Healthcare Sector: Current and Future Economic Issues


Healthcare industry comprises various sectors such as hospitals, homecare agencies, and independent living centers. The current economic environment does not segregate the healthcare industry. Similar to other industries that support the US economy, various economic factors influence the healthcare sector. Medicaid and Medicare are the backbone of the US healthcare industry. This claim suggests that the sector cannot succeed presently and in the future without them.

Considering the current and future constraints in addition to competition in terms of how federal funding is spent, the industry remains susceptible to economic challenges that are predicted to worsen in the next decade. This paper identifies and discuses the most important and pressing economic issues that confront the United States healthcare industry today and which will continue to do so in the next decade.

Economic Challenges influencing the US Healthcare Industry

Prescription Drug Prices

The cost of prescription drugs has been rising. This situation is affecting people who receive them (drugs) and doctors who do drug prescription. For instance, the cost of prescription drugs is different based on their brand and generic medicines (Gerard, 2012). This observation implies that healthcare administrators need to have ample understanding of the cost differences. They also need to know how the differences affect the available treatment options.

Medco’s annual report concerning the observed trend on the cost of drugs confirms that the cost of prescription drugs has been intensifying (Murillo, 2014). In 2013, drug costs rose by 3.7%. However, differences were recorded depending on generics and brand names. Brand-name medicines rose by over 9% while the generic ones increased by 0.3%. Murillo (2014) attributes these changes to healthcare policies that tax pharmaceuticals, which transfer the costs to consumers.

With the rising government expenditures, it will be important for any government to raise its revenue collection. The US government considers taxes on consumables, including prescription drugs, important sources of revenue. Adoption of new healthcare plans over the next decade will have the implication of developing additional mechanisms of raising government income. This claim suggests the possibility of continued variations and changes in prices of prescription drugs.


Healthcare-related costs have a direct relationship not only with the employment of medical staff and practitioners in the healthcare sector, but also with hiring in the private sector. A study by Sood, Ghosh, and Escarce (2013) confirms that industries, which offer healthcare allowances to their employees, have been recording lower employment growth since 1986 to 2005. Such a relationship is absent in Canada where business entities do not offer any health insurance benefits. In the American context, Baicker and Chandra (2010) arrive at a conclusion that is similar to that of Sood, Ghosh, and Escarce (2013) upon investigating area-level costs. This deduction suggests that high healthcare costs have a negative correlation with employment in the healthcare sector.

As population continues to grow, more people demand healthcare services and employment. Considering that healthcare is a necessary public good, over the next decade, higher costs will continue to affect the US by virtue of increased population, which leads to low employment rates. Indeed, Cutler (2013) asserts that policies such as affordable care and/or the slowing trend on cost growth can lead to employment gains by between 250,000 and 400,000 during the period of 2010 and 2020. Slowed costs for healthcare because of low borrowing rates translate into gains in the GDP. For instance, Cutler (2013) states that slowing costs in Medicare by about 1.5 percent will lead to a GDP increase of 2% and 8% by 2020 and 2030 respectively. Higher GDP growth increases the capability of federal government to hire more people in all sectors of the economy.

Medicare Reimbursement

In areas that have a high population of senior citizens and the disabled people, changes in Medicare constitute an important economic issue in the healthcare sector, not only now, but also in the future. Million of seniors and disabled depend on Medicare in funding their healthcare needs (Gerard, 2012). Thus, many doctors offer healthcare services to these groups of people. However, they send their invoices to the government.

Over the years, the congress has delayed doctors’ payment cuts. If alterations are made on Medicare reimbursements, the payment cuts will not only be a reality, but also become higher than 20% (Cutler, 2013). This situation has direct implications on the operations of the healthcare sector since it leads to fluctuations in the quality of healthcare that is provided through Medicare. Stabilization of the fluctuation may take over a decade.

Technology and Operations of the Healthcare Sector

Technology constitutes an important issue that determines the economic health of any organization, including the health of people who operate in the healthcare sector. Technology ensures accessibility whilst making treatment easier (Murillo, 2014). In some situations, technology is patient-centered just as it is evident in the case of billing machines. In others, it operates behind the scenes as witnessed in the case of data storage systems. Healthcare systems need to operate smoothly and effectively not only now, but also in the future. Technology constitutes an important facilitator of this necessity.

Although all healthcare institutions need to focus on adopting the latest technologies, especially in terms of investment in electronic record systems, it constitutes an important economic issue that determines the success rate of healthcare systems (Flaer, Mustafa, Alotaibi & Maha, 2012). Healthcare institutions have the responsibility of evaluating alternative technological upgrades to ensure affordability and capability as a way of increasing the benefits of technological well-informed healthcare institutions.

Managing healthcare through technology requires an understanding of business side economics (Murillo, 2014). This claim implies that medical practitioners and administrators of healthcare institutions need to understand what to implement and/or how to implement it. Hence, even over the next decade, healthcare organizations have to face the challenge of not only studying trends and shifts in prescription drug costs and reimbursements of Medicare, but also the effects of technology on the cost of running a healthcare organization. This finding suggests that many of the economic issues that face and/or are likely to affect the US healthcare sector oscillate around the cost and the need to mitigate them to ensure healthier healthcare sector organizations.

Cost of Healthcare Services

Healthcare constitutes one of the leading government spending areas. A major cost entails funding of ‘entitlements’ such as Medicaid and the Medicare (Berkowitz, 2010). Over the last decade, the main goal of the US government was to reduce healthcare-related costs, but not increasing the spending on it (Budetti, 2008). Nevertheless, currently and potentially over the next decade, the cost will continue to rise if appropriate mitigation is not provided. Sood, Ghosh, and Escarce (2013) support this assertion by claiming that spending in Medicare accounts for more than 15 percent of the total budget for federal governments and about 21 percent of the overall national spending on healthcare.

The national government has an obligation to look for strategies of reducing spending in healthcare, which affects the US economy through a reduction of the available resources for development and provision of other public goods. High cost of any compulsory public good such as healthcare spending translates economically into high taxes or a reduction in the quality of its provision or provision of other services.

For instance, Cutler (2013) asserts that high federal spending on healthcare has led to a reduction in terms of spending on education and/or hiring of security personnel and teachers. Perhaps, this case makes it one of the most important economic factors that affect healthcare and the overall economic wellbeing of the United States. The next section discusses this issue with reference to Medicare reimbursement in terms of its current situation and/or how it will possibly play out in the healthcare sector in the next decade.

Present and Future Economic impacts of Healthcare Costs and Medicare Reimbursements

Statistical findings indicate that nearly half of the American population or about 160 million people obtain health insurance via their employers. Additionally, about 50 million people have no insurance at all (Gerard, 2012; Gale, 2013). Many other Americans cover their healthcare expenses through privately bought insurance covers or through government programs such as Medicare and Medicaid (Berkowitz, 2010).

Many Americans cannot afford Medicaid and Medicare covers. This situation implies that increasing the cost of healthcare services constitutes an important economic issue that affects the US healthcare industry. Challenges that have been introduced by Medicare reimbursements in the healthcare service delivery as stated before have increased indirect costs of healthcare such as quality. The Council of Economic Advisors claims that expenses on the healthcare service will account for more than 34 percent of gross GDP by 2040. Himmelstein, Thorne, Warren, and Woolhandler (2009) reinforce this position by saying that Medicaid and Medicare will pay about 15 percent of the GDP. With the challenge of increasing costs of healthcare, an arising question is how the problem will be tackled.

Strategies for Handling the Problems

Although affordable healthcare programs are facing several problems in relation to their sustainability, they can potentially enhance accessibility to quality healthcare to all Americans as opposed to payment cuts on doctors who are under the Medicare reimbursement program. For instance, healthcare reforms will make about 54 million people who cannot currently access Medicare and Medicaid programs to access quality healthcare (Gale, 2013).

Through healthcare reforms, it will become possible for the government to adopt and/or develop the ability to ensure that affordable, patient-centered, and/or well-coordinated healthcare services that will be availed to patients who critically need them. In this context, healthcare reforms are critical in ensuring economically sustainable healthcare services by enhancing efficiency and effectiveness in their delivery (Woolhandler & Himmelstein, 2013). Such healthcare services are community and culturally accountable in terms of reducing healthcare disparities based on age, race, culture, and poverty levels (Sorensen, 2010).

The US experiences several hindrances while addressing imbalances in the capability to access quality healthcare. For instance, political matters in healthcare exist. As a result, healthcare reforms will increase employer expenses. Nevertheless, increment in the employer expenses is justified by the resulting additional benefits on the employer. For instance, to maintain and increase the productivity of employees, employers have to attend to the healthcare concerns of their employees (Sorensen, 2010) whilst working on increasing their satisfaction (Bush, 2012).

In this context, the necessity of healthcare reforms is that employers are capacitated to have a multidimensional view of their wellness programs by increasing accessibility of the employees to quality healthcare. They have to reengineer and focus on documentable, substantive, and positive elements that may influence satisfaction in terms of the health of their employees. However, employers consider healthcare reforms such as Obamacare an expensive venture that is likely to raise business operational costs.

Deploying the Best Economic Practices from other Countries to address Healthcare Economic Issues in the US

Economic capability of the citizenry determines the capacity of self-employed and the uninsured people to purchase insurance covers via state-based exchanges. It dictates the ability of individuals and families whose income is between 133-400 percent of the poverty levels to have accessibility to healthcare insurance (Kavilanz, 2011). Hence, it is necessary to reform the healthcare sector. For example, in Canada, the provision of health insurance subsidies helps overcome economic challenges that are likely to lower accessibility to quality healthcare among low-income earners.

With the case of Canada in mind, creation of economic balance in the US to eliminate hindrances to accessibility constitutes an effective mechanism of bridging the gap that has exists to accessibility of quality healthcare due to the different poverty levels. However, as suggested here, this plan is not a simple strategy. The problems of imbalance in accessing quality healthcare akin to differences in economic endowment of different people may continue to plague the US even into the next decade since they take long time to handle.

The Likelihood of Government and/or Private Sector to effectively address the Issues

To fund a plan such as Obamacare, insurance premiums will increase because strict regulations will have the implication of amplifying the costs of coverage. The fact that healthcare spending has been rising since 1965, with a likelihood of a further rise over the next decade, supports this assertion. From these facts, the Obamacare has been adopted and signed into law to ease accessibility to ‘quality’ healthcare (Medicare Payment Advisory Commission, 2012). Therefore, the government has the will and commitment to design and implement any strategy, including healthcare reforms, to ensure quality and accessibility of healthcare by all citizens.

Certainly, increasing spending in healthcare implies looking for additional sources of money to cater for the healthcare expenses given that consumers have to continue with normal lives. Healthcare reforms endeavor to ensure that all people have quality healthcare, irrespective of their incomes, through subsidizing healthcare covers for people who have low incomes. Through reforms such as Obamacare, seniors are forced to dig deeper in their pockets to cater for the subsidies. This situation creates lack of good will among them. The implication is that the private sector and individuals may not embrace any strategy of cutting or ensuring balance in accessibility to quality healthcare.

Seniors who are targeted by healthcare reforms are also the employers. Therefore, to counterbalance the impacts produced by a reform such as Obamacare on their incomes, they are likely to consider other ways of recovering the income deficits through strategies such as exploitation of their workers. Since Obamacare forbids this situation, it has lacked good will among stakeholders. Presently, the healthcare plan has almost failed. Thus, the only probable mechanism of eliminating the effects of economic disparities in accessibility to quality healthcare may extend into the next decade until an alternative permanent solution for reducing spending on healthcare is found and implemented.

Reference List

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Medicare Payment Advisory Commission. (2012). A Data Book: Health Care Spending and the Medicare Program. Web.

Murillo, M. (2014). Trends Affecting Healthcare. New York, NY: Healthcare Administration Agencies.

Sood, N., Ghosh, A., & Escarce, J. (2013). Employer-Sponsored Insurance, Healthcare Cost Growth, and The Economic Performance of The U.S. Industries. Health Services Research, 44(5), 1449-1464.

Sorensen, A. (2010). Health Reform’s Incredible Significance and Why It Won’t Matter. Journal of Health and Medicine, 2(1), 556-567.

Woolhandler, S., & Himmelstein, D. (2013). Costs of care and administration at for-profit and other hospitals in the United States. The New England Journal of Medicine, 336(11), 769–774.

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