Rising Medical Costs In The US: Analysis And Legislative Suggestions

Increasing Medical Costs in the US

Discuss about the Population Health In Era Of Rising Income Inequality.

Over the past decade, the U.S has been experiencing an increasing trend in medical cost compare to other consumer costs, which in turn has become an important issue for both private and public sectors of this country (Salami et al., 2017). Thus, it is essential for the senator to understand the impact of this changing cost structure on the constituents and to adopt suitable policies to reduce this burden. With the help of an economist, a brief analysis can be done based in the light of some basic economic concepts. Hence, this report, on behalf of the economist, is going to represent the brief analysis regarding the impact of rapidly increasing medical cost, with the help of indifference curve concept and along with this, some legislative suggestions can be provided over here.

The modern world has experienced significant improvement in medicinal science by innovating new treatment facilities and medicines. The country, by possessing the largest economy of the world, has owned large numbers of hospitals, medical research centers and other medical facilities with modern technologies. In both public and private sectors, this medical cost is increasing significantly since 2000 and within ten years, this cost has become almost double, that is, from $ 1.2 trillion in 2000 to $2.3 trillion in 2011(Bacon & Samuel, 2017). However, the cost to obtain those facilities is comparatively high, especially for some serious disease like cancer, which is becoming a serious issue for each country, including the U.S. The health system of this country has remained unable to provide medical facilities to its entire citizens, which in turn, has forced people to acquire health insurance from their private spending.

According to some free-market critics, the country’s health care system is facing some problems due to the third-party payment system from insurers, as a person faces difficulties to choice between financial and medical costs.  In addition to this, availability of the governmental insurance, through Medicaid and Medicare programs, has helped to influence this problem to a large extend. Availability of this public healthcare facility has provided basic utilization which in turn has helped to increase the consumer demand. According to a medical journal in 2013, this demand has occurred on the basis of new treatments, increasing costs of drugs, lifestyle factors, and higher priced technologies and advanced diagnostic testing and so on (Dickman, Himmelstein & Woolhandler, 2017). However, those governmental programs have provided low reimbursement rates, which sequentially have led citizen to bear more private costs and consequently, the middle-income group people has suffered more.

Impact of Third Party Payment System on US Healthcare System

Figure 1: Total retail value under the consumer health market between (U.S.D, million)

Source: (Bor, Cohen & Galea, 2017)

The above diagram has sharply depicted the increasing trend of total retail value of the consumer health market between 2012 and 2017. Based on 2017, the country has experienced almost U.S. $ 69640 million market value and thus this market has huge significance on the country’s economic condition (Bor, Cohen & Galea, 2017). Hence, the Senator can take some legislative decisions to protect this market.

Due to increasing medical costs, it has become difficult for the citizens of the U.S to choose between health care services and other consumer products with their given budget constraint. This situation can be described more precisely with the help of indifference curve approach (Hayakawa & Venieris, 2016). This curve helps a consumer to choose different combinations of two goods or more than that, from which the concerned person can achieve the equal level of satisfaction.

Figure 2: Indifference Curve

Source: (created by author)

In figure 2, an indifference curve is drawn that gives same level of satisfactions between various combinations of good X and good Y.  Here, good X is measured along the X axis and good Y is measured along the Y axis. Due to the marginal rate of substitute (MRS), the indifference curve slopes downward convex to the origin. The diminishing MRS implies that if the consumer wants to consume extra unit of one good, the person needs to sacrifice some quantity of another one, to maintain the same level of satisfaction (Paserman, 2017). However, being a convex curve, the amount of substitution does not remain same, which means, to consume one unit of good X, the concerned person needs to sacrifice more than one unit of good Y, where the opposite situation can also be occurred. The consumer can get same utility level along a particular indifference curve while higher level of curve represent higher utility level, which a consumer  always tries to attain. However, it becomes difficult for the concerned person to achieve this because of budget constrain.

On the other side, the budget line is a downward slopping straight line, where increase in consumer’s income can be represented by shifting the curve upward and for the opposite phenomenon, the curve shifts downward (Fisman, Jakiela & Kariv, 2017). When the price of one good changes, remaining the price of other good same, the curve also shifts accordingly.

Indifference Curve Approach to US Healthcare System

Figure 3: The budget line

Source: (created by author)

The above diagram has depicted a downward sloping budget line, where by entire income, the consumer can purchase OB amount of good X or OA for good Y or any combination of both goods with this limited income.

Hence, in an indifference map, consists with more than one curve, the consumer can get the highest amount of satisfaction level where the budget line equates with indifference curve (Anderson & Bates, 2017). In the U.S., a constituent has also a budget constraint, based on which, the combination of health care service and other products, can be chosen to obtain the higher level of satisfaction.

Figure 4: Equilibrium combination of two goods

Source: (created by author)

The above diagram has depicted the equilibrium combination of health care service and other consumer’s products at point A, where indifference curve IC0 meets with the budget line. Hence, at this point, the consumer can purchase OQ1 amount of other consumer’s products and OQ2 amount of health care services.

However, after increasing the medical cost, the budget line in Y axis, has shifted towards the origin, remaining the portion in X axis same as before (Fisman, Jakiela & Kariv, 2017). Thus, in this new budget line, the combination of two goods has also changed.

Hence, above diagram intends to depict the consequences of shifting the budget line, due to the increasing cost structures of health care services.  This has led a consumer to select IC2, which provides lower level of satisfaction compare to the IC0.

Thus, it is essential for the senator to choose some actions for all constituents to control this increasing cost structures through implementing appropriate policies. The government can reduce the tax on health care products and treatments significantly. Moreover, by organizing various health campaigns, the government can provide medical treatments and drugs with lower costs, for the middle-income and lower-income group people, who have affected adversely more through this increasing cost structure, compare to high-income group people (Gostin, Hyman & Jacobson, 2017). For medical research and innovation of other technological products for treatment, the government can also provide subsidies. It is also essential to form a group of supervisors, who can monitor the health care services of both public and private sectors (Obama, 2016). By providing different heath care services, like sufficient medical insurance and free treatment for children and old people, the government can help all constituents to live in a higher indifference curve with more satisfaction level.

Conclusion:

In conclusion, it can be said that the increasing medical costs are affecting the citizen of the U.S in a negative way. The government of this country can take various steps, like tax reduction or free medical treatments for children and old people, to reduce this burden on all constituents and the whole scenario can be explained sharply with the help of the indifference curve approach of economics.

References:

Anderson, S. T., & Bates, M. D. (2017). Hedonic prices and equilibrium sorting in housing markets: A classroom simulation. National Tax Journal, 70(1), 171.

Bacon, N., & Samuel, P. (2017). Social partnership and political devolution in the National Health Service: Emergence, operation and outcomes. Work, employment and society, 31(1), 123-141.

Bor, J., Cohen, G. H., & Galea, S. (2017). Population health in an era of rising income inequality: USA, 1980–2015. The Lancet, 389(10077), 1475-1490.

Dickman, S. L., Himmelstein, D. U., & Woolhandler, S. (2017). Inequality and the health-care system in the USA. The Lancet, 389(10077), 1431-1441.

Fisman, R., Jakiela, P., & Kariv, S. (2017). Distributional preferences and political behavior. Journal of Public Economics, 155, 1-10.

Gostin, L. O., Hyman, D. A., & Jacobson, P. D. (2017). The Affordable Care Act: moving forward in the coming years. Jama, 317(1), 19-20.

Hayakawa, H., & Venieris, Y. (2016). Consumer interdependence via reference groups. In Behavioral Interactions, Markets, and Economic Dynamics (pp. 81-99). Springer, Tokyo.

Obama, B. (2016). United States health care reform: progress to date and next steps. Jama, 316(5), 525-532.

Paserman, M. D. (2017). Using the Two-Period Model to Understand Investment in Human Capital. National Tax Journal, 70(1), 185.

Salami, J. A., Warraich, H., Valero-Elizondo, J., Spatz, E. S., Desai, N. R., Rana, J. S., … & Blumenthal, R. S. (2017). National trends in statin use and expenditures in the US adult population from 2002 to 2013: insights from the Medical Expenditure Panel Survey. Jama cardiology, 2(1), 56-65.