Economic Considerations Health Care Reform

Cultural Beliefs
Cultural beliefs about the nature of health care—whether it is a right or a privilege or falls on a continuum between the two—are important factors that shape the health care financing system of a given country. Many people believe that access to medical care is a universal right rather than a privilege for those who can afford care. For those who consider health care as a right, everyone, in theory, is entitled to all services equally at no cost to the individual. Medical care is costly, however, and some trade-offs in coverage are inevitable due to resource constraints; that is, rationing must occur in some form. Thus, certain subgroups of citizens may be uninsured (such as the poor or the unemployed), waiting times to receive care may be long (rationing through one’s price of time), or access to state-of-the-art technology or certain procedures may be restricted, especially for persons of advanced age.
Growth of Medical Technology
The health care market is characterized by rapid and continuing advances in medical technology requiring continuous capital expenditures. Although the price of new technology declines over time, in the medical industry, the constant invention of new products and the capital expenditures required remaining up-to-date and competitive are especially pronounced. Cost/benefit analysis of medical technology can be difficult. Estimating the benefits of new technology requires consideration of factors such as improved morbidity and mortality rates, decreased lengths of hospitalization, and decreased recovery times. Estimation of the economic value of human life is also required. Cultural beliefs on prolonging life and quality of life also complicate benefit analysis. Despite these difficulties, most agree that the aggregate benefits of the development and use of rapidly advancing medical technology far outweigh the costs.
Medical Malpractice Costs
Medical malpractice suits have become an important factor in rising health care costs, particularly in the United States. Patients have become increasingly likely to resolve disappointment with treatment outcomes through litigation. The litigious nature of the U.S. culture reinforces this avenue for conflict resolution. Malpractice litigation and settlement, however, are inefficient ways to compensate victims because they also include payments for such losses as pain and suffering and attorney fees. The increased incidence of medical malpractice claims has caused physician malpractice insurance costs to rise, and these costs are ultimately passed on to consumers. An increasing number of established physicians have opted out of practicing medicine as a result of the litigious environment. The increased willingness to sue is driven in part by a change in patient—physician relationships. Traditionally, a family practitioner treated a broad range of needs over an extended time, fostering a relationship of trust between physician and patient. Today, specialists outnumber general practitioners, and patients are less likely to know and trust these providers. When treatment fails or even when unrealistic expectations are not met, patients, encouraged by attorneys or even greed, are more likely to sue providers. Physicians may practice defensive medicine in an effort to avoid medical malpractice liability. They order tests and procedures that may not be necessary in an effort to reduce their liability in case of suit. These additional diagnostic procedures and treatments also drive up the total cost of health care.
Economies of Scale
It can be argued that the production of health care services has large economies of scale. As a result, it is less costly to society to produce these services using a public utility model rather than a competitive market model. The concept of economies of scale in health care may seem puzzling given the sheer number of physicians, hospitals, and other health care providers within most developed countries. However, the market for health care services is a local, not a national, one in all but the very smallest countries. Thus, the markets for health care services usually encompass a relatively small geographic area. As a result, competition in all but the largest cities may not be sufficient for a workable competitive market. The question of scale economies is one of the factors underlying the continuing debate between those who believe that government is the most efficient provider and those that believe that the private market is the appropriate approach for the efficient financing and delivery of health care.