pearson International Edition. Routledge.

Gilks, C. F., Crowley, S., Ekpini, R., Gove, S., Perriens, J., Souteyrand, Y., ... & De Cock, K.

(2006). The WHO public-health approach to antiretroviral treatment against HIV in

resource-limited settings. The Lancet, 368(9534), 505-510.

Grosse, S. D., Nelson, R. E., Nyarko, K. A., Richardson, L. C., & Raskob, G. E. (2016). The

economic burden of incident venous thromboembolism in the United States: a review of

estimated attributable healthcare costs. Thrombosis research, 137, 3-10.

Squires, D., & Anderson, C. (2015). US health care from a global perspective: spending, use of

services, prices, and health in 13 countries. The Commonwealth Fund, 15, 1-16.

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Stiglitz, J. E., & Rosengard, J. K. (2015). Economics of the Public Sector: Fourth International

Student Edition. WW Norton & Company.

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