Economics of Healthcare the Economics of Health Essay

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  • Subject: Healthcare
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Economics of Healthcare

The Economics of Health Care

The healthcare in the United States is a system of economics that has been referred to as a Ponzi scheme and most assuredly, the economics of the U.S. healthcare system are unsound at best. The United States is the only industrialized nation in the world that fails to provide universal access to basic health care and according to the work of Kilchevsky (2004), 'the absence of universal health coverage has been called 'one of the great unsolved problems facing the United States at the onset of the 21st century." (p.1) This work intends to examine the economics of health care in the United States.

The Facts

Department of Health and Human Services (HHS) reports that national health expenditures for 2009 totaled $2.5 trillion, which is stated to be $58,086 per person. (Berdine, 2011, p.1) The estimated total for health expenditures in 2008 per person are reported at $7,846 or more than $31,000 for a family of four, which is reported as "the minimal cost of a fully homogenized national health-insurance policy where everything is covered, everyone is covered, and there are no preexisting conditions." (Berdine, 2011, p.1)

Berdine (2011) reports that amount to be "fairly close to what an individual pays for a good commercial insurance if one does not belong to a large insurance pool." (p.1) According to the report of the Census Bureau "the average household size was 2.63 in 2008. The average household share of national health expenditure was therefore $20,632." (Berdine, 2011, p.1) Berdine reports that the census estimated that 18.6% of households "had an income less than $20,000 in 2008. So almost one-fifth of U.S. households earn less income than their share of national health expenditure." (2011, p.1)

The Bureau of Labor Statistics reports that in 2008, " a typical U.S. consumer unit in 2008 of 2.5 persons made $63,563 pretax income, and paid $13,077 in taxes, $6,443 for food expenses, $17,109 for housing expenses, $1,801 for clothing expenses, and $8,604 for transportation expenses, with $16,529 left over. Their "share" of national health expenditure was $19,612. The typical U.S. household cannot possibly afford a healthcare product targeted to the entire U.S. population. No amount of redistribution will solve this shortfall. The shortfall is being financed, at least prior to September 2008, by foreign credit." (Berdine, 2011, p.1)

II. Medicare -- What Is It Really?

Berdine (2011) reports that healthcare providers "make decisions based not on consumer preferences but rather based on what the government will pay for" and according to Berdine ( ) the U.S. healthcare system is a "classic credit-induced bubble of malinvestment where notions of profit and loss have been hopelessly distorted by government decisions." (p.1) Berdine holds that Medicare "is largely responsible for the completely distorted view of health insurance" that many people have since a misconception that is quite common is that Medicare "is a healthcare provider" in reality Medicare does not make provision of not one cent of healthcare but instead is a guarantee of payment for some services and those under specific restrictions. For example, should the payment be too low or the restrictions too great the elder healthcare will be obsolete. Medicare is often believed to be a health insurance plan for elderly people but it is not insurance instead Medicare is "a scheme to socialize the healthcare costs of the elderly to the much larger group of working people" and is a scheme that is unsound focused on socialization of elderly healthcare costs. In other words, it is a "Ponzi scheme." (Berdine, 2011, p.1) A Ponzi scheme is defined by the U.S. Securities and Exchange Commission as follows:

"A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity." (Berdine, 2011, p.1)

Ponzi schemes collapse because there are little to none in the way of earnings that are legitimate and are schemes that make a requirement of a "consistent flow of money from new investors to continue." (Berdine, 2011, p.1) Ponzi schemes have a tendency to collapse "when it becomes too difficult to recruit new investors or when a large number of investors ask to cash out." (2011, p.1) In the case of healthcare, the new investors are stated by Berdine to be new workers who enter the labor force and who are promised return on investment through healthcare that will be paid for when they reach the age of 65. However, instead of funding "defined-benefit pension plan, the monies are spent immediately for elderly beneficiaries and anything left over is lumped together with general revenue." (2011, p.1) The healthcare Ponzi scheme is collapsing since so many baby boomers are turning 65 and "cashing in" on their promised healthcare.

III. What's Wrong with the Healthcare Industry?

The work of Boyapeti (2010) asks the question of what it is that is really wrong with the healthcare industry and states that one of the primary factors "animating the libertarian rejection of public policy in general is the recognition that any state action must ultimately resort to the use or threat of aggression." (p.1) Boyapeti (2010) states that it was observed by Ludwig von Mises as follows:

"It is important to remember that government interference always means either violent action or the threat of such action. Government is in the last resort the employment of armed men, of policemen, gendarmes, soldiers, prison guards, and hangmen. The essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning." (Boyapeti, 2010, p.1)

Boyapeti states that Libertarians "who value justice and recognize that the use of aggression cannot be logically justified must reject all state action in principle -- this includes the use of aggression in implementing healthcare policy." (2010, p.1) Boypeti states that an argument that is common in providing support for government intervention on a larger scale in the healthcare market in the United States is "that a large and growing fraction of the gross domestic product is spent on healthcare, while the results, such as average life expectancy, do not compare favorably to the Western nations that have adopted some form of universal healthcare." (Boyapeti, 2010, p.1) This argument does not hold water for two reasons according to Boyapeti:

(1) A growing fraction of GDP spent on healthcare is not a problem per se. In the early half of the 20th century, the fraction of GDP spent on healthcare grew significantly as new treatments, medical technology and drugs became available. Growth in spending of this nature is desirable if it satisfies consumer preferences.

(2) Attributing national-health results to the healthcare system adopted by different countries confuses correlation with causation and ignores the many salient variables that are causal factors affecting aggregate statistics (such as average life expectancy). Factors that are likely to be at least as important as the healthcare system include the dietary and exercise preferences of a population. (Boyapeti, 2010, p.1)

Another argument that is quite commonly stated in the policy debates over healthcare is the fact that approximately 46 million individuals are without health insurance however; according to Boyapeti, (this is not a problem in and of itself. According to the 40% of those uninsured are less than 35 years old, while approximately 20% earn over $75,000 a year. In other words, a large fraction of those who are uninsured can afford insurance but choose not to buy it or are healthy enough that they don't really need it (beyond, perhaps, catastrophic coverage)." (2010, p.1)

IV. Four Primary Problems with the Healthcare System in the U.S.

The actual problem that exists with the healthcare system in the United States is "prices are continually rising, greatly outpacing the rate of inflation, making healthcare unaffordable to an ever-increasing fraction of the population -- especially those without insurance." (Boyapeti, 2010, p.1) Boyapeti writes that there are four reasons that result in rising prices in the healthcare market and in each of these instances government intervention, has either "directly caused or exacerbated the problem." (2010, p.1) Those four reasons are cited by Boyapeti to include:

(1) Employer-provided health insurance;

(2) Licensure;

(3) The Obesity Epidemic; and (4) Intellectual property. (Boyapeti, 2010, p.1)

Employer-provided health insurance originated in a tax policy passed in 1943 in which taxes were removed from insurance that are employer-provided. In 1954, the Internal Revenue Code fully codified these tax advantages and the government subsidization of employer provided health insurance resulted in the dominance of that model in the healthcare delivery system. The most importance economic consequence, according to Boyapeti "of the employer-provided health insurance is that consumers are much less likely to discriminate on cost. Beyond the…

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