Current and Future Economic Issues Impacting Health Care Sector

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Currentand Future Economic Issues Impacting Health Care Sector

Inthe United States, the economy is very significant in shaping thecomplex interactions amid health coverage and costs, as well asfinancial access to care, and the clinical outcomes (Robert WoodJohnson Foundation, 2009). This has in turn influenced healthinsurance coverage. The U.S. health care sector has drawn attentionfor quite some time because of the economic issues that threaten tothwart the entire system. This has resulted in an outcry, especiallyfrom the public who feel the pinch since matters keep on worsening.The uninsured, as well as the insured, continue to struggle with theproblem of the rising out-of-pocket costs (Afifi et al., 2013). Theeconomic issues that seem to have an impact on the health care sectorcurrently, and are projected to have an influence in the future arethe increased costs, market failures, as well as inefficiencies. Theaim of this paper is to delve these issues.


Healthcare expenses in the U.S. are currently approximately 18% of GDP, andthis share is anticipated to ascend sharply. In case the health careexpenditures continue to expand at the historical rate, theproportion of GDP allocated to the sector is likely to reach 34% by2040 (CEA, 2009). For those family units having employer-sponsoredhealth insurance, the trend implies that a progressively smallersection of their entire payment will be in the form of take-home payand an increasingly larger proportion will assume the form ofemployer-provided health insurance (CEA, 2009). Researchers haveinvestigated the reasons for the rising expenditures in the sectorand some areas have been identified as the source of the expandingcosts.

Oneof the potential areas that lead to an increase in health expenses isunnecessary administrative costs. Projections of avoidableadministrative expenditures are as high as 15% of medical outlay(Cutler, 2010). These costs may include time wasted filling outpaperwork for numerous insurers and expenses associated with a lackof computerized records. Also, resources become wasted on care thatoffers little or no value (Cutler, 2010). Different studies haveindicated very low and reducing returns on additional expendituresimplying that there is exceedingly little health gain in exchange forthe extra payments. In other cases, patients have received costlycare that is not better than cheaper alternatives that are available.Furthermore, medical errors have been indicated to result inunnecessary spending (Cutler, 2010). Medical faults can be avoided inan attempt to reduce the increasing cost incurred in the healthsector.


TheAmerican health segment is plagued by significant inefficiencies.Some of the evidence that show the presence of ineffectiveness of thehealth care is the tremendous disparity across states in Medicarespending per enrollee, where there is no evidence of correspondingdifferences in either medical outcomes or needs. Alternatively,through comparing the health care costs as a proportion of GDP acrossvarious countries suggest that the U.S. health sector is faced withinefficiencies (Walsh &amp Egdahl, 2009). These are likely to extendto the future in case solutions are not established and put in placeto mitigate them. Different drivers have been associated with theinefficiencies in the health care system and include providerincentives, limited financial incentives for clients, lack ofinformation for vendors, and fragmentation (Walsh &amp Egdahl,2009).

Mostof the provider payment systems are fee-for-service this createsincentives for care providers since they tend to focus on the volumeof service offered instead of the quality, cost, or efficiency of thecare provided. Generally, payment systems fail to reward higherquality and value. In other cases, they return poor quality of carethrough paying for the expenses associated with the additionalmedical care necessary to fix errors which could have been avoided.While health insurance offers valuable financial protection againsthigh costs linked to medical treatment, current benefit designsusually blunt client sensitivity on quality, prices, and choice ofcare setting (Card et al., 2009). There is evidence that patientsrespond to lower cost-sharing through more care and more expensivecare when they do not face full price of their decisions at the levelof utilization. Alternatively, medical care has become progressivelyspecialized and complicated, and patients fail always to obtain carethat adequately fulfills the current clinical guidelines. Basically,it has become exceedingly difficult for care providers to keep upwith the best available evidence concerning the clinical risks aswell as potential health benefits of the alternative treatments. Inthe U.S., there are few synchronized efforts to quantify objectivelythe merits of new drugs, devices, and procedures for the diagnosesand treatment of diseases relative to the predecessors. The lack ofinformation for providers explains the variations in the treatmentpatterns (Walsh &amp Egdahl, 2009). Furthermore, fragmentationoriginates from patients receiving care from different independentand competing organizations. Weak flow of information acrossproviders can result in bad health outcomes.


Themarket for health insurance does not function well due to differentfactors that cause the costs and benefits, which households face, tovary from the proper values and merits. One such market failures arethe asymmetric information and poor selection. An insurance providerwill not price individual health cover at the average worth ofcovering the uninsured. In case it would do so, the people who buythe policy would be those having high health care costs. Thus, thecompany would lose resources. In addressing poor selection risks,most insurers utilize medical underwriting and integrate a riskpremium into the correct price of coverage. Subsequently, the valueof health insurance which a typical individual would face in themarket significantly exceeds the average value of coverage (Hicks,2014).

Imperfectionsin credit markets mitigate the capacity of family units, especiallythe low-income ones, to receive products and services with immediateprices but long-term benefits. Health cover is a classic example ofsuch a product. Alternatively, when an uninsured individual getshealth insurance and thus better care access, there are benefits thatemerge to others. This brings about positive externality. This formof externality leads to few individuals having health cover.


Increasedcosts, market failures, as well as inefficiencies, are likely to havesignificant economic impacts. Since almost half of the health care ispaid for by the Federal, local, and state governments, an increasedcost would imply that these governments would have the responsibilityof augmenting the funds they allocate to the health programs.Economically, the government would be burdened with paying for thehealth initiatives at the expense of other developments (Holtz,2016). Thus, resources that could have been channeled in other areaswould end up being used in the provision of health care. For example,resources for roads development would be utilized in health coverage.Thus, increasing costs would have an impact on the government’sbudget. Furthermore, households would be affected economically sincethey would be forced to pay more out of their pockets in order toaccess care (Holtz, 2016). Alternatively, market failures are likelyto lead to an increase in the number of individuals, who do not havean insurance cover. Economically, this would be harmful since thenumber of people who would depend on the government health programswould augment. Also, the number of individuals who would have accessto health services would decrease.


Differentstrategies can be used by stakeholders and entities in addressing theissues discussed above. One of the tactics entails the stakeholderslooking systematically at what would work and what does not so as tooffer more high value where there is a small value. For instance,patients seeking medical conditions and practitioners should worktogether in eliminating services that seem to be of little value tothe people. This can be through carrying out surveys in order toidentify low-value services. Also, entities can expand performancemeasurement as well as providers’ feedback (Nichols, 2010). Forexample, performance may include collecting and summarizing dataconcerning clinical quality, resource use, and consumer satisfaction. Efficiency may be enhanced by agents facilitating the development ofperformance measures that would be adopted by all providers. Anotherapproach is through the stakeholders targeting fraud and abuseaggressively. Evidence suggests that there are substantial abuse andscams in the Medicaid and Medicare programs, including providingbills for services not offered and submitting bills that are notnecessary medically. Through focusing on ways of reducing frauds andabuse, it would be critical to eliminate costly practices.Furthermore, another tactic that can be used in resolving the issuesis giving patients a greater role. Involving patients in medicaldecision-making can result in better alignment of treatment and lowercosts. This is because well-informed patients are likely to becomfortable with less extensive and expensive treatment options. Inaddition, through health entities educating patients on theimportance of healthy lifestyles, it would be feasible to mitigatehealth costs since people would make healthy lifestyle choices.

Thegovernment can also apply different strategic practices from othercountries in addressing the issue of increasing cost, inefficiency,and market failures. One of the approaches that it can use isbundling. This technique involves paying a single fee for the wholeepisode of treatment. The tactic is critical in enhancing efficiencyas well as mitigating the spending on health care. The government mayutilize this form of payment for patients having chronic conditions.An example of a country, where this process has worked well, isSweden (Holtz, 2013). Also, the government can address the issuesthrough ensuring that all individuals have a health cover,irrespective of the health status. In a situation where all coverageis universal, it would be possible to reduce market imperfections andinefficiencies in the provision of care. This is the case in Sweden,where every citizen has a health cover since a combination ofproportional income taxes, private insurance, and state subsidies areused in financing the health care. Furthermore, the government canalso act by reducing fragmentation. This can be achieved throughcreating a standardized electronic billing and patient paymentdetermination approach that is utilized by all payers as well as careproviders.


Thegovernment, as well as the private sector, would have a role inensuring that the issues are fully addressed. The government wouldrealize success in matters involving the reduction of fragmentation.For instance, in introducing a standardized way of detecting theamount that a patient is supposed to pay, the government can be in aposition to present the approach through legislation. Alternatively,when it comes to bundling, the government would be capable ofdeveloping a law that healthcare settings would have to follow. Onthe other hand, the private sector has to support the initiatives ofthe government in dealing with the issues. For instance, agenciesdealing with health issues would be successful in providing educationto patients in an attempt to reduce market imperfections. Besides, itcan carry out surveys that would be geared towards handling theissues. Therefore, the collaboration between the public and privatesector would have the likelihood of tackling the matters.


Inthe U.S., there are economic issues that seem to have an impact onthe health care sector currently, and are projected to have aninfluence in the future these include increased costs, marketfailures, as well as inefficiencies. Health care expenses in the U.S.are currently approximately 18% of GDP, and this share is anticipatedto ascend sharply. In case the health care expenditures continue toexpand at the historical rate, the proportion of GDP allocated to thesector is likely to reach 34% by 2040. This shows that the increasingcosts would have an impact on the industry. The American healthindustry is weighed down by significant inefficiencies. Some of theevidence that show the presence of ineffectiveness of the health careis the tremendous disparity across states in Medicare spending perenrollee, where there is no evidence of corresponding differences ineither medical outcomes or needs. The market for health insurancedoes not function well due to different factors that cause the costsand benefits, which households face, to vary from the proper chargesand merits. One such market failures are the asymmetric informationand poor selection. These issues can be addressed through both thepublic and private sectors combining efforts. Strategies such asentities expanding performance measurement and providers’ feedback,bundling, and the reduction of fragmentation can be utilized inaddressing the issues.


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