Economics of Healthcare Insurance

Abstract

The health care insurance is not just below the standards still, but also a big menace in the management and the improvement of the health care and economy. Health care insurance should act as a source of relief for the people in need of better health care provision. They should serve as the best forum for the inclusion of the old age and people with chronic disease to getter a smooth running and quality healthcare. However, the results behind their existence do not conform to the expectation. The need for better healthcare lacks but the high cost of achieving the better healthcare provision is seen, especially for those with the deprived socioeconomic neighborhood. The countries that have had the taste of include the healthcare reforms into the government budget does not just see the high spending but also the high deprivation of some of the government project to cater for such changes. The aesthetic, economic implication of the health insurance is reasonable, however, the reality is hitting harder with the increasing hard economy of high inflation, increase in unemployment rates, and high spending.

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Economics of Healthcare Insurance

Literature Review: Healthcare insurance

Different authors have written journals in agreement that the current state of affairs in the markets of both healthcare and health insurance is below the required standards. Among the factors raising concern include the accessibility of healthcare and healthcare insurance, the high cost of healthcare to individuals and taxpayers, the inconsiderate link of health insurance and employment, and the significant differences in the number of subsidies issued by the government. All attempts to solve the problems, like the Affordable Care Act of 2010 are based on the notion of increasing the involvement of the government in the matter. According to D. Schansberg, the main disagreement between health care and health insurance arises from the assertion that the two currently operate as free markets.  

Looking into how competitive the markets for health insurance and health care are, the markets bear the characteristics of a perfect competition market. Some of the traits include many buyers and sellers, free entry into the market due to availability of minimum barriers to entry, and all participants in the market have adequate knowledge about the market in terms of prices and quality. Despite bearing the similar characteristics of that of a perfect competition market, researchers have noticed a significant difference between the exchange of other commodities and that of health care and health insurance products.

First, despite being markets with free entry and exit, entry into the market requires crucial training to become a healthcare provider. Furthermore, setting up an office for an individual doctor is cheap, but constructing a hospital requires enormous capital. Besides, individuals willing to venture into the markets have to cope with the requirements of the American Medical Association, which controls not only the number of doctors but also that of other service providers entering the market(Greenspan, & Vogel, 1980). However, given the small number of doctors, the competition in the market is still insignificant.

The existence of many service providers in the market also results in a high elasticity of demand for specific medical services. Research indicates more top competition in the markets for typical specialties and general services as compared to that of unique medical conditions and hospital services. Similarly, urban centers are likely to experience more competitive markets for health care services, as compared to rural areas.  Besides, the level of competition is also evident in terms of profits. There was an observation that health insurance companies tend to make supernormal profits, which have led to the increasing costs of health care. Professor Schansberg further suggests that factors such as elasticity of demand for health care services and information used in determining premiums have also contributed to the problems in the sector.

Statistics further indicate a constant increase in revenues by insurance companies in recent years. Health insurance companies are charging high premiums from their clients making the cost of healthcare to increase very day, especially for patients who pay out of pocket.  

Image result for effect of taxes on the healthcare insurance

Graph showing taxation revenue on health insurance

Dr. Walden also seems to agree with Professor Schanberg on the notion that insurance companies are a significant cause of problems in the healthcare sector. For instance, Walden disagrees on the idea of using age in the calculation of premiums. His argument is that it becomes essential for health insurance plans in an organization to have individuals of different ages. He hails Obamacare for attempting to handle the matter but believes that the penalties for failing to take the cover are insignificant, thus, making the system ineffective. Walden also mentions that government policies in controlling the number of doctors and health care facilities being also registered impacts on the healthcare levels in the country. On his side, Marshall Allen has a conviction that insurance companies charge more premiums than they should and thus, provokes an increase in the cost of health care, making health care more expensive.

Discussion

The cost of medical care is one of the many factors that affect the development of a country. The increase in the price of health care or high cost in health care causes an increase in the mortality rates. In comparing the socioeconomically gradient to health care, it was found that living in a deprived neighborhood does not only make you at odds with poor health but also a high-cost health care usage. Canada and the UK had savings standing at $4.8 billion(de Boer, Buskens,  Koning, &Mierau, 2019). The value shows that there is a difference in the cost of health care between the affluent and the deprived socioeconomic neighborhood. However, some of the countries have established statutory health insurance that the government regulates and controls. There is basic health insurance that grants access to health care (Wang, 2018). This insurance caters for the basics like primary care, pharmaceutical care, and hospital care. The rest is provided for in the other insurance programs, which covers long-term care and supplementary insured healthcare. However, the difference in the socioeconomic neighborhood has shown that there is a wide range in cost for the health care in the different socioeconomic neighborhood.

Image result for socioeconomic neighborhood gradient to health care

This is the indication that the gradient of the socioeconomic to healthcare is inclined towards the socioeconomic privileged group. The possibility of the socioeconomically deprived having access to the private health care insurance is at the lower end, as compared to the privilege socioeconomic group. The lower socioeconomic group depends mostly on the government healthcare concession cards more than the private healthcare insurance showing that the private healthcare insurance is expensive to achieve.

Since the introduction of health reforms, USA experienced a sharp rise in health expenditure at about 18% of the GDP (Moffatt, 2010). At that rate, the spending is projected to rise sharply and hit 34% by 2040.  The employees with the employers financing their healthcare insurance are likely to experience a progressive reduction in the take-home compensation after retirement as those will have been used in facilitating the employer-provided health insurance (ASPE, n.d.). The high spending is an indication that the health insurance coverage and the medical reforms are draining the economy. There is a more significant gap between the rates of spending on medical care at 9.3% with the meager rate of 3.6% as the economic growth. Costs are rising rapidly more than revenues. The rising spending on health care is lowering the GDP, reducing employment, and increasing inflation in the process (ASPE, n.d.). However, some economists view it as a neutral if not decisive in this view the health care spending is a transfer.

The introduction of the medical reform system was a good move, as it aimed at improving and building a healthy nation — the reforms aimed at expanding health insurance coverage and improving the delivery of healthcare. The medical reform health care system, however, is plagued by substantial inefficiencies and market failure (Moffatt, 2010). The deviation is found in the considerable variation in the usage of Medicare spending by each enrollee across states with no corresponding change in medical needs or outcome. The inefficiencies are brought about by the payment of the input without looking at the output. There is no focus on the prevention of diseases coupled with high administrative costs (Moffatt, 2010). The cost of the medical system if not checked, will take the more significant portion of the government spending at the expense of other sectors. 

Related image

The graph clearly explains the growth in spending in the U.S. government health program. There is a continuous growth in spending more than the economic growth. The figure is projected to take a larger part of the government expenditure. 

Conclusion

Health care and health insurance have not hit the top mark of their progress. Many of the companies who have invested in health care insurance have received a blow in the management of finance. The case of the American companies that chose to have employer-provided health care faces the possibility of having the individuals obtaining reduced compensation in return. The argument is also expounded by the American medical reform system that has a projection of utilizing almost half of the GDP for health care services by 2040. However, healthcare insurance has hopes of achieving its purpose of giving society better health care with the little amount or little hassle of the money for these purposes. The attempts by governments to create a system of better healthcare for everyone is one major factor that should be addressed, leaving behind the inefficiencies on the market failures that accompany them. The variation in the socioeconomic neighborhood should not act as a tool for the exploitation of the citizens.

References

ASPE. (n.d.). Retrieved from https://aspe.hhs.gov/basic-report/effects-health-care-spending-us-economyhttps://aspe.hhs.gov/basic-report/effects-health-care-spending-us-economy

de Boer, W. I. J., Buskens, E., Koning, R. H., &Mierau, J. O. (2019). Neighborhood Socioeconomic Status and Health Care Costs: A Population-Wide Study in the Netherlands. American Journal of Public Health109(6), 927–933.

Greenspan, N. T., & Vogel, R. J. (1980). Taxation and its effect upon public and private health insurance and medical demand. Health care financing review, 1(4), 39.

Moffatt, J. (2010). Effects of Healthcare Reform: The 2011 Outlook for Physician Practice Valuations. Value Examiner, 12–22Wang, F. (2018). The roles of preventive and curative health care in economic development. PLoS ONE13(11), 1–12

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