Economic Issue in Health Care Inflation Affects Essay

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  • Subject: Healthcare
  • Type: Essay
  • Paper: #32700692

Excerpt from Essay :

Economic Issue in Health Care

Inflation affects all the segments of an economy; including individuals, businesses, and governments in a number of ways. The healthcare industry also takes its impacts on each and every aspect of its operations; like consumer spending, costs of operations, demand and supply of medical treatments, medicines, and general healthcare services, etc. The purpose of this paper is to evaluate the impact of an important economic issue, Inflation on the healthcare using demand and supply and cost analysis as the two important economic tools. The paper starts with a brief introduction to the economic issue 'inflation' as it relates to the healthcare industry and proceeds by introducing and discussing the chosen economic tools (demand and supply and cost analysis) to evaluate the impacts of this current economic issue on healthcare. The paper concludes by highlighting the major points from the analysis and discussion.

Inflation: an important Economic Issue

Inflation is a sustained increase in the general price level of products and services over time. Generally, it is taken as one of the most important economic issues. It is because inflation hinders economic growth, discourages investments in economy-driving portfolios and shifts them to inflation-proof portfolios (e.g. gold), devalues the currency, increases the inflation risk premium in long-term interest rates, and creates unrest among individuals, businesses, and governments in many different ways.

Inflation as related to Health Care

Like all other industries, healthcare industry also takes direct impacts from the inflationary pressures prevailing in the country. In the United States, the rate of inflation in healthcare industry is significantly higher than the overall rate. There are lots of reasons for this important economic issue. First of all, high-tech treatments and medicines are becoming more and more expensive day by day. They have been used more frequently today than the past. Secondly, low-cost health care organizations are not giving satisfactory results which have shifted the trend of general people towards high-cost organizations to access reliable treatments. Moreover, the side effects caused by drug medicines have made the general public more conscious towards their health matters. Now they prefer to consult with or be treated by well-reputed doctors and physicians only.

Evaluating Impacts of Inflation on Healthcare using Economic Tools

Since the time the recent financial crisis (2008-09) hit the U.S. And the world economy, Inflation has become a major economic issue in the healthcare industry. From demand and supply mismatch to the overall costs of healthcare services and medicines -- each and every aspect of the industry is affected by inflationary pressures. This section evaluates the impacts of inflation on healthcare using a couple of economic tools: 1. Demand and supply, and 2. Cost analysis.

1. Demand and Supply

Inflation is one of the major players that drive supply and demand options in an economy. When the demand of some products or services increases while the supply remains the same, the prices go up. In contrast, when the demand decreases while manufacturers continue to offer the same supply, the prices go down. In both these opposite cases, the suppliers cannot say with surety the exact increase or decrease in the prices. Basically, the demand and supply options take large impacts from the inflationary pressures prevailing in the country.

Increasing demand for reliable Healthcare:

In the healthcare industry, the demand for reliable and well-reputed doctors, physicians, hospitals, and healthcare institutions have always been high. On the other hand, there exist only few doctors and hospitals for every 1000 people. Today, good health care services are not the only demand of the consumers -- they also want care, convenience, effectiveness, and affordability (PricewaterhouseCoopers LLP, 2013). While well-reputed doctors and hospitals are few in number, new diseases and health problems have been identified among general public. It has also increased their health-consciousness and forced the health care research organizations to identify the symptoms of these new health problems and find their remedies and treatment procedures. This trend has further increased the demand for hospitals and health care institutions that use the most advanced medical procedures to cure their patients.

Impact of Inflation on Healthcare in Urban and Rural Areas:

Expensive healthcare services and lack of specialized doctors especially in small cities and towns have given rise to a big mismatch between supply and demand. Since the majority of the population lives in well-developed cities and urban areas, the demand for doctors and hospitals is greater in these areas. The compensation packages and benefit plans in these areas are also more attractive than rural or less developed areas. Therefore, doctors prefer to stay and practice in the urban areas. Although the impact of inflationary pressures is equally taken by urban and rural citizens, the availability of more advanced services and facilities in the urban areas make inflation a bigger monster for the urban citizens. In contrast, the earnings of individuals in rural and less-developed areas are significantly lower than urban citizens while healthcare costs are equally expensive for both the groups. Sometimes, it becomes harder for the rural patients to consult good doctors in well-reputed hospitals due to heavy medical costs.

2. Cost Analysis

Decrease in Employer-Sponsored Plans:

Keeping in view the increasing inflationary pressures in the industry, employers from the health care organizations and institutions have cut down their spending on employee benefit plans like medical and life insurance plans which are fully or partially sponsored by employers (Nussbaum, 2012). The purpose behind cutting down these expenses is to save heavy business costs which are incurred by these employers every year.

Increase in Healthcare Products and Services:

The most recent financial crisis followed by gradual increase in the price levels of products and services in all types of industries has badly hampered the economic growth of countries all over the world. This increase in the price levels can be observed in healthcare industry in all the three major segments, i.e. inpatient admissions services, outdoor patient services, and prescription medicines and drugs. Moreover, the costs of radiology treatments, surgeries, and primary healthcare services significantly increased during the last few years (Nussbaum, 2012).

Impacts on Healthcare Spending:

While healthcare costs had been showing an increasing trend since 1957, the most recent financial crisis (2008-09) temporarily decreased the healthcare spending in the United States and many other parts of the world (Rugy, 2013). This decrease was mainly due to the diminished purchasing power of the general consumers affected by the financial crisis and high rate of inflation. That is, inflation forced the general consumers to purchase products and services at a higher price while having no change in their income levels. It resulted in decreased healthcare spending on expensive medical procedures and top quality medicines (Mangan, 2013). A significant shift was also observed in general consumers spending in radiology treatments, drugs, and primary healthcare services. The public went for more cost-effective and convenient healthcare, e.g. through mobile health services, low-cost drugs manufactured by unknown pharmaceutical companies, and elective surgeries (PricewaterhouseCoopers LLP, 2013).

Future Trend and the Role of Affordable Care Act (ACA):

Economists and health care researchers are of the view financial crisis had temporarily blocked the inflationary pressures for a short span of time -- it will further increase the costs of healthcare products and services in the near future. The Affordable Care Act (ACA) has taken various initiatives to control this alarming situation of inflationary pressures in the healthcare industry. It has asked health care organizations, institutions, pharmaceutical companies, doctors, and general consumers to play their part in this mission. The strategies to encounter this issue include controlled spending on healthcare insurance plans, achievement of production efficiency in order to cut down unnecessary expenditures in drug manufacturing (which may lead to decreased drug prices), use of reliable and effective medicines manufactured by well-known pharmaceutical companies in order to avoid side effects and future…

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