The Cost of Healthcare and Privatization

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Table of Contents

Introduction
Background
Arguments Supporting High Costs and Privatization
Arguments Against High Costs and Privatization
Conclusion
Works Cited

Introduction

Meghan is a 27-year-old high-achieving young woman who has recently finished her master’s degree and decided to start a business with her best friend. The business has significant potential and has even attracted investors, but Meghan is not able to pay herself yet, with all the money going into the business, forcing her to do freelance work on the side for basic living expenses. One day, Meghan does not feel well and suddenly faints, not responding for several minutes. Her partner, fearful for her life, calls an ambulance, and Meghan is taken to the emergency room, where multiple tests are performed and samples taken with the consent of her parents. It turns out Meghan had a stress-induced condition, but she will be alright with minor treatment. Meghan did not have health insurance, unable to find the money to buy even the minimum plans starting at over $100 per month. Her medical bill came out to over $14,000, which on top of her existing student and business-related debt, has placed her deeply into financial trouble, and she is likely to quit or sell her share of the dream business.

A young, healthy, and aspiring woman has her hopes dashed and life nearly destroyed because of a minor health scare – all because she did not have health insurance. Meghan is not alone and represents millions of households in the United States struggling with financial burdens due to the high cost of healthcare in the country, both with and without insurance. The high cost of healthcare and insurance is justified by the US system’s highly sophisticated and technological context, and the private system encourages competition and quality in the sector. However, this paper will argue that healthcare costs are high, stemming from unnecessary spending and unregulated focus on the profits of healthcare stakeholders.

Background

Healthcare spending in the United States is one of the largest components of its budget and is by far one of the largest in the world. For an estimated 323 million population, “America spends 17.8% of its GDP on health” (Kaplan). The US health system is market-based, where individuals purchase various levels of insurance to have access to specific services or providers. Virtually all healthcare providers in the US are private organizations. According to Kaplan, in 2014, 35.5 million Americans were uninsured (Kaplan). There is also a government-funded type of insurance known as Medicare and Medicaid for vulnerable populations such as the elderly, disabled, and children. If anyone wishes to receive a healthcare service, they must pay a deductible based on their insurance plan (covering part of the treatment) or completely out-of-pocket if lacking insurance.

The specifics of the US healthcare system make a limited number of services covered by insurance, and many of those that do are expensive. The average monthly cost of insurance may be less to $75, as the then president of the United States said (Pear, “Many Say High Deductibles”). Even with insurance, treatment of severe or chronic illnesses will likely generate thousands of dollars in medical expenses, particularly for specialized treatments or surgery. Meanwhile, without insurance, a doctor’s visit is between $300-600, emergency room visits with an ambulance will start at $3000, while the most basic medicine, such as insulin, can cost $170-300 per vial (Pear, “Many Say High Deductibles”). These statistics highlight the exuberant cost of healthcare in the United States, making it difficult to afford or completely unavailable to a significant portion of the population. Therefore, the issue of financial coverage of medical services is relevant to US healthcare.

Arguments Supporting High Costs and Privatization

The high cost of healthcare is explained by the need to maintain a high level of sophistication and technology in healthcare; such stakeholders as hospitals, drug producers, and medical equipment producers need to have high prices. They are passed down to consumers through insurers and otherwise. The level of innovation and quality provided in the US healthcare system is largely unparalleled (Kaplan). Meanwhile, such aspects as inflation, staff salaries, and technology are rising in prices, giving the stakeholders little choice. The private insurance and provider system generally provide better-quality medical care (Pear, “Health Spending in the US”). It fosters competition, forcing stakeholders to innovate and maintain high quality and service levels to avoid losing patients seeking care. Generally, when it comes to health, people seek out the best possible care, and that level of quality established through evidence-based research, continuous improvement efforts, and attractive salaries for top professionals cannot be achieved.

Arguments Against High Costs and Privatization

The primary counterargument justifying high costs and the private market nature of the US healthcare system is that it fundamentally fails its purpose: to provide health services to people in need. Many people cannot afford to cover desirable insurance plans, which is due to high costs (Trumbull). The current system fails on many levels by isolating people from seeking full or partial care and failing to meet performance expectations at the population and national levels (Ellwood). While competition and quality are important, accessibility and competent management of resources are as well, with the factors below being the most commonly identified by critics as causing high costs.

Administrative Costs

The administration is the largest single component of high US healthcare spending. High costs stem partially from the unnecessarily complex system of billing, insurance, and payments across government, insurers, and providers (Elmendorf 2). Nevertheless, another aspect on top of this is a complete lack of standardization in record keeping and methods of administrative tasks. This can be resolved partially by a federal policy mandating a standardized system of administration and establishing a unified national system for billing, patient records, and data exchange.

Greed and Price Gouging

Due to the market-based system allows hospitals, providers, insurers, and drug companies to charge what they see fit without much of a price ceiling. Prestigious hospitals charge more for the same services, even at the most basic level, such as an X-ray, while drug companies sell medication at higher prices, justifying it with innovation (Holtz-Eakin 4). The market-based approach is meant to establish competition so that providers and drug manufacturers attempt to compete and keep prices low. The common argument is that innovation, research, and expert salaries require billions of dollars in investments, and the prices reflect that outcome (Warshawsky and Biggs). However, the pharmaceutical sector is one of the most profitable, worth billions of dollars, while executives receive tens of millions in payouts along with stockholders, ensuring that prices remain high (Warshawsky and Biggs). These features are essential to take into account when evaluating pricing policies.

The simplest solution would be to establish price ceilings, as happens with services and pharmaceuticals all over the world, particularly for non-specialized and relatively basic drugs and services. While regulation can be challenging to manage, it will force the market players to cut costs and focus on elements that can truly keep them competitive (Scher). Therefore, while R&D investments may decline slightly, they will continue in comparison to executive bonuses, as it will be an opportunity for the firms to achieve a competitive advantage in the market in a fair manner.

Misallocation of Resources

Despite the frequency of use in the health system remaining similar to that of other developed countries, its utilization is much higher. That is because when interacting with the health system, people are either directed to or choose to use a greater number of services (Scher). The US continuously over-provides highly specialized care such as imaging, unnecessary laboratory tests, unnecessary surgeries, and others. Nonetheless, this often has little impact on both individual and population health outcomes. That is because routine care is often underutilized and lacks investment in things such as check-ups, chronic disease management, or day-to-day/emergency care (Ellwood). It is more profitable for providers to promote high-cost services to charge insurers more (Elmendorf 4). However, MRIs and cardiac surgeries will not have an impact unless people have access to appropriate disease management skills and heart medication offered at the routine primary care level. The misallocation of healthcare resources is not only driving costs of treatment up, often when unnecessary, but also leads to worse public health outcomes.

Conclusion

The US healthcare costs are high, but while some argue that it is the necessity of high-tech medical care and the price is established by the market, a significant range of experts, scholars, providers, politicians, and stakeholders have voiced concern that the costs are becoming unrealistically inflated. This paper has discussed some of the factors influencing the rise in costs and potential mitigating measures. Small-scale policies at state and federal levels can be implemented in the attempts to reduce costs procedurally and incentivize greater accessibility.

Works Cited

Ellwood, Wayne. “The Great Privatization Grab.” New Internationalist, 2003. Web.

Elmendorf, Douglas W. Expanding Health Insurance Coverage and Controlling Costs for Health Care: Statement of Douglas W. Elmendorf, Director, before the Committee on the Budget, United States Senate. US Congressional Budget Office, 2009.

Holtz-Eakin, Douglas. Health Care Spending and the Uninsured. Congressional Budget Office, 2004.

Kaplan, Karen. “Healthcare’s High Cost: U.S. Versus the World.” Los Angeles Times, 2018. Web.

Pear, Robert. “Health Spending in the US Topped $3 Trillion Last Year.” New York Times, 2015. Web.

—. “Many Say High Deductibles Make Their Health Law Insurance All but Useless: [National Desk].” New York Times, 2015. Web.

Scher, Abby. “Who Cares for Caregivers?” Dollars & Sense, 1998. Web.

Trumbull, Mark. “Burdened by Healthcare Costs, US Businesses Seek a Shift: [ALL Edition].” Christian Science Monitor, 2007. Web.

Warshawsky, Mark J., and Andrew G. Biggs. “Income Inequality and Rising Health-Care Costs.” Wall Street Journal, 2014. Web.

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