U.S. Healthcare Costs: Examining the Economics of an Expensive System - Essay Sample

Introduction

Economics of healthcare has made an important feature in all spheres of the lives of Americans in recent years. Each year concerns increase over the economic value that Americans get from the enormous amount of resources that continue to be channeled into the healthcare sector. The United States is the leading spender in health in the world, and the cost of healthcare in the country has been on an upward trend in for decades now. For instance, Buckley (2015) observes that the United States spent $2.9 trillion on health care, representing the world's highest per capita expenditure on healthcare, which is twice the amount that Canada spent in the same year. Even with periods of stability of the economy, the spending has grown by 0.4 percent of GDP over the last 20-year period. The interesting part of this steady increase in expenditure is not translating to superior outcomes for patients. This can be seen the lower life expectancy of the United States compared to other industrialized nations, especially those that fall within the category of Organization for Economic Co-operation and Development (OECD). The poor statistics about the performance of healthcare spending in the country has raised a lot of questions as to whether there is the real economic value of the heightened expenditure on the US populations.

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The burden of increasing healthcare cost is what motivated the healthcare reform agenda. In a country where health costs are steadily rising each year, there is the possibility that such costs will reach unsustainable levels hence affect the socioeconomic future of the involved nation adversely. This awareness informed the reforms that have been introduced to address not only the issue of cost but also the quality of medical services given to Americans. One of the landmark legislation that has been put in place to address such challenges in the United States is the Affordable Care Act of 2010. The Act sought to introduce significant changes in how health was to be managed in the country by focusing on quality, inclusion, and technology in healthcare (Buckley, 2015). The bill proposed various ways that the provisions of healthcare reform will be implemented progressively to ensure that the intentions of the framers are realized. The reform bill employs a mix of taxes, subsidies, incentives, and regulations to institute measures that affect insurance markets, employment trends, and labor costs.

2011: Holding Insurance Companies Accountable

The affordable care Act is significant legislation that expanded Medicare and Medicaid significantly. The piece of legislation was introduced in 2010, and it revolves around the whole medical system. Within the same Act, there are various items of legislation that were incorporated from 2011 to 2014, including holding insurance companies accountable. This Act was introduced in 2011, and it has two subsections, namely bringing down health care premiums and addressing overpayments to big insurance companies and strengthening Medicate Advantage. These two clauses of the Affordable Care Act has significant economic impacts to both the citizen and the insurance companies. Bringing down health care premiums is a critical healthcare reform bill which allows employees to pay low premiums in their healthcare insurance companies. In general, the law expects that 85% of the premiums that insurers collect from large employer plans are correctly used for the provision of health care services and for improving quality of healthcare in the country.

On the contrary, all the programs offered to individual citizens and small business organizations, 80% of the premiums received should be spent on improving the quality of healthcare. The law also requires that all the companies that are incapable of achieving these goals are required to pay rebates to their consumers. The piece of legislation took effect as from January 1st, 2011. This Act is essential in improving the financial security of workers when they become sick. Through the reduction of healthcare, premiums make healthcare insurance affordable for most employees. This, therefore, increases their disposable income, thus increases their consumption level. At the same time, it ensures that the sick does not have financial ruins when seeking treatment in excellent healthcare facilities. Finally, it also eliminates catastrophic medical costs, which employees usually pay when they are sick, which is associated with medical expenses over 30% income.

Addressing overpayments to big insurance companies and strengthening Medicare advantage is another vital legislation introduced in 2011. The introduction in this legislation in January 2011 allows Medicare to pay Medicare advantage insurance companies more than $1000 for every individual than want it has been paying conventional Medicare. This increases premiums for all the beneficiaries of Medicare and others who have not been enrolled in Medicare (77%). This piece of legislation eliminates the discrepancy and still ensures that all those who have enrolled in the Medicare Advantage plan to have always the opportunity to receive Medicare benefits. The same piece of legislation also allows those enrolled in Medicare Advantage plans to earn bonuses. The law, therefore, also ensures that responsible for improving the financial security of families who have enrolled in Medicare Advantage plans by providing that there is no overpayment. The creation of these health care regulations ensures that most families have sufficient amount of money in their pockets, increase the demand for Medicare and also increase the employment level of the country. These healthcare acts prompted the formation of Medicare and Medicaid. Through these legislations, the employees will benefit from tax credits which the Government uses to pay the premiums. The citizens are, therefore, able to save part of their income to meet other oppressing needs. This increases the demand for other products such as foods. The formation of Medicare and Medicaid also open new job opportunities for American citizens who are responsible for enrolling people to different insurance plans.

ACA also affected the unemployment level. It creates an increase in the number of part-time workers as compared to full-time workers. This is because the Act required employers to provide automatic insurance coverage to full-time workers. Therefore, the employers sought to engage more employees on part-time jobs to reduce the amount they pay as premiums to the workers. There is also an effect of the affordable care Act on the labor demand (Mulligan & Gallen, 2013). The employers demanded more non older workers as compared to elderly persons. This resulted in an increase of 1.8percent among non-elderly persons with high school, degree or less. The increase in the demand for labor also increases the economic condition of the citizen of Americans.

The ACA has also supported the slow growth of the cost of health, increasing the rate of hiring more workers, and strengthening the income of workers. With the introduction of ACA, there is a low cost of healthcare, which began in 2010 to date. This increases the growth of real per-capita health spending at an average of 1.1 percent. The increase in per capita income means that Americans can consume more products within one financial year because they have higher disposable income. This increases the demand for goods and services. With the increase in demand for various goods and services, the production level, including imports, must rise to meet the rising demand. The ACA requires employers to contribute to Medicare to reduce the amount of money that workers provide to healthcare providers and private insurance companies. The increase in health insurance premiums that employers pay also minimizes the amount which is used to hire other workers, and this makes employers the opportunity to increase their jobs.

2012 Initiative: Reducing Paperwork and Administrative Costs

By introducing the initiative to automate the process of administration in the hospitals and other organizations involved in handling the health of patients, the bill sought to reduce the amount of paper in the provision of healthcare. The law made several proposals on the changes that were supposed to be instituted to standardize billing and also requires health plans implement rules that promote a secure and confidential exchange of information between the relevant parties in the provision of care. This entailed using electronic records to cut down on the use of paper with the view of costs lowering the costs related to administration 20. It took effect in October 2012(Institute of Medicine & Others, 2014). It is worth noting that this initiative was introduced following the recognition that the health sector was slow in embracing technology to reduce administrative costs.

The idea of electronic records was based on the savings that providers were expected to make from the use of more efficient methods of documenting patient data. According to estimates, ACA's initiative of electronic systems was expected to generate savings to providers amounting to $11 billion annually (Cutler, Wikler, & Basch, 2012). Despite the optimistic view of the initiative, the economic benefits have not been promising. Although most hospitals have initiated the use of electronic records, there is little application of these systems in the administrative process for cost reduction. Hospitals are not willing to share medical records of patients on electronic platforms for fear that it would patients more power to switch providers while others some doctors find the system digitization of their work schedules to be inconveniencing. The outcome of such attitude is that the use of electronic records has not only left administrative costs rising but also led to losses from the $27 billion sunk to actualize this program (Kliff, 2017). The implication of this is that money has been lost in IT investments. The Act encouraged, and the cost of administrative costs continue to rise as well. Therefore, there is no economic gain received from this initiative as the system worse off when the money allocated to the exercise is included in the equation.

2013: Open Enrollment in the Health Insurance Marketplace

Other pieces of legislation came into force in 2013. These pieces of legislation also have economic impacts on both the people of America, the Federal Government, and insurance companies. In 2013, the legislation policy was aimed at improving healthcare quality and lowering the cost of healthcare and also to increase access to affordable care. However, an initiative that stands out from the majority is the one that encouraged enrollment.

Open enrolment encourages small business and individuals to purchase affordable insurance health plans in the new competitive market place. The initiative became effective in October 2013, and it was anticipated to significantly increase the number of people with insurance coverage across the country. Many people have did not hold insurance cover, and this enrolment campaign was motivated by the state of affairs regarding access to healthcare through insurance (Institute of Medicine $ Co, 2014). The expected consequence of the drive was that more people would become healthier, and this will, in turn, impact positively on employment and the GDP of the country as a whole.

One of the ways that motivation for more people to take up insurance was actualized is through subsidies. Central to this plan is the provision that the federal government incurs the additional cost of enrolling to insurance plans. Analysis of the impact of the subsidy programs has shown that more people have enrolment for insurance coverage than the period preceding the init...