Why Health Care Cost Are So High in America - Essay Example

Health Economics-Admission Essay The nature of health care and health insurance provision and funding has proven to be multifactorial over the last two decades. No distinct factor explains the upsurge in health spending among industrialized economies especially the US. America spends quite a lot on health care compared to any other country. However the high expenditure on health care cannot be accounted by an older population, higher pay, or even greater supply or utilization of medical facilities and doctors. Policies that favour price inflation of health insurance can be one cause higher spending in health care and perhaps more readily available technology and increasing obese population. A country like Japan has the lowest expenditure on health care which it basically achieves by aggressively regulating premiums paid to health insurers. Introduction Health economics is a key component of any developed economy like the US. The health care industry is a major source of employment for skilled workers in urban and rural medical and health facilities. Moreover, the development of medical infrastructure and new drug research often lead to product innovations and economies of scale for hospitals and the government. Most significantly, US government spending on health care satisfies a fundamental social and individual demand for services that bring better health, longevity and better productivity. In the US, compared with most other segments of the economy, a large portion of health care is publicly funded. Most developed economies, with the exception of US, have taken the initiative to make health care affordable by using tax financed or universal insurance based systems for funding purposes. On the contrary, US uses insurance programs like Medicare, Medicaid and most recently Obama care as a method funding. In addition, America uses tax policies that encourage employer sponsored medical insurance, research by the National institute of Health, and delivery system similar to Veterans Health Administration. Due to the substantial public sector share in health care, guaranteeing the public receives value for their money is a challenging social concern. The Affordable Care Act The Affordable Care Act provides US citizens with better health care by placing a holistic insurance reform that will: Hold Medical Insurers accountable Lower health care costs, Expand health insurance coverage, Enhance quality of care and achieve value for all US citizens. It is made up of two legislative part- the Health Care and Education Reconciliation Act of 2010 (P.L. 111-152) and the Patient Protection and Affordable Care Act (P.L.111-148). Together, these two legislations expand Medicaid coverage to millions of low-earners in America and to large extent has helped improve Children’s Health Insurance Program (CHIP) and the Medicaid program. There are quite a number of changes that were made to Medicaid and CHIP, and in the beginning of 2014 these implementations took effect. A seamless system for candidate eligible for Medicaid and enrolment of new Affordable Insurance Exchanges was done. Some of the most important provisions provided under the Affordable Care Act are: Eligibility- This reduces the gap in coverage for low income earners by creating minimum Medicaid income criteria across the country. This has basically increased coverage by 28%. Affordable Insurance Exchange Coordination- The systems makes possible for families to apply for medical cover using one application and therefore have their suitability determined for all insurance affordability plans. Funding- Starting in 2014, coverage for newly eligible adults in the US will be fully financed by the federal government. Information technology systems and Data- the sole reason for heavy funding is to provide insurance exchanges and administrators with substantial investment to incorporate IT systems that enable efficient data management of the Medicaid system. Dual Eligibility Policy- New offices are supposed to be set up within institutions managing Medicaid and Medicare services. This enables an efficient coordination care for principals that eligible for both Medicare and Medicaid. Medicaid Benefits- Newly eligible individuals for Medicaid will get a benchmark benefit or a package equivalent to the benchmark. This includes a minimum important benefit provided under the Affordable Insurance Exchanges. Children’s Health Insurance Program (CHIP) - this provision extends financing for the Children Health Insurance Program through to 2015 financial year and possibly to 2019 under an authorized management. Program Integrity- Several provisions and policies designed to ensure Medicaid integrity include; preventing fraudulent claims and payments under Medicaid, terminating Medicaid providers that have been terminated elsewhere. Program Transparency- The Medicaid transparency basically involves engaging the public in it day to day activities and also developing federal Medicaid and state waivers and incentives. Health Economics- Why Health Care Cost are So High in America Despite the Affordable Care Act making great strides in order to make access to health care cheaper, costs have still managed to stay phenomenally high. So you have probably noted from various research papers globally, the reason why other developed countries like Canada, UK, New Zealand and Australia enjoy ‘free’ health care is because they pay higher taxes (Kominski, 2014). A good portion of the tax collected in these respective countries is uses to finance health care. However from the graph below it is evident that America spend more tax money per capita than any other country in the world. Source: OECD Health Expenditure Data 2007 So the interesting question is, why is health care still expensive even when US citizens pay more taxes per capita? As stated previously, around 28% of US citizens get their health insurance through government funded programs. These majorly include poor people, the elderly and the US Congress. But as you can see from the graph, the private health care spending is way higher than anywhere else in the world. Most Americans are privately insured through their employers using sponsored medical schemes. This therefore raises the question of whether there are pricing inefficiencies in the health care industry in the US. The US spends around 18% of its Gross Domestic Product (GDP) on health care costs. By comparison, Australia spends 9% of its GDP on health care cost and it has still managed to keep health insurance premiums low. Health insurance premium inflation can be a major cause of health care cost being expensive in the private sector. Other reason that have been cited to increased cost of health care would be: Malpractice Insurance- Doctors in America are generally afraid of being sued for giving a wrong diagnosis, so they end up doing a lot of medical check-ups on their patients in order to ensure they do not make a mistake and end up being sued. This has considerably increased expenses and claim ratios over the years. Obesity- obesity is fast growing in the US and it is a major contributor to rising level of diabetes and heart diseases cases in the US. This has placed a huge price on getting surgical procedure like heart transplant and Imputative surgery. Frequency of Visits to the Hospital- another reason cited for rising health care costs is because US citizens frequent hospitals very many times and they also prescribe to several outpatient drugs that are quite expensive. Price Inelasticity and Price Anomalies in US Health Industry A hip replacement in Belgium cost around $13,000, while in the US the same procedure is often over $100,000. Colonoscopy averages around $1100 in the US while in New Zealand it goes for $655. In addition, on average the drug Lipitor will cost you $125 a month in the US while in New Zealand it goes for $7 a month. Considering that the US is 33rd globally in terms of life expectancy and that the country spends a tonne in health care that begs the question, Are US government policies and laws inefficient? As evident from the graph, at lower prices, more patients will get artificial heart transplants. But this is not the case. Why? Prices are still set phenomenally high. Due to defensive medicine, hospital inflate the prices of health care in order to avoid malpractice suits. Moreover, doctors in the US perform more MRI’s and CT scans than elsewhere in the world which inflate the expenses. However the State of Texas has passed special reforms that limit malpractice suits and this has effectively reduced health care costs by 0.1% of US GDP. The inelasticity if demand in health care has made Americans pay for expensive procedures because they cannot dictate or negotiate the price of this basic commodity. Determinants of Price of Health Insurance Doctors and to a lesser extent Nurses in the US are some of the highest paid individuals, over $75 billion is used as wages for doctors and nurses and this is essentially reflected in the price of health insurance. In addition the cost of insurance and administrative costs like office paperwork, marketing, price negotiation account for about $90 billion, which is a whooping amount compared to other industrialized nations like Japan. The drugs that patients take also cost more per pill, and this accounts for about $100 billion. Most significantly, is the habit of hospitals in the US conducting several surgical procedures like gall bladder surgery under outpatient covers rather than inpatient, this accounts for $500 billion per year in health care expenditure. These inefficiencies can be greatly attributed to the Government lack of price regulation and negotiation with medical providers (Kominski, 2014). To a large extent the US government policies should play an important role of regulating price and cost in the health care industry. The US lacks a centralized negotiation that can drive that help the government bring prices of artificial hips and heart down. It is obviously difficult to put a price on not dying. So most young people have to pay insanely high for surgical procedure as opposed to the elderly who are offered Medicare through government funding. The inability to negotiate prices has created inelastic demand and therefore medical providers can charge high prices since we need them and not vice versa. Using Health Care Policy Proposals that Can Work Now you may have heard that Obama Care will reduce the US budget deficit, however this is only partially true. To make health care successful, we obviously have to throw away the notion that health care is a right. If this approached is applied, we are led inevitably to thinking that we give everybody whatever health cover they want (state of the art cover or any other expensive insurance cover) without any substantial insurance premium being paid. Under such a system, the demand for health care will be insanely higher than the supply which essentially leads to deficit. In addition, predicaments arise each and every year because new medicine become available, new surgical procedures and diagnostic tests. The constant technological innovation in the health care industry should help relax prices but this is not always the case. Therefore treating health care as a right will only bankrupt the health industry since cost only seem to increase year after year. Recognizing health care as a service just like in any trade off or transaction is essential to making health economic work. (a) Why we should repeal Obama Care at the Moment The US is in a situation where they cannot even come close to afford health care policies that existed before Obama Care. These were mention before; Medicaid and Medicare, so adding new proposal (Obama Care) before properly aligning the former proposal to work only complicates the situation. One part of Obama care actually shows initiatives reducing the deficit, cuts costs in Medicare and a different part of Obama Care charges much higher taxes also goes in the direction of reducing budgetary deficits. But the key part, the part that enables more people get health insurance, increases the deficit substantially. This is the part that Democrats and Republican want to focus on and possibly take credit fir in case it is successful. The expansion of health insurance does not reduce the budget deficit, it is only because the Bill overall including a lot of tax increase and different cuts that one can even presume that Obama care will reduce the deficit. In fact a careful look at the estimate do not support Obama Care Proposals. The Bill will most likely lead to less tax revenue and more expenditure than expected. (b) Gradually Phasing Out Medicare Apart from repealing Obama Care, gradually phasing out Medicare will go a long way in bringing sanity to the health care industry in the US. Medicare means that a gig fraction of the cohort given the number of senior citizens get relatively low medical prices from their pocket for any medical procedure. That means that the elderly get too much health services and they barely pay attention to costs and benefits when deciding whether to have new procedures, lots of diagnostic test and fancy surgery. This means that the government will always be spending more and more and therefore distorting the allocation resources and the efficiencies of the health system. The government can even go further to fix policies that distort people’s decisions in the health care market. There is an enormous amount of health insurance industry regulation at the state level (which essentially dictate prices upwards), several barriers to entry prevent people from practicing medicine and inventing devices. These raises costs and prices and makes it less efficient for people to gain access to affordable and quality health care. Conclusion It is not surprising that every health institution in the US is facing a significant level of uncertainty regarding the future of health care. While it evident the system includes Bundle Payments, Accountable Care Organizations, Core Measure, and Insurances Exchanges and value Based Purchasing, the precise nature of that will ensure the ultimate efficiency of the Healthcare system is at best uncertain. Around 5% of the US population utilizes 49% of health care resources and this clearly can help the government come up with an exemplary and achievable health economy. An interdisciplinary health care approach that is implemented and carefully coordinated can be achieved within the budget. Using evidence based interdisciplinary prevention strategies that emphasizes on improving patients experiences and health insurance prices will eventually make health care in the US a success. References Kominski, G. F. (2014). Changing the U.S. health care system: Key issues in health services policy and management. San Francisco: Jossey-Bass. Read More