Health Care Reform Term Paper

Excerpt from Term Paper :

overwhelming connections between healthcare costs and the macroeconomic performance of the U.S. economy. The impact of healthcare industry on the macroeconomic performance is evident from the fact that in 2009 healthcare expenditure of the U.S. was 18% of the gross domestic product (GDP) of the country. It was also estimated that should the healthcare costs continue to grow at historical rates, 34% of the U.S. GDP will compose of healthcare spending by 2040 (Whitehouse, 2009). The major sources of funding the healthcare costs are the Federal, State, and local governments of the U.S. Medicare is a healthcare program that subsidizes healthcare for citizens above 65 years of age. Medicaid subsidizes healthcare delivery for people below a certain income level. Approximately 50% of the healthcare expenditure is bore by governments at the federal, state and local level. It is also estimated that Medicare and Medicaid spending of Federal and State governments will rise to 15% of the GDP by 2040 (Whitehouse, 2009). Thus, any reform agenda for the healthcare industry is bound to have major implications on the macroeconomic front of the U.S. The major aims of healthcare reforms are to reduce the costs related to healthcare delivery and mitigate the impact of aging population and the demographic shift. Thus, healthcare reforms aim to ease the government deficits originating from healthcare spending, improving the industry efficiency, and positively impacting the macroeconomic indicators of the U.S. economy. The paper discusses some of the macroeconomic implications of healthcare reform in the U.S.

2. Decreasing the healthcare costs to reduce budgetary deficits

The Federal and State governments of the U.S. bear more than 50% of the Medicaid and Medicare expenditures (Leonard, 2012). According to 2011 statistics of the U.S. federal budget, 21% (nearly $769 billion) of the U.S. federal budget was spent on Medicare and Medicaid programs. A rapid shift in demographic trends of the U.S. And an increased percentage of healthcare spending makes Medicare the most expensive federal healthcare program. The number of people retiring from the labor force has increased manifold due to retirement of baby boomers. In fact, statistics indicate that spending on healthcare has increased more rapidly compared to inflation for health-care costs. The President's Council of Economic Advisors also made a detailed presentation to the White House that reforming the healthcare system will allow the U.S. government to yield 2% higher GDP compared to a baseline case where no reformation of the system is conducted. The committee also suggests that with an overhaul of the healthcare industry, the GDP of the U.S. can increase 8% more than without the baseline scenario of any reforms in the system. The government budgetary deficit will also decrease by 3% of the GDP relative to a situation where no reforms are introduced. Exhibit I lists the major healthcare services provided under the Medicare and Medicaid programs. The percentage of expenditures on hospital care has remained above 36% during 2007-2009. Centers for Medicare & Medicaid Services estimates that national health spending during the period 2012-2022 will grow at an average of 5.8% that is 1% more than the estimated annual growth of the U.S. GDP. In 2014, the estimated growth for healthcare spending was estimated at 6.1%, higher than the GDP growth rate. The Obama Administration has introduced reforms such as private insurance coverage for 11 million Americans in 2014. This will help reduce the government spending on healthcare subsidies through Medicare and Medicaid program. The Affordable Care Act also enables registration of more number of Americans with the insurance companies. This will increase out-of-pocket spending on health and therefore increased health consciousness will result in better health management. The government spending on hospitals, physician & clinical services, and on the prescription drugs will decrease. As a result, during the fiscal year (FY) 2013, federal, state, and local government spending grew by 3.2% (to $1.3 trillion). The spending grew by 4.5% in 2011 (CMS, 2013). Thus, governments' at all three level sie. Federal, State, and local level are striving to decrease their spending on healthcare through reforming the provider and consumer sides. On the provider side, the federal and state governments are decreasing the direct funds provided to hospitals and physician centers. On the user end, the governments are encouraging and pushing citizens to obtain individual insurance packages. The shopping of insurance packages is also being
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improved through centralized web connectivity. Nonetheless, until 2022 it is estimated that government sponsored spending on health will increase to 50% of the total spending and afterwards it will decrease gradually (CMS, 2013). The main implication of healthcare reforms plan is that successive governments, either of Democrats or the Republican, will have to comply with the plan. Consistent expansion of private health insurance market and shift of financial burden on the user will definitely ease the government deficit situation.

3. Macroeconomic impact of health insurance reforms

The current U.S. government aims to decrease by federal government's deficit by more than $1 trillion by the next two decades. A major initiative to achieve this reduction in government budgetary deficit is through health insurance reforms. The most prominent step of the Obama Administration was to introduce the Patient Protection and Affordable Care Act (PPACA) or the Affordable Care Act (ACA). It is also known as 'Obamacare'. The act aims to reform the healthcare system by the quality and affordability of health insurance through increased private and public health insurance. The Act provides incentives to healthcare providers for delivering better services, regulates the health insurance industry, and enforces coverage of all applicants to be covered under the health insurance. Through the ACA, the U.S. government aims to save more than $200 billion in next ten years (until 2022) and more than $1 trillion until the end of 2032. The Act provides monetary and subsidy rewards for practitioners to improve quality of care and reducing the care costs. The bulk of government funds were allocated to insuring the people below 138% of the federal poverty level. The ACA aims to register more than 34 million Americans in the affordable health coverage by offering them insurance (The Whitehouse, 2012).

The overhaul of health insurance industry is also aimed at increasing the insurance rate of individuals and including all Americans below 138% of the federal poverty level within the insurance net. The insurance industry reforms now restrict insurers to eliminate individuals based on their previous health records or on the base of lifetime limits. The insurers are also required to treat youngsters on the same insurance plan as their parents. The ACA also restricts the insurance companies to increase insurance premiums on the basis of pre-existing conditions.

4. The counter opinion: Federal Deficit reduction through health insurance reforms

The Congressional Budget Office (CBO) presented detailed statistics on the deficit reduction through the ACA. The analysis of a testimony by the director of CBO (Douglas W. Elmendorf) indicates that PPACA (alternatively called the ACA) will do several things to eliminate wasteful expenditure on healthcare by the federal, state, and local government. A major implication would be the reduction in federal deficit. The major implication of the health insurance reform will be that 32 million nonelderly Americans will become insured for their health by 2016. The number of insured nonelderly Americans will reach 34 million in 2021, about 95% of all the nonelderly Americans. Exhibit II indicates that the net cost of insurance coverage expenses of the federal budget will be $788 billion during 2010-2019. Net cost of PPACA will be an addition of $1,131 billion in the federal budget deficit during 2012-2021. CBO also observes that the increase in budget deficit will be due to government spending on subsidizing the purchase of health insurance in Medicaid program.

However, the net increase or decrease in the federal budget deficit will be $-124 billion during 2010-2019 and $-210 during 2012-2019. It implies that as time passes and more number of people get insured with the privately or in group form, the government deficit will decrease proportionately. The figure in exhibit III indicates that new decrease in the federal budget deficit will be significant in years 2020-2021. $90 billion reduction in federal deficit will occur in the two years alone (2020-2021). An important aspect of the report presented by CBO was that the report estimated the cost impact of PPACA on the federal budget and its macroeconomic impact. The CBO report observes that during 2012-2021, $464 billion will be spent on healthcare but this increased spending will be offset by savings taking place through decreased spending in Medicare program and the imposition of excise tax on high-premium insurance policies. Some other macroeconomic impacts of the health insurance reforms will be as follows:

5. Labor market

There will be significant impact of Obamacare on the labor market trends and projections. The change will occur at both ends i.e. employee and the employer. Hiring practices and working practices will get affected due to the change in healthcare industry. During 2012-2021, 0.5% less labor force will join the labor…

Sources Used in Documents:


CMS. (2013, Nov). National Health Expenditure Projections 2012-2022. Centers for Medicare & Medicaid Services. Retrieved from:

Kolstad, J.T., & Kowalski, A.E. (2012). Mandate-based health reform and the labor market: Evidence from the Massachusetts reform (No. w17933). National Bureau of Economic Research.

The Whitehouse. (2009). Deficit-Reducing Health Care Reform. The Whitehouse. Retrieved from:

CBO. (2011, March). The Economic Case for the Health Care Reform. Congressional Budget Office: Executive Office of the President Council of Economic Advisers. Retrieved from:

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