The Ever-Growing Cost of Survival: Could it End?
Healthcare is eating up the economy. Every year, the United States celebrates our record-breaking spending on healthcare, and we have maintained our first position since 1980. The U.S. has finally reached the medical expenditures of about 18 percent of GDP in both public and private spending. In the case of federal spending, healthcare constituted 27 percent of its total federal spending in the year 2015.
Of course, this is not a surprise to everyone, and healthy individuals may not even find it too concerning either. However, one must look more into the issue since this is not simply a social problem. It affects all individuals—healthy or ill.
Imagine losing 8 percent of your compensation in addition to paying tax and other expenses. It is difficult to notice, but 8 percent of what companies pay you contributes to healthcare premium, which is where one’s raise went. This lowers the amount that employees take home is worsening the situation.
Some argue that this is the trend seen amongst wealthy countries that are willing to spend more on healthcare. However, according to a new report by Josh Bivens of the Economic Policy Institute, it suggests that U.S. patients are paying more for less service. Investigating the medical procedures used in each service, he states that U.S. hospitals tend to use fewer procedures than in other developed countries. So, it may be a misunderstanding to think that the cost significantly correlates with the quality of service. Moreover, this is problematic since healthcare is not socially viewed as commercial service but rather a public service with numerous tax exemption and donations endorsed by the public.
Then, what are the major causes of this problem, and how can we fix it?
One of the major explanations for such an increase in medical cost is the healthcare providers’ monopoly power. Often, patients are stuck with one hospital, not having the option and information to switch to different healthcare providers. This demolishes the idea of perfect competition in healthcare, allowing the hospitals to easily increase the service cost without risking the chance of losing patients to another provider.
Economic theory suggests that the market power of sellers can be counteracted by the market power of buyers. By having the government be more involved in deciding healthcare costs, such as by having government-run health insurance systems similar to the ones used in most other developed countries, price negotiation occurs. This is evident in the U.S. when we compare the price between Medicare and private insurance plans: Medicare gets a better deal with the health providers through its market power.
Another solution to counter the medical monopoly is through technological advances to reach efficient competition based on the economic principle. For example, Amazon, an unexpected player on the market, is starting to sell quality medical equipment for a lower cost than typical manufactures, flipping the dominance in the industry. Following Amazon’s announcement to move into healthcare in 2018, the stock prices of other healthcare firms have struck, allowing more competitions to happen and, thus, eliminate monopoly.
To reverse the slope of ever-growing healthcare costs, the right balance of government interventions and technological advancement seems crucial to get closer to perfect competition.
References:
http://thessigroup.com/rising-healthcare-costs-impact-patients-and-providers/
https://www.nytimes.com/2017/05/08/business/dealbook/09dealbook-sorkin-warren-buffett.html
https://www.nationalpriorities.org/budget-basics/federal-budget-101/spending/
https://www.bloomberg.com/opinion/articles/2018-10-29/health-care-costs-are-still-eating-the-u-s-economy
