Healthcare Issues From an Economic Standpoint

Topic: Economics
Words: 1429 Pages: 5


Healthcare is a significant segment of the US economy, as it is an integral part of people’s lives on which their well-being depends. Healthcare is important to the economy because of the funds’ size and the potential budgetary implications. It is estimated that the health sector accounts for almost a quarter of government spending (American Medical Association 1). The main expenses are for the salaries of employees involved in healthcare, as well as for medical insurance.

The economic problems of healthcare are also associated with an increase in the inaccessibility of medical services due to their high cost for a large part of the population. Solving the economic problems of healthcare is beneficial both to the state and ordinary citizens. A well-functioning healthcare system is a sign of a well-functioning economy in the country. The growth in healthcare sector costs is increasing every year. It happens because of new medical services and equipment, improved access to healthcare for all categories of citizens, and a general increase in prices. The main economic problems in the field of healthcare are the cost of prescribing drugs and higher prices and wages for medical personnel.

Features of the Healthcare Market

The standard theory of the operation of markets based on the supply and demand model does not fully reflect the features of the functioning of the healthcare market. There are patients-consumers and producers – medical personnel; however, the model is complicated by some features. Third parties are interested in the results and effectiveness of treatment: insurance providers and the government (Campos and Michael 230). Service providers are, in many cases, not paid directly by consumers but by private or public insurance. In addition, the demand for healthcare is irregular and unpredictable, which provokes risks. Features of the healthcare market provide an understanding of the important role of the government in the organization of the sphere and the complexity of its policies.

Expenses Inefficiency

The United States spends a significant part of its budget on healthcare but does not get a beneficial return. Despite significant efforts, the US leads the way in disparities in access to healthcare. The main reason for inefficient investing in healthcare is that there is no effective system to control costs. Most of the services are paid through third parties; the prices of medical services and medicines result from politics and relationships. Ordinary people do not have access to medicines at a reasonable price, which limits cost control.

The Cost of Prescription Drugs

The cost of prescription drugs continues to increase every year. It is especially problematic for cancer drugs, as this group accounts for most of the costs. Rising spending on drugs in the US is associated with a state-protected exclusive market (Wineinger et al. 1). The prescription drugs’ high cost is dangerous for the government budget by limiting funding for other important areas of healthcare. Pharmaceutical companies that influence pricing see high prices as an important ingredient for future innovation. However, charging high prices for essential drugs will only slow down the pace of possible innovation. The main reason for the high cost of prescription drugs is monopoly politics. For most effective new drugs, there are no worthy analogs.

Moreover, a few pharmaceutical companies set prices and control the market, since there are often no other options. When the state does not regulate monopolies, the life and health of citizens are at risk due to high prices for necessary medicines. The high cost of drugs is affected by the difficulty and cost of drug development. The percentage of failures in developing a new drug is also quite high; most drugs do not enter the market and do not turn out to be successful projects. The solution cannot be simple and quick, but it is necessary to increase funding for other important sectors and the well-being of citizens. A significant contribution to solving this problem is the limitation of monopoly. One way could be to reduce the duration of patent protection. Another measure could be to speed up the process of manufacturing drug analogs by simplifying their approval.

Higher Prices

Establishing spending limits on parts of the medical sector does not provide budgetary savings. Part of the reason for the growth in medical services is government policy, including the creation of Medicare and Medicaid. Since these programs help people without health insurance, service providers could set their prices without control. Healthcare, in general, becomes more expensive as life expectancy rises: the percentage of older people who need medical care constantly increases. Outpatient care and emergency department services increased the most. The reason may be a rise in the number of chronic patients.

Higher Wages

Medical workers perform complex, responsible, and socially necessary work, so their remuneration should be high. In addition, the healthcare sector constantly requires new, highly qualified specialists who need to be stimulated and motivated. Apart from the main problem of the need to finance wage increases for healthcare workers, these increases could accelerate the rate of inflation. In general, to maintain profits, organizations must increase prices to offset the costs of higher wages. This economic process is cyclical, as the provoked price increase requires new wages rise. (Giovanni et al. 29). In addition, with an increase in wages, the money supply in the hands of consumers will increase, which leads to a rise in purchasing power. High purchasing power, in turn, increases the price of goods in a wide market. The entire population uses health services, so the rise in wages and purchasing power directly affects the cost of medical services.

Possible Solutions

Solving the economic problems associated with the healthcare sector is difficult because of their complexity and the ethical side of the issue. With a decrease in spending on the health sector, there are risks of reducing the quality of services, which is dangerous for the population’s well-being. In addition, it is necessary to remember to maintain the availability of medical services for the entire population. One of the complicated problems is prescription drugs, the prices of which are rising because of the monopoly. Government regulation of prices by limiting the validity of patents can create an environment for healthy competition and lower prices. Another reason for the rising cost is the Medicare system, an originally supposed initiative to help the community. A possible solution would be to move towards performance-based payment and government cost control measures, including high co-payments when proven necessary.

The government must determine the minimum insurance package that should be provided at a fair price. The government may also offer to purchase vouchers for this type of insurance. Since raising wages is not always beneficial even for the workers themselves, since prices rise in this way, one can consider a policy not to increase wages but to increase the number of medical workers. Stimulation of new technologies in medicine can reduce costs through regulatory changes. It is also necessary to provide information about different treatment options and healthcare providers. Finally, the government could rethink support for medical research, rewarding those that are sure to work in the long run.

Undoubtedly, the state is aware of the growing economic crisis in the healthcare system and is taking steps to resolve it. From a social point of view, the main problem is the rise in prices and the misunderstanding of their formation. To combat this phenomenon, the Consolidated Appropriations Act was created in 2021. The law requires disclosure of the amount of compensation to insurance agents and transparent reporting on the cost of drugs. An additional law, called the No Surprises Act, protects the public from unexpected medical bills.


Thus, healthcare is an area where significant budgetary funds are invested. However, these investments often turn inefficient and do not generate adequate returns. Another issue is the growing gap in access to medical services for citizens. The medical economy’s problems are the prescription drugs’ cost, higher wages that provoke inflation, as well as a general rise in prices. The healthcare market has several features that affect the non-transparency of pricing policy, which makes government regulation difficult. Some factors influencing the economic problems of healthcare include misguided government policies and independent factors: an aging population and an increase in the proportion of chronic diseases. Since the health sector is key to public well-being, serious action is needed to address these issues. Controlling monopolies, reviewing health insurance policies, and increasing the number of health workers can be helpful. Several measures to address the economic problems of health already exist, but it will be possible to evaluate their effectiveness only in a few years.

Works Cited

American Medical Association. “Trends in Health Care Spending.” American Medical Association, 2019.

Campos, Paola Abril, and Michael R. Reich. “Political analysis for health policy implementation.” Health Systems & Reform, vol. 5, no. 3, 2019, pp. 224-235.

Giovanni, Di Bartolomeo, Di Pietro, Marco, and Elton Beqiraj. “Price and Wage Inflation Persistence across Countries and Monetary Regimes.” Journal of International Money and Finance, vol. 109, no. 1, 2020, pp. 1-38.

Wineinger, Nathan E., Yunyue Zhang, and Eric J. Topol. “Trends in prices of popular brand-name prescription drugs in the United States.” JAMA network open, vol. 2, no. 5, 2019, pp. 1-9.

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