Cause of High and Rising Health Care Costs - Essay Example

Argumentative Essay on Current Public Issue The US having one of the most expensive health care systems globally, with per capita health expenses above those of most nations, is a known fact. For the last few decades, the cost of the US expenditures on health care has been growing more than the economic rate of inflation. Different experts argue that high and rising costs of health care are inconsequential while others argue that this is a monumental problem (Halvorson and Isham 29). The latter is true since there are profound, negative effects of employee health care costs on government budgetary issues caused by high costs of health care, additional costs on employers, as well as the connection between high costs of health care and diminishing access for persons who require health services. Experts provide numerous explanations for the high and rising costs of health care. These include perspectives such as that the high costs emanate from external forces, the weakness of competitive health care markets in the health care system, excessive costs of health system administration, from undue market power of providers and the absence of robust cost-containment strategies (Keeler, Melnick and Zwanziger 73). However, it is apparent that the greatest basis of high and increasing health care prices is the lack of a free health care market system in the US. This paper will provide a comprehensive argument showing why such absence is the main cause of the current high cost in the US. Health care costs can be reduced significantly through the introduction of a free market. Within a free and competitive market, forces of supply and demand determine the price of commodities. This means that there are so many customers and suppliers that no single seller or buyer can dictate the price of a commodity or service, and all buyers are fully privy to adequate information to make sensible buying decisions. The health care sector consists of several markets that include patients getting physical and hospital services, employers selecting the best health care plans for their employees and health insurance organizations entering contracts with hospitals. At the level of patients seeking hospital services, free market means that patients would not only be responsible for certain costs, but will also have ample information on the prices of various providers and obtain low-priced services (Luft and Grumbach 78). At such a level, hospitals and physicians would have to lower their charges to attract customers (patients). In reality, however, patients do not buy hospital and physician services in a free market as evidenced by several factors. First, patients cannot evaluate the costs of medical services since different health conditions require different costs. For instance, a patient suffering from a headache is unclear of the cost of care whether it will cost $60 for consultation and aspirin or $60,000 for brain neoplasm surgery. Secondly, since most health care is a need rather than a luxury, government and private insurance has progressed to cover patients from fiscal disaster associated with serious diseases, thereby averting the need to seek low-cost services. Lastly, a free market might result in patients becoming additionally conscious of costs, but low-income, as well as sick people responsible for either all or a portion of the costs, may end up incurring unaffordable expenses and may be priced out of necessary services. Cost-containment of health care services includes strategies like additional patient cost sharing and introduction of competition amongst heath care providers and insurers. The RAND Health Insurance Experiment conducted during the 1970s compared health expenses of patients receiving free care with that of paying a fraction of the charges out-of-pocket (Keeler, Melnick and Zwanziger 81). The study clearly showed that those receiving free care used more services thus higher expenses than cost-sharing patients. This shows that increasing cost-sharing margins from the current rates is an effective strategy to lower the overall cost of health care. While the cost of care for terminally ill patients cannot be shared sufficiently, it is undisputable that cost-sharing reduced some portion of care costs. With the current economic state, even the slightest reduction in cost is highly welcome. In order to receive the full benefits of care cost reduction, it is essential to couple cost-sharing strategies with the introduction of competition. The idea of controlling care costs by introducing free-market competition is slowly gaining currency in the US. Competition is a highly realistic option, especially with regard to insurance plans contracting with physicians and hospitals, as well as the insured choosing health plans. In a competitive market, many hospitals will exist; hence, no hospital will have a substantial stake of the market. Between the year 1995 and 2000, the quantity of private hospitals within multihospital systems increased dramatically. In certain cities, about 60% to 80% of private admissions went to hospitals within multihospital systems (Keeler, Melnick and Zwanziger 81). This meant that insurers were no longer able to force hospitals to agree to low reimbursement, which forced prices up. This means that, through consolidation of hospitals within a single geographic area, insurers would be forced to lower prices, hence, reducing hospital costs. Competition is also possible in the market of health plan purchasers such as the government or employers. Increasing competition in this market means increasing the number of insurance plan providers, as well as Health Maintenance Organizations (HMOs). Currently, there are only a handful of HMOs such as Medicare and Medicaid, which enroll selectively. The introduction of additional HMOs is guaranteed to first of all remove the selectivity of such plans and secondly, reduce their overall costs. Nonetheless, this competition should be government-regulated to deter health plans from selectively enrolling healthy persons such as the current scenario in the Medicare program (Town and Vistnes 67). In investigating the cause of high and rising health care costs, health policy literatures, as well as economists, provide differing perspectives. The lack of a fully developed competitive market health care system is extremely responsible for such high health expenses (Keeler, Melnick and Zwanziger 84). This paper has examined this reason providing recommendations for the alleviation of the current high care costs in the US. Competition works in nearly all markets, thus, is bound to prove effective for the health care markets, as well. However, competition alone is insufficient and should be coupled with increased cost-sharing mechanisms. In essence, the introduction of free market in the health care system will effectively lower health care costs. Works Cited Halvorson, George C. and George J. Isham. Epidemic of Care. San Francisco: Jossey–Bass, 2003. Print. Keeler, Emmett B., Glenn Melnick and Jack Zwanziger. “The changing effects of competition on non-profit and for-profit hospital pricing behavior”. Journal of Health Economics. 18 (1999): 69-86. Print. Luft, H. S. and Grumbach, K. Global budgets and the competitive market. Colorado: Westview Printers, 1994. Print. Town, Robert and Gregory Vistnes. “Hospital competition in HMO networks”. Journal of Health Economics. 20 (2001): 733-53. Print. Read More