Healthcare Costs in the U.S

Published: 2023-01-04
Healthcare Costs in the U.S
Type of paper:  Argumentative essay
Categories:  Marketing Economics Disorder Civil rights
Pages: 7
Wordcount: 1831 words
16 min read

In 2010, the United States Government enacted the patient protection act in a bid to lower health costs. According to Strauss, Giessler, and McAllister, the Patient Protection and Affordable Care Act was enacted to increase the quality and affordability of healthcare. Government spending would rise above were it to be a free healthcare system. The Patient Protection and Affordable Care Act has achieved some of its goals, as per expanding healthcare insurance coverage, it can be argued that the Patient Protection and Affordable Care Act will fail in respect to the Act's desire to make healthcare affordable. Based on MacLean et al., it can be said that this will occur because the high cost of healthcare services has more to do with market transparency than it has to do with access to affordable healthcare insurance, begging the question should healthcare be free within the United States to increase productivity among the citizens. And there arises the need to develop a harmonious health scheme that does not strain both the government and the individual.

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Main Argument

According to a study conducted by Davis, Stremikis, Squires, and Schoen the United States health care system is the least effective health care system and most expensive in the world (28). This claim is also echoed by Marotta, and by the New South Wales Nurses and Midwives' Association. Over the years, there have been many reasons given to explain the skyrocketing cost of health care services in the United States. Some have blamed health care malpractice lawsuits and restrictive government regulations (Davis, Stremikis, Schoen & Squires, 28). Others have accused health insurance companies and pharmaceutical companies.

While malpractice lawsuits, restrictive government regulations, high cost of healthcare insurance premiums, and the high cost of pharmaceutical products to add to the high price of health care services, it can be argued that these elements are not the driving reasons why health care services in the United States are so expensive. It can be argued that the central reason healthcare cost in the United States is so high and will continue to increase lies in the fact that healthcare providers in the United States charge high premiums for their services without any external cost controls acting as a counterbalance to ensure that cost is controlled. In an actual free market system, the selling price of any product or service is heavily influenced by what the market is willing to pay for the product or service in question. Based on Aggarwal and Bohinc, it can be argued that this basic fundamental principle of a free market system does not exist in the American healthcare system (27).

Economic Variables

Elwin Tobing and Jau-Lian Jeng argue that a continuing rise in US public health spending will lead to higher taxes and a reduction in what they term "productive government spending." (470). Tobing and Jeng construct an endogenous growth model to analyze the effects of public health spending on economic growth and welfare. The implications of their analysis are dependent upon the treatment of health spending as a common consumption-investment good, or as a pure consumption is good. If health spending is treated as a common consumption-investment good, Tobing and Jeng find that it decreases long-run growth "modestly." If, on the other hand, such spending is treated as a pure consumption good, the long-run growth rate is 0.7 points lower, and welfare is 14% lower. (470). Similarly, the functional form of the utility function, and, to a lesser degree, that of the budget constraint, determine how prices and allocations are determined. The utility function constructed by Tobing and Jeng treats health status (using public health expenditure as a measurable proxy) as a component of sorts of consumption. While this may have an intuitively logical foundation, Tobing and Jeng offer no reason to treat the relationship between health status and consumption as fundamentally different from the relationship between health status and leisure, the other major component of their utility function. Since their conclusions are reliant upon the consumption-investment balance of public health spending, their failure to explain this choice explicitly likely has a material impact on the robustness of their conclusions. Tobing and Jeng's "Proposition 1" shows that the economy's balanced growth path is monotonically increasing in SH (public health spending) (479).

The transmission mechanism for this rise in gh is the increase in labor productivity due to better health status. These also show that such spending comes at the expense of private education spending and substantial capital investment. What Tobing and Jeng do not show is whether the rise in gh due to increases in public health spending has a larger or smaller absolute value than the resultant decrease Feit, in gh due to lower private education spending, lower physical capital investment, and higher tax revenues (to pay for the higher public health spending). That the decrease in gh from these factors is more significant than the rise in gh from higher labor productivity is a central thesis of the paper, but Tobing and Jeng fail to show this explicitly.

Counter Argument

In their "Corollary to Proposition 2," Tobing and Jeng assert that "when health status is a pure consumption good, the growth effect of public health spending is zero" (480). They show this mathematically, but it is clear intuitively. If public health spending is consumption, then it does not increase workers' productivity, and therefore does not increase the ability to earn more in the future. It follows that the best way to evaluate this claim is empirical. Research has shown a positive correlation between health status and labor productivity (Green and Baker; Muysken, Ziesemer, and Yetkiner; and Schwartz and Riedel). Thus, this conclusion of Tobing and Jeng is spurious at best. Tobing and Jeng's third proposition is that gh is decreasing in the tax rate. These are relatively uncontroversial assertions, No tax scheme that is widely used is free of distortionary effects. They do show that "the growth effect of labor income tax is higher than that of capital income tax" (481). Tobing and Jeng purport to show that public health spending represents a net loss to an economy across several measures. Their rigorous treatment of the subject provides a compelling framework, but their analysis is undermined by their assumptions, chiefly that public health care spending represents a consumption good. Their model is, however, an excellent starting point for a complete analysis of the macroeconomic impact of public health care spending.

The "debate" that Marciarille and DeLong chiefly address is the third one: how much healthcare spending can the economy afford, and how can we construct a financing mechanism such that we do not conclude that we cannot afford the healthcare we as a society desire (79). If health care is inefficiently expensive due to factors unique to the US, then health outcomes typically expected in the developed world will be prohibitively expensive in the US. The IPAB is forbidden from raising taxes, Medicare premiums, copayments, and deductibles, or from rationing (a term left undefined in the PPACA, health care in any way (79). It will rely, initially, upon Medicare outpatient reimbursement rates as an avenue for cost reduction (Aaron p.38). Whether IPAB can achieve this substantial goal will certainly depend on several factors. The political volatility of the issues at stake, such as physician's fees and the custom of Congressional oversight over Medicare matters do not bode well for an effective IPAB (Aaron 35). Marciarille and DeLong also point out that regulatory capture is always a concern with Boards of this nature. The risk that cost reductions will introduce quantity and quality reductions is also present. According to Marciarille and DeLong, the IPAB would represent a significant upgrade to the current "specialist-driven" price-setting mechanism (81), in which committees of medical specialists set prices in their respective subfields. Since many private insurers peg their own pricing decisions to values set by Medicare, IPAB success could reduce price growth industry-wide. Marciarille and DeLong identify the source of the titular "promise" as the fact that, though private and public medical costs are rising "in tandem," that "the public side, if anything, [is] better at achieving efficiencies and evading cost-shifting in healthcare provision." (Congressional Budget Office 67).

Much of this advantage, they note, is due to the absence of adverse-selection inefficiencies endemic to private insurers. Marciarille and DeLong identify avenues within PPACA for reducing the growth rate of costs beyond the IPAB. New excise taxes, for example, will disincentivize insurance providers from offering plans subject to the taxes, which will nudge insurers toward cost-cutting measures, and (potentially) away from lavish marketing efforts (91- 92). Marciarille and DeLong believe that the differences between IPAB and its predecessor, Medicare Payment Advisory Commission (MedPAC), namely IPAB's independence from the legislative branch, bode well for its success. Their optimism is rightly mitigated by the titular "perils" of technocratic agencies, chiefly ineffectiveness and regulatory capture. Like any policy innovation, IPAB must be given a fair trial before it can be genuinely condemned (Chandra, Durand & Dickens 49).


According to Seidman, "Medicare for all" would have the main benefit of universal coverage. These would eliminate cost-sharing, and, by extension, the need for private Medigap coverage. These would also allow the consolidation of administrative tasks, which have proven to be an aspect of healthcare provision that Medicare has shown particular efficiency (89). Universal coverage would also eliminate adverse selection and free-riding, the twin market failures that plague the hybrid private-public health coverage system in the US today. Adverse selection is at the root of much of the inefficiency of the private health insurance administration, as private insurers spend vast resources sorting potential customers by risk. Free-riding in the form of government mandates that require caregivers to treat the indigent is another major inefficiency in US healthcare. These problems are eliminated with universal coverage. Universal coverage also means that coverage would be portable. According to Seidman, this would eliminate the "distraction" of health insurance uncertainty for workers, potential workers, managers, and small-business owners. Seidman argues that this will lead to a material productivity gain for the US economy as a whole (90). Seidman proposes replacing premiums with a set of taxes, rather than with a single high-rate tax. These are intended to mitigate the efficiency loss of high-rate taxation (efficiency loss rising at the square of the tax rate), as well as to ensure that the burden of the tax is evenly spread. He also calls for a value-added-tax that would spread the burden to all groups (92). Seidman would continue and expand existing "health taxes" on tobacco, alcohol, and pollution, both for revenue and incentive purposes. The most compelling argument Seidman makes in favor of "Medicare for All" is that the growth path of health care costs can be lowered through single-payer bargaining power, he cites empirical studies of health care spending in OECD countries, that find prices in the US higher than those in other OECD countries, while quantities are lower. These refute the notion that the US is near the quantity-axis intercept on the health care demand curve because of low visible costs to demanders. Seidman's proposal is an example of out-of-the-box thinking on the future...

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