The USA Healthcare System and the Economic Issues

The Healthcare System Levels and Organization of the System

Healthcare practice in the U.S is categorized into three significant classes based on the care level required by patients: primary, secondary, and tertiary healthcare levels. The primary care level is devolved to municipalities and cities and is grounded primarily on essential healthcare services. The secondary care level is typically administered by physicians with basic health training, including urologists in government-operated or privately-owned healthcare facilities. On the other hand, the tertiary care level refers to a referral system for secondary care settings (Bielecki & Nieszporska, 2019). These facilities typically provide intensive care and complicated case healthcare needs; they include specialized hospitals, provincial and regional care settings, and medical centers.

The private sector typically provides healthcare services in the U.S. Private health insurance covers approximately seventy percent of the U.S populace. Most healthcare service coverage is acquired through third-party payers such as the government or an employer who makes payments, indirectly or directly, to the service providers. The private sector consists of pharmaceutical manufacturers, medical supply enterprises, insurance companies, home care agencies, nursing homes, dentists, physicians, and hospitals. Most health service indemnity within the private sector is obtained through employment. The federal government serves as the direct health services provider for federal prison inmates, Native Americans, veterans with service-related disabilities, and military personnel.

Economics is a discipline concerned with the study of how nations, governments, businesses, and individuals make decisions regarding resource allocation (Parkin, 2017). Concerning the understanding of healthcare issues, economics allows analysts to apply economic models, theories, and empirical approaches to evaluate governments, healthcare providers, and individuals’ decision-making regarding healthcare and health (Viera, 2017). Conceptualizations in the aforementioned field facilitate the analysis of issues linked to consumers’ behavior, service value, and efficiency in the utilization and production of healthcare and health services.

The Competitive Market and the Failures of the Competitive Framework

A competitive market refers to a marketplace typified by large numbers of manufacturers or producers who rival each other to fulfill the needs and wants of a broad consumer base. Competitive markets are typified by relatively low prices, incumbent firms’ low profits, contestable market (minimal barriers to exit and entry), and many companies rather than a small number (“Micro-economics,” n.d.). The competitive framework is associated with several shortcomings, including market power, information issues, externalities, and public goods.

Public goods may result in market failures if some customers fail to pay for the product or service but utilize it anyway. National defense is a perfect example of a public good whose benefits are equally received by every citizen regardless of the amount of money they pay for it; it is a market failure with no comprehensive solution. According to Islam (2019), it is impossible to generate the optimal national defense value privately. Since federal governments cannot utilize a competitive price framework to ascertain or establish the correct national defense level, they also encounter significant difficulties in producing its optimal amount.

Concerning externalities, it is typical for free marketplaces to generate too little or too much of a service or commodity from a societal viewpoint. According to Pettinger (2020), this can be the case when an individual company’s production costs or a customer’s consumption costs do not incorporate the wider benefits or costs to society. A good example is the pollution predicament, whereby organizations are not mandated to pay for any environmental destruction. They basically have little impetus to curb or restrict production; thus, they produce excessive waste from a societal perspective. Moreover, according to Islam (2019), education would be underprovided if left in the control of private marketplaces. Although a well-learned populace increases the society’s general welfare, this conception would not be considered for individuals when establishing consumption decisions.

In some marketplaces, consumers may encounter significant difficulties ascertaining a service or good’s quality before purchasing it. This can, in turn, be unfavorable for suppliers of high-quality products since they will experience considerable challenges trying to convince consumers to pay higher prices, which according to Islam (2019), is essential to cover any extra costs incurred by producers. In extreme circumstances, this mismatch may lead to a market’s collapse, primarily if customers cannot determine a commodity’s quality and end up limiting their purchases.

In almost all marketplaces, some suppliers may exploit a specific market power degree. Competition regulations exist to ensure that distributors do not misuse or exploit this market power at consumers’ costs. In extreme cases, there are some marketplaces whereby the production of a specific good by a single firm is more efficient than its production by several firms. This phenomenon is common when high initial costs associated with establishing the needed infrastructure for distribution and manufacturing are required. Whenever there is one monopoly organization, the government may opt to control market power directly.

Government interventions play a crucial role in correcting failures in the competitive market. First, governmental regulations aimed at controlling competitive market failures are instrumental in helping marketplaces operate efficiently and ensuring that they uphold or reinforce broader policy objectives (Pettinger, 2020). Second, governmental subsidies and taxes can be used to alter the competition dynamic by changing some businesses’ costs, thereby influencing decisions related to a firm’s production process. This can generate positive effects; for instance, taxes can be utilized to minimize pollution within the environment, while subsidies can be levied to enhance small businesses’ financial support. Thirdly, the government may intervene to attain social objectives, including changing customers’ behavior, particularly in cases where such deportment has adverse impacts on society or due to the potential long-term negative consequences on an individual. Lastly, governments can introduce competition for services and goods previously supplied exclusively by the public sector through public procurement.

The Demand Side of the Healthcare Economy

The demand law is applicable in the healthcare sector as in other industries. According to Perkin (2017), the price of healthcare typically increases as its demand decreases. If one has health indemnity, healthcare-related prices might be significantly low compared to the actual cost of a patient’s care provision. Under several health insurance agreements, the marginal private case cost for a household is often lower than the marginal social care provision cost. Therefore, the family has an incentive or motive to secure multiple healthcare services since its purchases are, in effect, being funded by insurance organizations. Another primary healthcare feature is that its demand is comparatively inelastic. If one is sick and needs care, one will purchase health services at practically any price. Although an individual’s income ultimately restricts their capacity to buy these services, one is likely to compromise spending on several other products and services to purchase the needed medical care.

Healthcare demand is typified by the level of an individual’s actual consumption if they face injury or illness. According to Perkin (2017), this consumption could differ on various demand factors, including the appropriateness and quality of the provided services (supply), funding methods, care costs, governmental influence, and income. Research has revealed a significant interrelationship between health service utilization and increased patient cost burden, implying that when patients spend more on healthcare services and health, they are less likely to access therapy (Heath, 2017). However, as indicated earlier, health-related funding, particularly health insurance coverage, increases healthcare service utilization, thereby rising demand.

If a customer is a low-income earner, they are less likely to seek healthcare services for common sicknesses. Contrarily, a high-earning consumer may be more willing to incur healthcare-related expenses. Governmental policies, such as subsidies, can trigger a significant increase in healthcare demand since patients will be charged lower prices. Supply is a fundamental economic concept that delineates the aggregate number of specific services or goods available to consumers. It can be ascertained by competing goods (appropriateness and quality of the provided services), healthcare costs, and demand.

Healthcare in the United States is too costly, and although the growth rate in spending has diminished over the recent years, per capita costs are still high. Viera (2017) supports this view, arguing that per capita healthcare expenses are approximated at 50-200 percent greater in the U.S. than in other economically developed nations despite the attenuated rate of healthcare spending. Irrespective of these high costs, the country ranks twenty-sixth globally with regard to life expectancy, and it rates poorly on other quality indicators (Akinleye et al., 2019). According to Viera (2017), Medicare reimburses healthcare settings and doctors using administrative prices adjusted on aspects, including indirect medical education, geographic region, and the healthcare facility’s disproportionate share, but minimally on quality. Differences in prices indemnified by private insurers are mainly due to physicians’ bargains instead of care quality.

Furthermore, there are no regulations mandating the cost-effectiveness of new treatment devices or drugs. Payers, including Medicare, typically adopt recently developed technologies without considering their comparative or cost-efficiency. As a result, new therapies which are incredibly costly are adopted without sufficient evidence of their efficacy on patient outcomes. Although cost-effective in specific cases, many treatments may be administered to patients who have little to no benefit from them.


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Heath, S. (2017). How out-of-pocket costs affect patient healthcare access. Patient Engagement HIT.

Islam, T. (2019). Market failure: Reasons and its accomplishments. International Journal of Economics and Financial Research, 5(12), 276-281.

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Parkin, D. (2017). Principles of health economics including: The notions of scarcity, supply and demand, distinctions between need and demand, opportunity cost, discounting, time horizons, margins, efficiency and equity. HealthKnowledge.

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