The concern of spending on health care growing faster than the growth of the economy measured by GDP is due to the influence it has over economic sustainability and distribution. Fast-growing consumption for healthcare can hurt the government budgets in terms of fiscal challenges and the football of resources on other significant services like education, infrastructure, and public programs. As reported by the Centers for Medicare & Medicaid Services (2023), in 2015, U.S healthcare costs were growing faster at a rate of .1% compared to the annual GDP which was estimated to be about $4.6 trillion – equivalent to an estimated higher than last years which accounted for more than 17 per cent gross income This trend is indeed pivotal since it can lead to long-term stagnation of economic growth and hamper the government’s efforts in addressing wider social concerns.
This can be backed by the historical growth of health costs in most developed nations. With mounting healthcare costs, governments often find themselves struggling when it comes to sustaining fiscal responsibility. The Organization for Economic Cooperation and Development OECD has pointed out the increasing share of GDP devoted to health care across different countries naming a possible unsustainable trend. Moreover, research has shown that unrestrained healthcare spending can result in less workforce flexibility, higher taxes or more public debt that eventually affects economic growth negatively. As such, the problems that come on because of varying growth rates between healthcare spending and GDP must be dealt with to maintain a balanced economic future.
The healthcare sector also has its own specificity, which makes the market ineffective. Firstly, the information asymmetry between providers and consumers is a significant issue. Due to the lack of medical education, patients are unable to understand what is required or cost-effective in each treatment therefore leading them into such a vulnerable stage. This is because of the possibility that this information gap may occur from surplus consumption services or medically unnecessary medical procedures, leading to high costs but not better health. On the other hand, inefficiency is caused by patients’ lack of sufficient knowledge to make informed decisions leading them to depend passively on providers who have no incentive for cost control (James et al., 2015). Furthermore, the non-integrated nature of health care delivery also contributes to additional inefficiencies. Due to uncoordinated care across various providers’ hospitals, primary physicians, specialists and ancillaries, there can be multiple duplicated tests and unnecessary procedures. Nevertheless, this segregation adds expenses except for having an adverse effect on the outcomes and patient experience. Organized care models such as Accountable Care Organizations are adopted to meet this challenge by enhancing collaboration among the different health providers to improve efficiency and effectiveness.
Two measures for evaluating trade-offs of spending more on health care than other non-healthcare goods are Quality-Adjusted Life Years (QALY) and cost-effectiveness analysis (CEA). The QALY is an instrument that combines both the amount and quality of life lost or gained due to a certain health intercession (Abdulaziz et al., 2021). It provides a standard way of assessing the worthiness of healthcare investments by determining changes in people’s welfare. With QALY, policymakers will be able to compare the efficacy of healthcare interventions and the benefits that result from capital investments in other areas. Through financial analysis of the health benefits and costs, society can be able to rationalize how resources should be distributed to optimize overall well-being.
However, CEA is an accepted measure of trade-offs consisting of the benefits, liabilities and costs related to alternative options. Therefore, it serves as a pragmatic tool to assess the value of alternative interventions in health care provision (Cookson et al., 2017). In other words, CEA can help policymakers and providers of health services in making the appropriate intervention as it relates to cost-effectiveness. For instance, if two interventions have comparable benefits but one costs more than the other CEA could be used to say which intervention is less cost effective. CEA can also be to find non-cost-effective interventions and avoid them.
Balancing these ratios is necessary to attain the socially optimal asset assignment. Since healthcare spending is essential to maintain a healthy population, too high investment may lead to decreasing marginal returns and if other sectors are neglected. Finding the right balance is impossible without a complete cost-effectiveness analysis of healthcare interventions, along with an assessment of what alternative use these resources can have and whether they benefit society as a whole.
For a policymaker in government, Quality- Quality-adjusted Life Years (QALY) and cost-effectiveness analysis (CEA) assessment is indispensable for gauging tradeoffs from overuse of healthcare. In the first place, QALY offers a comprehensive measure for such an analysis of health care expenditures about population wellbeing. QALY enables policymakers to compare benefits that arise from alternative types of health interventions and choose those with maximum value in terms of positive outcomes. This measure can help in the distribution of resources to programs that improve both quality and quantity aspects of life among people. Considering this, QALY analysis might uncover whether further investments create as much health or if returns are not linear.
Furthermore, CEA is also needed for the quantification of health spending effectiveness and to compare costs generated by interventions with their benefits in terms of different aspects. Policymakers can refer to CEA to define efficient interventions that provide optimal value for money, thus securing resource allocation. Excessive spending on health care could become noticeable using CEA, where some treatments or services are priced higher than the benefits and may find areas in which to reduce costs through redistribution. This analysis supports policymakers in ensuring that healthcare spending meets the goal of attaining optimal health benefits for resources displayed. In other words, the use of QALY and CEA provides policymakers with guidelines on how to allocate resources when healthcare costs become too high. By allocating resources according to the best value for money, policymakers support the population’s well-being and ensure that they do not expend benefits under conditions of diminishing returns.
References
Feldstein, P. J. (2019). Health policy issues: An economic perspective (7th ed.). Health Administration Press (Hap); Washington, DC.
Centers for Medicare & Medicaid Services. (2023). NHE Fact Sheet | CMS. Www.cms.gov. https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/nhe-fact-sheet
Abdulaziz, A. F., Mohd Nordin, N. A., Muhd Nur, A., Sulong, S., & Aljunid, S. M. (2020). The integrated care pathway for managing post-stroke patients (iCaPPS) in public primary care Healthcentres in Malaysia: impact on quality-adjusted life years (QALYs) and cost-effectiveness analysis. BMC Geriatrics, 20(1). https://doi.org/10.1186/s12877-020-1453-z
NICHSR. (2023). Health Economics Information Resources: A Self-Study Course. Wayback.archive-It.org. https://wayback.archive-it.org/org-350/20210820174728/https://www.nlm.nih.gov/nichsr/edu/healthecon/websites.html
Cookson, R., Mirelman, A. J., Griffin, S., Asaria, M., Dawkins, B., Norheim, O. F., Verguet, S., & J. Culyer, A. (2017). Using Cost-Effectiveness Analysis to Address Health Equity Concerns. Value in Health, 20(2), 206–212. https://doi.org/10.1016/j.jval.2016.11.027
James, K. A., Ross, S. E., Vance, B., Nath, R., Harrison, M. I., & West, D. R. (2015). Inefficiency in Primary Care: Common Causes and Potential Solutions. Family Practice Management, 22(2), 18–22. https://www.aafp.org/pubs/fpm/issues/2015/0300/p18.html
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