Question

A country funds 100% of its health care expenses through governmental revenue and budgeting process. This means that people do not pay anything out-of-pocket for obtaining health care services, supplies and other health care products. In this context, can we apply economic principles to discuss policy changes in the health system? Discuss two specific examples of economic analyses that should be useful in improving performance of the health system that is fully funded by the government.

Answer 1

The National Health Expenditure Accounts (NHEA) are the official estimates of total health care spending in the United States. Dating back to 1960, the NHEA measures annual U.S. expenditures for health care goods and services, public health activities, government administration, the net cost of health insurance, and investment related to health care. The data are presented by type of service, sources of funding, and type of sponsor.

U.S. health care spending increased 3.9 percent to reach $3.5 trillion, or $10,739 per person in 2017. Health care spending growth in 2017 was similar to average growth from 2008 to 2013, which preceded the faster growth experienced during the 2014-15 period that was marked by insurance coverage expansion and high rates of growth in retail prescription drug spending. The overall share of gross domestic product (GDP) related to health care spending was 17.9 percent in 2017, similar to that in 2016.

Now let us understand the health spending by type of service or product:

Hospital Care (33 percent share): Spending for hospital care increased 4.6 percent to $1.1 trillion in 2017, which was slower than the 5.6 percent growth in 2016. The slower growth in 2017 was driven by slower growth in the use and intensity of services. Hospital care expenditures slowed among the major payers—private health insurance, Medicare, and Medicaid. Physician and Clinical Services (20 percent share): Spending on physician and clinical services increased 4.2 percent to $694.3 billion in 2017. Growth for physician and clinical services slowed in 2017 and was driven by growth in non-price factors such as use and intensity of services. Although slowing, growth in clinical services continued to outpace the growth in physician services in 2017.

Retail Prescription Drugs (10 percent share): Growth in retail prescription drug spending slowed in 2017, increasing 0.4 percent to $333.4 billion. The slower growth in 2017 followed 2.3 percent growth in 2016, and was the lowest growth in retail prescription drug spending since 2012, when several blockbuster drugs lost patent protection. The key drivers of the slower growth were a continued shift to lower-cost generic drugs and slower growth in the sales volume of some high-cost drugs. Other Health, Residential, and Personal Care Services (5 percent share): Spending for other health, residential, and personal care services grew 5.6 percent in 2017 to $183.1 billion after increasing 5.3 percent in 2016. The slight acceleration was driven by faster growth in residential mental health and substance abuse facilities and ambulance services. This category includes expenditures for medical services that are generally delivered by providers in non-traditional settings such as schools, community centers, and the workplace; as well as by ambulance providers and residential mental health and substance abuse facilities.

Nursing Care Facilities and Continuing Care Retirement Communities (5 percent share): Growth in spending for freestanding nursing care facilities and continuing care retirement communities decelerated in 2017, growing 2.0 percent to $166.3 billion compared to 3.1 percent growth in 2016. The slower growth in 2017 is largely attributable to slower spending growth in both out-of-pocket and private health insurance spending.

Dental Services (4 percent share): Spending for dental services increased 3.2 percent in 2017 to $129.1 billion, decelerating from 5.2 percent growth in 2016. Private health insurance (which accounted for 45 percent of dental spending) increased 2.8 percent in 2017—a slowdown from growth of 5.3 percent in 2016. Out-of-pocket spending for dental services (which accounted for 41 percent of dental spending) also slowed, growing 2.5 percent in 2017, after growth of 5.0 percent in 2016.

Home Health Care (3 percent share): Spending for freestanding home health care agencies increased 4.3 percent in 2017, the same rate as 2016, to $97.0 billion. Slower growth in Medicaid spending and private health insurance spending was offset by faster Medicare spending and out of pocket spending. Medicare and Medicaid together made up 76 percent of home health spending in 2017.

Other Professional Services (3 percent share): Spending for other professional services reached $96.6 billion in 2017 and increased 4.6 percent, a slower rate of growth compared to the increase of 5.1 percent in 2016. Spending in this category includes establishments of independent health practitioners (except physicians and dentists) that primarily provide services such as physical therapy, optometry, podiatry, or chiropractic medicine.

Other Non-durable Medical Products (2 percent share): Retail spending for other nondurable medical products, such as over-the-counter medicines, medical instruments, and surgical dressings, grew 2.2 percent (slower than the rate of growth in 2016 of 4.1 percent) to $64.1 billion in 2017.

Durable Medical Equipment (2 percent share): Retail spending for durable medical equipment, which includes items such as contact lenses, eyeglasses and hearing aids, reached $54.4 billion in 2017 and increased 6.8 percent, which was faster than the 4.9 percent growth in 2016. The faster growth was driven by an acceleration in Medicare spending as well as continued strong growth in private health insurance and out of pocket spending which account for almost 70 percent of total durable medical equipment spending.

In 2017, the federal government and households accounted for the largest shares of spending (at 28 percent each) followed by private businesses (20 percent), and state and local governments (17 percent).

Federal government spending on health slowed in 2017, increasing 3.2 percent after 4.9 percent growth in 2016. The deceleration was largely associated with slower federal Medicaid spending. Despite the slower growth, the federal government’s share of health care spending remained at 28%.

The Gross Domestic Product in the year 1961 was 3.7, in 1962 it was 7.4, in 1963 it was 5.6, in 1964 it was once again come to 7.4, in 1965 it was moved up to 8.4, in the year 1966 it was 9.6, in the year 1966 it had been dropped down to 5.7. Similarly, in the year the GDP had been -1.8, in the year 2014 it was 4.4, in the year 2015 it was 4.0, in the year 2016 it was 2.7 and in the year 2017 it was 4.2. The GDP depends on the population. In the year 1961 it was 189 millions. But, in the year 2017 it was 325 millions. That means based on the population GDP fluctuates. Based on the population the investment in health care products by the federal government was- in the year 1961 11.9 million dollars and in the year 2017 it was 6 million dollars. That means to say the investment by the federal government had been decreased but the population has been increased but the GDP was 4.2 in the year 2017.