Evolution and History of Health Care Economics

EvolutionandHistoryof HealthCareEconomics

Evolutionandhistoryof healthcareeconomics

Thehealthcareof theUnited States has undergonedynamicchangesandreformswithin thelastone century.However,mostof thestrategiesandpoliciesthat havebeendrivingtheevolutionof theU.S. healthsectorare reactionsto theescalating costof care.Thisimpliesthatthecostof careis an unavoidablevariable whenanalyzingthemacro andmicroeconomics of theU.S. healthcaresector(Fatas, 2010). Thispaperwill addresstheevolutionandhistoryof thehealthcareeconomicswith themainfocuson microeconomics,supplyanddemand,elasticity,andmacroeconomics.

Microeconomics

TheU.S. hadnot establishedhealthcaresystembefore the1900. Themajorhealthcareassociation(American Medical Association) wasgettingitself off theground(Jess, 2011). Theperiodbetween 1900 and1940s wascharacterizedby rapidgrowthanddevelopmentof thehealthcaresector.Theincreasein thenumberof healthcarefacilities,discoveryof variousdrugs(suchas antibiotics),andthedevelopmentof differentmedicalbenefitprogramsare themajorfeaturesof theevolutionof healthcaresector(Jess, 2011).In essence,thesupplyof thehealthcareserviceswasgrowingat a higherratethan thedemandforthoseservices,which reducedchancesforincreasesin thecostof health.

Theexponential increasein theU.S. populationbetween 1940 and1960 increasesthedemandforcareservicesat a substantially&nbsphigherratethan thehealthcaresystemcould supply.Thepopulationof theUnitedStates wasestimatedto haveincreasedby 14.5 % in 1940-1950 and18.5 % in 1950-1960. Therapidincreasein demandforthecareservicesincreasedthecostof health.Thehighcostof healthwasburdensometo thegovernmenttreasuryandAmericans whoare seekingforhealthcareservices.Thischallengemotivatedthepolicymakersandotherstakeholders in thehealthcaresectorto developmeasuresthat could helpthegovernmentcontaintheissueof escalatingcostof health.Theimmediateviable solutionwasthedevelopmentof differentinsuranceprogramsthat could coverat leastpartof thehealthcareforthecoveredAmericans. Consequently, severalhealthcoverage programsweredevelopedandexpandedbetween 1960s and1980s. Forexample,Medicare andMedicaid weredevelopedin 1965through theamendmentoftheSocial Security Act with theobjectiveof coveringmorepeople(Medicare, 2015). Inspiteofthemeasurestakento containtherisinghealthcaresector,thecostof healthcontinuedgettingout of control.

Elasticityof healthcareservices

Mosteconomistsbelievethatdemandforhealthcareis relativelyinelastic.Thisnotionisbasedon theideathata sickpersonis lesssensitiveto changesin thepriceof healthcare(Shafri, 2009). However,there are someexemptionsto theruleof priceinelasticity of healthcare.Forexample,customersmay chooseelectivesurgeriesdepending on thecostof performingthosesurgeries.Inaddition,althoughtheeconomicmodelof elasticityis correct,therateat which theU.S. costof healthas beenincreasingwithin thelastthree decades havereducedthecapacityof thecitizensto accessqualitytreatmentandpreventivecare.Itisestimatedthatover 41 million peoplewerenot insuredin theUnited States by theendof theyear2013 (Burwell, 2015). Theescalatingcostof healthhas forcedmanyAmericans to avoidpreventivehealthcareservicesorseekforalternative medication.Forexample,studiesindicatethatabout 6 million adults(includingtheuninsured Americans andimmigrants)in theU.S. wereturningto alternative medicineannuallyby theyear2004 (Hargraves &amp Tu, 2004). Thisconfirmsthathealthcarecan becomeelasticat somepoint,depending on therateat which thecostis escalating.

Macroeconomicsof healthcare

Thecostof healthis an issuethat macroeconomists cannot avoidmentioningin thetwenty-firstcentury.To thisend,nearlyallmacroeconomic conceptsare analyzedin relationto thecostof health.Forexample,itisprojectedthattheU.S. publicdebtwill explodeto 300 % within thenextdecade (Fatas, 2010). Themajorsourceof theexplosionof thegovernmentdebtwill be thehealthcarecost.Theseprojectionsare groundedon theassumptionthatthegovernmentspending will keepon growingexponentially. AlthoughtheU.S. populationhas not beengrowingexponentially in thelastone decade, there are otherfactorsthat are inflatingthecostof health.One of themajorfactorsincludestheincreasein proportionof olderadultswhosedemandforthehealthcareservicesof extremelyhigh.

Grossdomesticproductin relationto health

Oneof thekeyfactorsthat worryeconomistsin theU.S. is theincreasein theprivateconsumptionrelativetheGDP. Astudyhas shownthattheprivateconsumption,a componentof healthcarespending, havebeengrowingat 4-5 % of thenationalGDP (Fatas, 2010). Thehighrateof increasein spendingrelativeto thenationalincomeis dangerousbecauseitsubjectsthecountryto theriskof a financialcrisis.Forexample,priorto the2008 crisis,theU.S. economyhadlargedeficitsrelatedto thecurrentaccounts,which indicatedthatthegovernmentwasspendingmorethatthenationaleconomycould generate(Fatas, 2010).Thisindicatesthattheincreasein theratioof healthcarespending relativeto theGDP could be one of themajorfactorsthat will subjecttheU.S. to thenextfinancialcrisis.

Conclusion

Thehealthcaresectorhasexperiencedsignificantchangeswithin thelastone century.Theintroductionof healthcareinsuranceprogramsis among themajorchangesimplementedin thehealthsector.However,theuncontrollableincreasein thecostof healthindicatesthattheeconomicpoliciesadoptedbythegovernmentto containtheescalating costshavenot beeneffective.Theexcessiveescalationin thecostof healthhas renderedtheruleof priceinelasticity of healthcarelesseffective.Thisis becausetheU.S. citizens,especiallythosewhoarenot insuredare forcedbycircumstancesto seekforalternative care.

References

Burwell,V. (2015). Keyfacts about the uninsured population.Menlo Park: Kaiser Family Foundation.

Fatas,A. (2010, April 12). Health care and macroeconomics. TheGlobal Economy.Retrieved March 29, 2015, fromhttp://fatasmihov.blogspot.com/2010/04/health-care-and-macroeconomics.html

Hargraves,J. &amp Tu, T. (2004). Highcost of medical care prompts consumers to seek alternatives.Washington, DC: Health System Change.

Jess,S. (2011). The history and evolution of health care economics.E-notes.Retrieved March 29, 2015, fromhttp://www.enotes.com/homework-help/describe-history-evolution-health-care-economics-272366

Medicare(2015). Is my test, item, or service covered? Medicaid.Retrieved March 29, 2015, from https://www.medicare.gov/

Shafri,J. (2009). Is health care demand elastic? HealthCare Issues.Retrieved March 29, 2015, fromhttp://healthcare-economist.com/2009/07/22/is-health-care-demand-elastic/

Weisenthal,J. (2010). Chart of the day: U.S. population growth hits newpost-depression low. BusinessInsider Incorporation.Retrieved March 29, 2015, fromhttp://www.businessinsider.com/chart-of-the-day-us-population-growth-2010-12