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The Economics of Health and Health Care - Essay Sample

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Sewanee University of the South
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Medicaid is a federal as well as state entitlement that pays for medical assistance to individuals and families who have limited income and resources. It does not support individuals by providing cash, but pays providers, directly for care (Centers for Medicare & Medicaid Service, 2015). It is the largest source of funding for medical and health-related services for the poorest Americans. Together with Childrens Insurance Program, it provides health coverage to almost 71 million Americans. The program was signed to la in 1965 by President Lyndon Johnson under Title XIX [19] of the Social Security Act, jointly funded by the State and Federal governments (Centers for Medicare & Medicaid Service, 2015). The Medicare and Medicaid programs would then provide comprehensive health care coverage for people who were above 65 years. To curb spending increased spending, President Richard Nixon proposed that employers provide a minimum level of health insurance to employees. Over the coming years, the Congress made progress changes to include more people into the program, for instance in 1972; it expanded coverage to include disabled persons, those with end-stage renal disease, among others include prescription drugs coverage (Centers for Medicare & Medicaid Service, 2015). Today, Medicare covers large groups such as the low-income families, pregnant women, all people with disabilities and individuals who require long-term care.

The Childrens Health Insurance Program (CHIP) was created in 1997, and this ensured that children receive health insurance and preventive care. This allowed for 11 million children to receive coverage (Centers for Medicare & Medicaid Service, 2015). A majority of these children came from the working families that were uninsured, or those that earned too much to qualify for Medicaid eligibility (Centers for Medicare & Medicaid Service, 2015). All the 50 states and the District of Columbia have CHIP plans. The Affordable Care Act (ACA) was signed in by President Barack Obama in 2010, as part of his manifesto of improving healthcare in the United States, during his presidential campaigns (Blumenthal & Collins, 2014). The Act introduced Health Insurance Marketplace where all consumers could apply or enrol for private health insurance place in one place. It also created new ways of designing and testing how to pay for as well as delivering healthcare. Medicare and Medicaid have been coordinated better to ensure that people enrolled in the program receive quality medical services (Blumenthal & Collins, 2014). The ACA also extended its finding to CHIP through FY 2015, and it continues being in authority of the program until 2019.

Arguments for Government Intervention as Opposed to Market-Based Solutions

The future of the U.S. healthcare is based on the argument of how to best allocate the scarce resources in such an important sector of the national economy (Folland, Goodman & Stano, 2016). The advocators of the government intervention through Medicare, CHIP, and ACA urge that the private-sector approach has constantly been tried but has failed. The costs of private insurance have been considered high, and the fact that the cover is insecure, and therefore the market-based approaches play a significant role in the failed health care system in the U.S. Markets are known to optimize efficiencies, and despite the fact that competition is key to containment of cost, medicine does not lend itself to the market discipline (Folland et al., 2016). The main reason is that private system means of holding costs down practice risk selection, hence limiting the services covered, and constraining the payments to providers, and thus shifting the costs to patients. Economists believe that health care is different from other industries and hence cannot operate in a normal marketplace (Folland et al., 2016). The government regulation, despite being unsatisfactory in how it is administered is better, than allowing a marketplace that is dysfunctional to misallocate resources and generate inequities, as it had been in the United States, before 1965. Some of the characteristics of healthcare that make it unsuitable for normal competition in the marketplace include, the fact that health expenses are random and not predictable, it is plagued by barriers to entry for potential new suppliers of service, it requires trust and confidentiality, providers have more information than patients and that patients do not see bills until the service is offered (Folland et al., 2016).

Beneficiaries and Losers of the Program

Medicaid, CHIP, and ACA are government interventions designed to curb health inequalities in the United States. It has allowed for enrolment of 70.5 million Americans under Medicaid and Chip programs and additional 15 million under Obama care (Blumenthal & Collins, 2014). The beneficiaries include people over the age of sixty-five, all the disabled individuals, people who require long-term care, people from poorest households, and pregnant women (Blumenthal & Collins, 2014). The CHIP covers children from poor households and the rich who are not eligible for Medicare. The individuals who are hurt by the intervention include the profit insurers, who face great competitive advantage from low-cost government healthcare, private insurance companies, healthcare providers such as doctors as a result of fewer reimbursement rates, taxpayers due to skyrocketing healthcare costs (Blumenthal & Collins, 2014).

Cost trend of the Intervention Program

The cost of Medicaid spending is growing as a share of the gross domestic product, the national healthcare spending as well as federal budget. Since its implementation in 1968 the program had increased healthcare spending by 25% than the previous year, and 500% more than 1948, and 1250% more than the 1929 total (Keehan et al., 2015). In the fiscal year 2014, Medicaid accounted for 25.4% of state budgets. 70.7% of the Medicaid benefits spending from FY 1975 to FY 2012, when adjusted for healthcare price inflation, has been attributed to growth in the number of those enrolling in the program. In 2014, the total Medicaid spending grew by 8% due to enrolment growth, attributed to expansion to the new adult group (Keehan et al., 2015). This is because the government covered 100% of the costs of the new enrollees, and the federal spending grew by 13% compared to 1% by states. It is projected that over the next decades, spending will grow by 6% thus reflecting diminishing expansion effects, expiration of primary care increase and negotiation with drug manufacturers (Keehan et al., 2015).

The Success of the Intervention in Achieving its Objectives

The main of creating the program was to expand healthcare insurance coverage in the United States thus reducing health inequalities, and so far, Medicaid, CHIP, and ACA have achieved its objective, with over 70 million individuals covered under the programs (Blumenthal & Collins, 2014). The program continues to expand, despite challenges such as low reimbursements for healthcare providers, poor healthcare quality, discrimination, lack of cover for some major diseases among others. The program has aided several Americans to obtain health insurance coverage and hence improving healthcare quality (Sommers et al., 2012). It can be concluded that the program was one of the biggest milestones in the United States health care reforms history and it continues to serve millions of the American poor who cannot afford health coverage (Sommers et al., 2012).

Recommendations on the Intervention

I recommend that the program should be continued but should be modified because one its most significant challenges in meeting ACAs requirement has been the breath of health plan provider networks, due to rise in shallow networks which are limited to some physicians available in the system, hence limiting physician access and specialists. To remediate this problem, it is crucial that new strategies for assessing provider networks are evaluated by Medicaid Directors, thus ensuring screening, enrolment and ongoing oversight of the provider relationships are well managed hence ensuring access to beneficiaries. The areas which would drive success include maintenance of data integrity, implementing personalized technology and improving effectiveness and agility.



Blumenthal, D., & Collins, S. R. (2014). Health care coverage under the Affordable Care Acta progress report.

Centers for Medicare & Medicaid Services. (2015). Module 12: Medicaid and the Childrens Health Insurance Program. Centers for Medicare & Medicaid Services (CMS). Retrieved from

Folland, S., Goodman, A. C., &Stano, M. (2016). The Economics of Health and Health Care: Pearson International Edition. Routledge.

Keehan, S. P., Cuckler, G. A., Sisko, A. M., Madison, A. J., Smith, S. D., Stone, D. A., ... &Lizonitz, J. M. (2015). National health expenditure projections, 201424: spending growth faster than recent trends. Health Affairs, 34(8), 1407-1417.

Sommers, B. D., Buchmueller, T., Decker, S. L., Carey, C., &Kronick, R. (2012). The Affordable Care Act has led to significant gains in health insurance and access to care for young adults. Health affairs, 32(1), 165-174.


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