Economic Issues Impacting Healthcare Sector - Literature review Example

4th March, Introduction The health care industry represents a variety of sectors, which are aggregated in the economic system of a country. This industry provides services and goods for treating patients with preventive, rehabilitative, curative, and palliative care. The U.S is the leading provider of health care services and innovation in the cutting-edge treatment and diagnostics in the world. The health care services represent an important portion of the economy in the United States’ market today. A well-trained and highly skilled workforce including specialized nurses, physicians, and technicians supports this industry. In addition to this, the health insurance industry, which is a private-sector industry, also backs the U.S health care industry. Connections between the medical device industries, biopharmaceutical industries and the U.S health care industry are additional sources that represent growth to the economy of the United States. However, several working class citizens do not have access to this health care system because of the high medical costs or employers not offering any coverage. This has resulted in intense debates over the needed changes, improved regulations, and public outcry. The United States workforce is very fluid with job mobility, serial layoffs and unemployment rates are increasing. In this system, the employer plays an important and crucial role in delivering health care coverage from numerous perspectives. To begin with, the employers act as agents for the employees and therefore, they should acquire the knowledge and expertise required to carefully address the issues in the health care delivery systems. Moreover, in large organizations with many employees, group purchasing provides lower average premium, economies of scale, relatively low per-capita administrative costs, and leverage in discount negotiations on premiums. The employer can also act as an advocate for individual employees in cases of disputes between the enrollee and the health plan. However, this system has certain coverage gaps in people without adequate coverage. These include retirees under 65 years of age, coverage for prescription drugs for retirees, currently unemployed individuals, employees in organizations without employee based coverage, and independent contractors, mobile employees and free agents that move from one employer to another. Additionally, some employees are discouraged by reductions in health coverage by the employers’ due to the need to control the benefit costs in case of a recession. Economic issues The increase in health costs The health care expenditures in the U.S have rapidly grown as compared to other countries. The health care expenditure growth per capita can be divided into three components: resource increase per unit of the service, increase in resource in terms of intensity, and increase in medical prices. Intensity reflects change in quality, technology and other services enabling any given service like diagnostic testing, more resource-intensive as compared to the way it was in the past. For example, according to studies conducted by Smith et al. (2013), the recession in the 1990s provided employers additional impetus for controlling costs to move from the indemnity models to health care plans that were manageable. The recession in the year 2001 lead to employers’, retreat from the managed health care approaches, which engendered the public backlash. Therefore, the employers opted to instead increase cost-sharing requirements among employees. Moreover, Smith et al. ( 2013), stated that employers in the current economic scenario, appear to not only increase their concentration on the health promotion activities that are consumer driven but also on changes to benefits which might help in reducing utilization of the health services. Nevertheless, technology represents one of most important issue driving the cost of health care currently. From an economical point of view based on theory and evidence provided by Cebula (2011), it is assumed that technology should not be introduced unless it produces benefits that are at least equal or greater than the associated costs. However, according to Bhaskar (2012), this does not necessarily apply to the current medical technologies. The reason being that great government subsidies to health care providers cause medical care providers to use various forms of technology that users may value less than the associated costs. Another economic issue affecting health care sector is that some medical care providers are paid to carry out certain procedures, but not to necessarily ensure that the patients get better. In the studies conducted by Mason (2011), the main reason for this type of treatment is simply the fact that some medical care providers and hospitals likewise get paid a lot more simply by doing more, regardless of whether the type of medical service offered is necessary or even recommended. The greatest mistake here lies squarely on Medicare, which has been paying doctors and other health care providers on a “payment for service” model that does not factor how patients are faring. Additionally, Mason (2011), noted that other medical services are of equal importance, such as taking time to get to know a patient’s signs and symptoms well enough, or advising people to stick to the right diet, stop smoking and even exercising pays a pittance comparatively. Of course medical care is considered as a service to humanity and most of the professionals are caring and conscientious, sympathetic individuals who have their patient’s interests at heart and practically none of them might intentionally set out to over treat their patients. But the health care providers are just human and that means that they are susceptible to economic gains just like the rest of the population and it is incontrovertible that some have persuaded themselves that extra care, which just goes on to line their pockets, is medically essential as well, in spite of the evidence. Another great challenge to the medical health care sector is that some medical health care plans make most of their money by insuring healthy people and not the sick. This is not to say that all insurers are operating without a conscience. But the reality is that the industry’s economic enticements work to advance the same, and the ripple effect is that this impacts the insurers too no matter how good their intentions might be. Markets and health providers This industry is a very critical component in the local, regional, and national economies of the United States. Innovations, cyclical economic contractions, shifts, and changes in public policy, and market factors result in contradictory and different pressures on the organization and supply of health care systems, practitioners, and suppliers. The effects of these economic shifts include the changes in demand for health care, and practitioners and organizations’ financial status. Reports from different markets across the U.S describe falling revenues because of decreased demand for elective or non-urgent care, more patients that are unable to pay medical bills, less charitable giving, local and state cuts in the health care funding and significant losses in the investment income. For example, according to the studies conducted by Bhaskar (2012), economic pressures lead to more women seeking reproductive services especially abortion and long-term contraception. National trends affecting competition and pricing initiatives The first emerging trend is the value-based competition. It shifts away its focus on business functions, doctors or policy makers as a main subject in the healthcare delivery system instead focuses more on the patient to be an entity that is most critical. In addition to this, Healey and Marchese (2012), stated that apart from offering specialty services to patients this approach also encompasses the best services in every aspect of the service that is offered. In this model, health care providers in hospitals do not dwell only in perfecting one aspect like surgery but strives more for quality surgery, radiology, nursing and other services that a patient particularly needs. Another trend is the soft regulatory model that the policy makers offer. According to studies conducted by Healey and Marchese (2012), this trend has risen because of technological proliferation, effective service proliferation that has to be emphasized on, consumer awareness and an increase of the elderly in the health care delivery system. All of these factors have lead to an increase in the cost of health, which provides for policy makers to give a guiding role on equity of accessing medical care and funding to all patients without isolation. Therefore, the system protects fairness, which is seriously compromised factor in regards to value based competition. Health insurance pricing has been locally affected by factors involving entitlement mentality, inefficiency and waste, and finally access of information in regard to health care issues being inevitable due to advances in technology. Detsky (2012) stated that it only allows informed consumers to understand the cost implications of medical coverage. Also service and product competition is another factor where competitive trends like medical groups and hospitals require that each hospital to have the greatest and adequate equipment that is more than enough to meet the needs of the local population. Effects of labor market, insurance market, and competitive market factors on the health care Industry There is a crucial and significant interaction between the healthcare system, the labor market outcomes, rules and regulations governing provision of health care and competition in the US. Health insurance is a significant aspect in decision making by individuals in the labor market as it influences the aspect of whether to work, how much work to do and where to work. Detsky (2012) noted that it is an important factor in decisions employers make in resource management: how many employees to hire, the conditions and terms of employment especially health care insurance and whom to hire. However, labor market equilibrium and forces balance out conflicting desires of firms and determine employment and wages in the market at any given time. The implications of the efficiency of labor markets play a significant role in framing the public health care policy especially in allocation of resources. Therefore, Detsky (2012) stated that even though the employment based health coverage is convenient in financing health insurance benefits without directly involving the government budget, not every person is tied to labor markets. Encouragement or reliance on employment based health coverage will invariably lead to government programs filling the gaps; to cover the partly or wholly uninsured. The interactions between these sectors result in the distortions and control of the firms and individuals labor market decisions. The government based health care system The government-based health care provides civilian government employees with health care benefits by contributing a weighted average premium of 75% for all plans. In the studies conducted by Castiglia (2012), he stated that this system allows some employee associations, labor unions, and insurance companies to market their health insurance coverage to governmental employees. During the open enrollment period, the employees choose from several health care plans available. After choosing a plan, they will be fully covered without limitations in respect to pre-existing conditions. After an annual enrollment, changes are made upon qualifying life events like divorce, adoption, birth of children and marriage. Premiums vary from one plan to another and the United States government pays 72% while the employee pays the remaining for family or self-coverage. This amount is recalculated every year as the health care coverage premiums and costs increase. Additionally Castiglia (2012) stated that certain employees like the postal workers receive a higher amount of premiums paid due to collective bargaining agreements. However, the design of the program changes from time to time to become even more generous. The enrollees pay the whole cost of their choices and reap rewards and benefits if they make economical choices causing constant pressure on these plans. They have to hold down costs to attract enrollees while balancing customer service and benefits against this incentive to a position that maximizes the enrollment profits and revenue. This feature is the greatest strength of this program and the main reason it outperforms Medicare in cost containment to the government and consumer, in product innovation, benefit and modernization and in consumer satisfaction. Individual based health care About 9% of the US population is covered under the individual based health care insurance according to the 2010 US Census. The range of plans and products are the same as those offered through employers. However, in an individual market, the average out-of-pocket and costs are higher in deductibles, cost sharing provisions, and co-payments. Castiglia (2012) further stated, the commonly purchased type of individual health coverage is major medical. Although major medical health coverage policy is a catastrophic plan, the qualified preventive benefits are covered at 100% upfront. In this system, the individual pays the whole premium without the benefit of the employer’s contribution. However, self-employed individuals get tax deductions for health coverage and can purchase themselves health insurance; most consumers in this system do not receive tax benefits. Premiums vary greatly by age and health status. Moreover, Kottke (2013) noted that with the Affordable Care Act and Patient Protection effective this year, all insurers are prohibited from charging higher rates and discriminating against individuals based on health status or pre-existing medical conditions. Since 2008, competition has been increasing in this market with an increase of product variety, prices and insurers. Individual health coverage is primarily regulated by the state; the McCarran-Ferguson Act. Economic goals of public and private health insurance There are many distinct organizations in the US that provide health care, most of which are owned by the private sector organizations. In the studies conducted by Teitelbaum and Wilensky (2013), over 60 percent of hospitals in US are non-profit, 20 percent are owned by the government, while 18 percent are for profit. Kottke (2013), noted that programs such as Medicaid, TRICARE, and Health Insurance Program provide 60 to 65% of healthcare spending and provision for children, Veterans Health Administration, and Medicare. Furthermore, Teitelbaum and Wilensky (2013) noted that the majority of the population is insured under the employee-based health care financing, some buy individual based health insurance while public sector’s employees are provided with government based Health Insurance. The number of people with health care coverage in America has steadily declined since the year 2000. As of 2010 less than 84% of the American population had health insurance, meaning that 49 million people had no coverage for the whole or part of the year. These declining rates are attributed to high unemployment, the 2007 recession, and the rise in insurance costs. This led to a decline in private health insurance and saw a rise in the population reliant on public health insurance that now covers 31% of the American population. The 2010 Affordable Care Act was primarily designed to provide health coverage to the population without insurance by expanding Medicaid, creating health insurance exchanges for those without public or employer coverage and creating financial incentives that encouraged employers to offer employees coverage. However, according to Teitelbaum and Wilensky (2013), the health care system in US is characterized by various ills such as low health care quality, low coverage, increased prices and poor customer satisfaction. Economic changes and regulatory factors to be considered in the future According to Hough (2013), today’s health delivery system is complex and significantly different from the previous one. The changes represent major shifts that involve a plan that is primarily based on what a patient wants to a healthcare system that is managed. One of these changes involves growth in expenditures that is rapid and one way of viewing this rapid growth is examining the expenditures in national health care and relates it to gross domestic product. For example Americans have witnessed a steady cost increase of five percent in health care shares in relation to gross domestic product for a period of forty years now. According to Kottke (2013), factors that influence this kind of growth include the following; growth in health care professionals, higher case settlements and malpractice insurance and jury awards, an increase in costs related to healthcare technologies and growth in U.S population including increased percentage in number of elderly people among the total population. Traditionally, the U.S health care delivery system had the following defining features for most of its twentieth century: autonomous physicians acted as agents that patients relied on, nonprofit and independent hospitals also gave complex care to the patients, and insurers never intervened in reimbursed physicians and decision-making. Clearly, this situation resulted in cost increases that were very significant. Hough (2013) further noted that, the future factors that should be considered involve the use of health maintenance organizations to manage health care through focusing on optimizing health via preventive care, reducing unnecessary utilization and overutilization of services that are expensive and controlling and standardizing the varying quality of care that traditionally involved paying for services that were offered. Conclusion The United States health care system has raised growing discontent over the inverse relationship between access to necessary medical care and the health care expenditure. The US is in a paradox of committing more funds to the health care system while leaving a large portion of the population underinsured or uninsured. The United States economy shapes complex interactions among health coverage, employment, and financial access to health care, health outcomes and costs in the health care system. The effects of the economic surges and stress are observed directly, but sometimes in less obvious scenarios. References Bhaskar, R. (2012). Health Care Reform Requires IT Solutions to Influence Consumer Perception at a Health Care Payer. Journal of Cases on Information Technology , 14 (2), 18-26. Castiglia, B. (2012). Health care policy, Gross Domestic Product--GDP, Higher education, S. Research in Higher Education Journal , 18, 1. Cebula, R. (2011). Atlantic economic journal. Atlantic Economic Journal , 39 (1), 1-5. Detsky, A. S. (2012). How to Control Health Care Costs. Journal of General Internal Medicine , 27 (9), 1095-1096. Healey, B. J., & Marchese, M. C. (2012). Foundations of health care management: Principles and methods. San Francisco: Jossey-Bass. Hough, D. E. (2013). Irrationality in health care: What behavioral economics reveals about what we do and why. Kottke, T. E. (2013). Mayo Clinic proceedings: reversing the slide in US health outcomes and deteriorating health care economics. Mayo Clinic Proceedings , 88 (6), 533. Mason(2011).Health economics and policy. Ohio: South-Western. Smith, M. I., Wertheimer, A. I., & Fincham, J. E. (2013). Pharmacy and the US health care system. London: Pharmaceutical Press. Teitelbaum, J. B., & Wilensky, S. E. (2013). Essentials of health policy and law. Sudbury, Mass: Jones & Bartlett Learning. Read More