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A National Dilemma: Three Possibilities to Fix Healthcare

A National Dilemma: Three Possibilities to Fix Healthcare

Healthcare costs are at the forefront of many current economic discussions — and for a good reason. United States per capita healthcare spending is substantially higher than most other industrialized nations, has been increasing at a steady rate, and makes up the single largest category of our nation’s gross domestic product. As our nation faces an increasing financial deficit with healthcare expenses being the largest budget item, it becomes a sizeable target.

This has created a lot of debate in our country, much of which headlined throughout our presidential election and which continues to receive significant national media coverage. People want to know how to reduce healthcare costs. As with most economic markets, reductions in spending can be accomplished through different methods. The first two methods I will cover include a market where the consumer makes value-based purchase decisions, demanding certain value for money spent, and thus decreases spending when value is not perceived; and second, a market where a governing body determines what services will be made available, limiting the scope of what consumers may consume. Both of these methods can be considered as a form of rationing, a term that has received a lot of negative connotation, but in reality is a basic economic principle. The third method considered here is a situation where the need (or demand) for services is decreased.

Models of healthcare rationing by governing bodies are currently being used around the world. A common method involves government committees making decisions on what benefits will be allowed for beneficiaries. For example, an expensive hip replacement may be covered for a person in their 50s with a good life expectancy, but not for a 90-year-old with other complications. By rationing which services will be covered by insurance, large sums of money can be saved. This reduces the amount of expensive procedures allowed for the population where the procedure or service is determined (by the committee) to have the least overall value. If individuals still want the procedure or service, they can find a physician and pay for it themselves. This method of rationing or managing services that are "covered" has proven effective in reducing overall healthcare spending in many countries. This method, however, also draws criticisms that a governing body is making the decisions on what services will and will not be covered.

Another effective type of rationing is made by the consumers themselves. We see this principle applied every day as people decide how to spend their money. Transportation is a necessity for most people, but some will purchase functional used cars while others will spend a lot on a new, luxury vehicle. People are rationing the amount they spend based on perceived value and availability of funds. We see this model in our current healthcare system for elective procedures that are not covered by insurance — a market that continues to thrive and is very competitive. Some believe that if we allow the consumer to be more financially involved in healthcare decisions, providers will focus more on the value of services provided because the patient (and likely employers paying for medical benefits) will become much more sensitive to what is received for the money being spent. The patient in this model is engaged in spending money for services based on the value received, considering different options that are available to them.

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