Analysis of the Impact of the Community Living Assistance Services and Support Act on the US Economy - Essay Example

?Macroeconomic Impact of the Community Living Assistance Services and Support Act in the United s In the Patient Protection and AffordableCare Act and the Health Care and Education Reconciliation Act were passed into law in the United States. Among other sweeping changes, the new bills incorporated the late Edward M. Kennedy’s Community Living Assistance Services and Support (“CLASS”) Act, which attempted to provide a reasonably affordable, self-sufficient option for long-term care to all Americans (Lieber, 1998). The CLASS Act demonstrates the failure of legislation in a macroeconomic sense to provide for long-term care due to its inability to provide the services it aims to without the infusion of federal money. Health care in the United States has evolved considerably since its inception. Prior to 1990s, people rarely spoke about health care coverage issues, as health care was considered exclusively for the upper middle class of the society (Kronenfeld, 2002). Over the years of economic development in the United States, the health care policies came to include the middle and lower income classes of society. Over the course of 50 years, the United States has transformed the health care system into a billion-dollar industry. The companies, shareholders, and stakeholders associated with the health care system experienced huge gains and rapid growth throughout the period. The general health care was viewed important by each and every American; they took pride in the development of the system within the country, the increasing use of ever-evolving technologies, and the growth of modernized hospitals located throughout the country (Kronenfeld, 2002). Americans across the nation started believing that health care system was one of the contributing factors behind the enormous economic growth. A series of statistical studies regarding the health care system of the country revealed that they system was collapsing. Several independent researchers within the system concluded that the health care system was in a position of providing proper health care to only 60% of the chronically ill of the country. One of the main reasons supporting this theory was that about 15.8% of Americans were not covered by health insurance despite the United States spending 12% of the Gross Domestic Product (GDP) in 1990 on health care (Patel & Rushefsky, 2006). The other industrialized countries of the world – mainly Canada, West Germany, and Japan – spent much less on the health care of the country, yet were still able to provide comprehensive coverage to a greater portion of their populations. Use of the most advanced techniques for improving health care thus did not translate into a healthy population (Kronenfeld, 2002). Key amongst the problems with the health care system of the United States was the existence of more than one health care system. According to the study made by Torrens in the year, 1988 there were four different health care systems in the country. The first system covered the middle and the high-income group of the country – those were regularly employed and possessed comprehensive health insurance policies. The second system covered the poor population – those without any insurance coverage. The third and the fourth system of health insurance covered the working military personnels and their dependents and the retired military people, respectively (Kronenfeld, 2002). The health care system of the United States in essence had most of the population covered by private insurance and the government providing insurance mainly for the backward section of the society. To overcome the loopholes of the system of health care of the country and to alleviate the problems relating to the presence of more than one health care system in the country, one option is to form a nationalized health care system with the government of the country acting as the single player of the health care system. The total spending of the system of health care would be done from the government budget. Hence the government would be solely responsible in deciding what, how, and for whom service is being produced. However, that leaves no choice on the part of the individual in regards to the amount and the type of the service they desire; this was a choice that was otherwise available under privatized health care system (Dewar, 2009; Musgrave, 2006). As an outgrowth of this concept, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 were passed into law on March 23, 2010 and March 30, 2010, respectively. These laws provided for, among a myriad of other things, the creation of a temporary pool for adults with pre-existing conditions, the creation of a voluntary, long-term care program, and the future establishment of health care exchanges to facilitate increased transparency and accountability while spreading risk across larger pools (Binckes & Wing, 2010; Carney, 2010; Galewitz, 2010). Additionally, the laws restricted insurers from excluding children under the age of 19 with pre-existing conditions from coverage, terminating coverage of policyholders if they get sick, imposing a lifetime monetary limit on necessary insurance benefits, and reimbursing doctors less than the full rate when treating Medicare patients (Binckes & Wing, 2010; Breaking, 2010). Passed as Title VIII of the Patient Protection and Affordable Care Act, the Community Living Assistance Services and Supports Act created a voluntary, self-sufficient long-term care insurance program. Barbara Manard, a health economist with the American Association of Housing and Services for the Aging – who worked closely with Senator Kennedy’s staff to draft the legislation – clarified the concept behind the Act: It creates a national insurance trust that people can voluntarily participate in. It's a publicly sponsored insurance plan, to make it as low-cost as possible. You pay a monthly premium. If you become disabled and need assistance with activities of daily living at any age, you can qualify for a daily cash benefit on the order of about $50 to $75 a day, depending on your level of disability. The legislation doesn't set specific benefits. The Secretary of Health and Human Services will develop the details. It has to be actuarially sound and self-sustaining. (Kennedy’s CLASS, 2009) While the sentiment behind the Act is admirable, Kathleen Sebelius, the secretary of Health and Human Services, has said that it will be difficult to make the offering both affordable and actuarially sound (Lieber, 2011). In short, in its present form the CLASS Act does not make economic sense. Macroeconomics is the study of the overall economy, which takes into consideration factors such as GDP and its components – consumer expenditures, private investment, government consumption and investment, and net exports (Barro, 1997). Macroeconomics also focuses on individual sectors within the economy, such as health care, and is used to gauge the sectors’ impact on the market as a whole. Every sector of the economy contributes to the GDP of a country, thus any changes in the production or output of any sector will affect the total Gross Domestic Product of the country. This demonstrates that all sectors of the economy are interdependent. (Mankiw, 2008; Taylor, 2006) With that interdependence in mind, in 2009 national health expenditures accounted for 17.3% of the United States’ GDP (U.S. Department, 2011), which by any measure constitutes a significant contribution to one sector of the limited resources available in the economy as a whole. The concept of scarcity of resources is significant within macroeconomic theory; there are only a finite amount of resources to be spread across the economy to achieve maximum potential. In a competitive market, the determination of where these resources are allocated is made by the market itself. The rules of supply and demand not only determine what goods and services will be produced, but also set the price levels of such goods and services so that they constitute an efficient use of scarce resources (Barro, 1997). Such rules, in essence, comprise a market economy. Demand dictates what is produced, how much is produced, and at what prices it is produced. If a good or service is desired, yet is not in as high of demand as an unrelated good or service, the scarce resources available will be allocated to the more highly desired good. This act drives the price upward of the initial good or service until consumers are willing to pay a price relative to the quantity being produced that allows suppliers to allocate the scarce resources of the economy to the production of said good or service. In this way, the most efficient allocation of scarce resources is distributed across all economic sectors for the maximum gain to the economy as a whole. The Community Living Assistance Services and Support Act flies in the face of macroeconomic principles. While admirable, the requirement of the long-term care insurance to be affordable negates the market activity of price setting. Allocating the scarce resources of the economy through fiscal policy to what has been determined by Health and Human Services, the department tasked with developing the details to create such a self-sustaining system, as an actuarially unsound concept (Lieber, 2011) not only creates inefficiencies within the health care system, but also creates issues in the larger market as sectors with valid market demand are deprived of scarce resources. This deprivation drives up prices in those sectors in excess of what demand dictates, thus creating further inefficiencies. According to macroeconomics, a market-based system is the best option to provide for a national health care system. The market acts as the link between the consumers and the suppliers of the product by connecting the decision of the suppliers and the preference of the consumers at the price they are willing to pay for the preferred health policies. Markets operating at competitive level provide the best products through optimum and most desired allocation of resources. A competitive form of market allows the producers to supply the desired commodity for the consumers at the lowest possible price relative to the costs associated with production. Thus, the country, by spending the optimum percentage of their gross domestic product on health care system, will be able to receive the maximum level of health care as compared to the other industrialized countries of the world while having the economy operation at an optimum level. There are, however, an asymmetry of information, the nature of the health care system as public good, the inverse relationship that existed between the share of the health care services in the GDP of the country and the public spending, and the heavy regulations maintained in the industry of health care that exist as hurdles toward market competition. For a competitive market to perform optimally, there is a need of full information regarding the product on the part of both the producers and the consumers. The lack of that causes the price of the products to not be in accordance to the consumer’s preference since the producers have more information regarding the medical service provided and other medical products. These market imperfections have always been a cause of concern of the health care system of the country. Additionally, according to the data published by OECD in the year 2003 there exists an inverse relationship between the public spending on health care and the contribution of the latter in the total GDP of the country. The data reveals that with increasing public spending the sector’s share in the GDP reduces. Regulations on the health care system reduce competitiveness among the different providers and hence it results in a reduction of their efficiency. Moreover, a majority of the hospitals of the country are generally financed by parties other than the buyer of the health care policies and its suppliers. It results in an inflationary effect on the health care industry and thus affecting the total economy (Dewar, 2009; Musgrave, 2006). Having seen that the Community Living Assistance Services and Support Act is inherently unsound, what can be done to provide for long-term care for people of the United States? Realistically, there are only two feasible options. First, the CLASS Act can be allowed to function based upon competitive principles. The demand for such a service should be allowed to dictate how much of said service is provided. Further, the demand should also dictate the appropriate cost of such a service, alleviating the burden created by an artificially low price required by legislation as well as the associated costs to the economy as a whole due to the allocation of the scarce resources to a service which demand does not fully support. This approach would allow the economy to operate at its optimum level and would provide for the greatest good in terms of goods and services produced. This approach, however, does not take into account the social conscience of the United States. While not based upon macroeconomic principles, people believe that it is the country’s responsibility to provide for its aging population. Even though support for this idea does not bear up under the market approach, it does not mean that those who are unable to fend for themselves should be abandoned. Though undesirable, in some instances it is necessary for the economy to operate inefficiently if it means a greater, unquantifiable good to the population of the country. References Barro, R. J. (1997). Macroeconomics. Boston, MA: Massachusetts Institute of Technology. Binckes, J. & Wing, N. (2010, March 22). Health Reform Bill Summary: The Top 18 Immediate Effects. Huffington Post. Retrieved from http://www.huffingtonpost.com/2010/03/22/health-reform-bill-summary_n_508315.html#s75145&title=More_Young_Adults Breaking – Reconciliation Bill Posted. (2010, March 18). Retrieved from http://www.politico.com/livepulse/0310/BREAKING__Reconciliation_bill_posted_.html Carney: Health insurance law will benefit senior citizens. (2010, March 26). Daily Item. Retrieved from http://dailyitem.com/0100_news/x794085677/Carney-Health-insurance-law-will-benefit-senior-citizens Dewar, D. M. (2009). Essentials of Health Economics. Sudbury, MA: Jones and Bartlett Publishers. Galewitz, P. (2010, March 22). Health Reform and You: A new guide. Retrieved from http://today.msnbc.msn.com/id/34609984/ns/health-health_care/ Kennedy’s CLASS Act Would Establish National Long Term Care Insurance. (2009 July 23). Retrieved from http://www.kaiserhealthnews.org/Daily-Reports/2009/July/23/Long-term-care.aspx Kronenfeld, J. J. (2002). Health Care Policy: Issues and trends. Westport, CT: Praeger Publishers. Lieber, Ron. (2011, April 29). The Changes to Save a Big Idea. New York Times. Mankiw, G. (2008). Principles of Macroeconomics. Mason, OH: South-Western Cengage Learning. Musgrave, F. W. (2006). The Economics of US Health Care Policy: The role of market forces. Armonk, NY: M. E. Sharpe, Inc. Patel, K. & Rushefsky, M. E. (2006). Health Care Politics and Policies in America. Armonk, NY: M. E. Sharpe, Inc. Taylor, J. (2006). Principles of Economics. Mason, OH: South-Western Cengage Learning. U. S. Department of Health and Human Services. (2011). National Health Expenditure Data. Retrieved from https://www.cms.gov/NationalHealthExpendData/25_NHE_Fact_Sheet.asp Read More