10. Healthcare Economics: State Mandated vs. Privatized
By Mete Bakircioglu and Riya Mathur, published July 2020
Editor's note & Preface: This choice might ostensibly seem related to the pandemic, which it is, to an extent. However, this article is timeless in that it examines the reasons why healthcare exists, and how the private vs. public healthcare systems satisfy that reason. "Healthcare Economics" is all the more relevant because of the upcoming 2020 U.S. election, where Democratic nominee Joseph R. Biden has adopted a far more progressive stance than other nominee before him.
On the Role of Government
July, 2018: a video of a Boston woman whose leg was trapped between a subway train and the platform went viral. However, the instance of her injury was not the focus of the public’s reaction to the clip; it was her pleading cries for bystanders to not call an ambulance. The woman, clearly in agony, feared the consequences of not being able to pay her medical bill more than not getting the treatment she needed. Her concern was justified: a 2015 Commonwelath study evaluating the effectiveness of healthcare in 11 high-income countries found that “the U.S. spends more on health care as a share of the economy — nearly twice as much as the average OECD country — yet has the lowest life expectancy and highest suicide rates among the 11 nations.” Seeing the harsh reality of America’s healthcare system play out in a 65 second clip begs the question: if Americans are worried more about the cost of healthcare than they are about their lives, then what good is healthcare?
America's approach to healthcare is unique. The country uses a hybrid system with both private (employer and self-paid) plans and public (government-provided) plans. Private plans vary depending on the provider, while public plans -- Medicare, Medicaid, and Veterans Affairs -- provide standard coverage by state. Medicare covers 44 million Americans 65 and up, and certain younger people with disabilities, and Medicaid covers 75 million low-income Americans. This mixed system is responsible for cost disparities among Americans with different healthcare providers. Public options often yield lower costs for the consumer, as the government has significant bargaining power over hospitals. Because the government can leverage the business of 120 million Americans, hospitals and drug companies are incentivized to reach a mutually favorable compromise. Conversely, people with private plans often foot larger bills because there are hundreds of insurance companies which individually make up small portions of hospitals’ and pharmaceutical companies’ business. Even worse, the 29 million uninsured Americans are charged the highest bills because they have no negotiating power.
In recent years, the U.S. has been seeing expansions to the Medicaid program. Since President Obama’s 2010 Affordable Care Act, 35 states along with Washington D.C. have adopted new eligibility requirements for Medicaid to allow eligibility to anybody below 138% of the poverty line (before, the cutoff was 40%). Over the past decade, this expansion has been responsible for dropping the number of uninsured Americans from 45 million to 29 million. The direct and indirect impacts of Medicaid are vast: studies show that upon receiving coverage, peoples’ medical debts dropped over $1,000; Americans have better access to credit; depression among low-income adults has decreased. In fact, comparisons of states which have adopted the expansion versus states which have not show that the Affordable Care Act safety-net has saved 19,000 lives among older adults, while state decisions to not expand have cost more than 15,000 lives.
America's approach to healthcare is unique. The country uses a hybrid system with both private (employer and self-paid) plans and public (government-provided) plans. Private plans vary depending on the provider, while public plans -- Medicare, Medicaid, and Veterans Affairs -- provide standard coverage by state. Medicare covers 44 million Americans 65 and up, and certain younger people with disabilities, and Medicaid covers 75 million low-income Americans. This mixed system is responsible for cost disparities among Americans with different healthcare providers. Public options often yield lower costs for the consumer, as the government has significant bargaining power over hospitals. Because the government can leverage the business of 120 million Americans, hospitals and drug companies are incentivized to reach a mutually favorable compromise. Conversely, people with private plans often foot larger bills because there are hundreds of insurance companies which individually make up small portions of hospitals’ and pharmaceutical companies’ business. Even worse, the 29 million uninsured Americans are charged the highest bills because they have no negotiating power.
In recent years, the U.S. has been seeing expansions to the Medicaid program. Since President Obama’s 2010 Affordable Care Act, 35 states along with Washington D.C. have adopted new eligibility requirements for Medicaid to allow eligibility to anybody below 138% of the poverty line (before, the cutoff was 40%). Over the past decade, this expansion has been responsible for dropping the number of uninsured Americans from 45 million to 29 million. The direct and indirect impacts of Medicaid are vast: studies show that upon receiving coverage, peoples’ medical debts dropped over $1,000; Americans have better access to credit; depression among low-income adults has decreased. In fact, comparisons of states which have adopted the expansion versus states which have not show that the Affordable Care Act safety-net has saved 19,000 lives among older adults, while state decisions to not expand have cost more than 15,000 lives.
In the wake of COVID-19, Medicaid enrollment has spiked. As unemployment climbed to 40 million, the number of Americans eligible for Medicaid has jumped along with it. The Georgetown University Center on Children and Families reports that from March to May, Medicaid enrollment across 15 states (all states which published their May enrollment numbers at the time the study was conducted) has grown 5.8%. With the crisis worsening, non-expansion states are realizing that the pandemic necessitates a reevaluation of their healthcare options. Currently, over 2 million adults living in poverty are not eligible for Medicaid because their states have not adopted the Affordable Care Act. But we may be seeing a rise in state expansion. On June 30, Oklahoma voted to become the 36th state to expand its Medicaid program, newly granting 200,000 Oklahomans the option to enroll.
Only a pandemic can so blatantly uncover the hideous corrosion of a healthcare system. Considering how ill-prepared America was to take on COVID-19, it becomes apparent that safety-net programs like Medicaid are essential for the well-being of the country’s populace.
Only a pandemic can so blatantly uncover the hideous corrosion of a healthcare system. Considering how ill-prepared America was to take on COVID-19, it becomes apparent that safety-net programs like Medicaid are essential for the well-being of the country’s populace.
Corporate Hospitals
Given the focus on the recent pressure on the healthcare sector, it is rather ironic how much the impact of Covid-19 on the system has been downplayed, especially for the corporate healthcare sector. While the major government hospitals deal with limited capacity and the paucity of resources to be diverted to other non-emergent procedures, private players are crumbling financially as well.
For instance, a recent FICCI-Ernst & Young survey in India found that the pandemic has indeed and will most likely continue to affect the sector adversely, ‘resulting in 70- 80 per cent drop in footfall, test volumes and 50-70 per cent drop in revenue in the last 10 days of March already’. Most are under equipped, understaffed and have seen their profits decline and stocks plummet.
What’s more, for the hospitals and clinics that could not sustain the wrath of the Coronavirus, the path to normalcy seems like a rather steep climb, with dried up cash flows. To put the same into numbers, the estimated impact stands around a whopping ₹14,000-24,000 crore.
In the United States as well, the fact that all healthcare personnel and resources have been allocated this unprecedented crisis, ‘Many hospitals are closing outpatient departments and postponing or cancelling elective visits and procedures which potentially threaten the financial viability of hospitals, especially those with pre-existing financial challenges.’ Contrary to a few reports predicting higher revenues due to patient inflow, experts are almost unanimous in declaring this to be a downright quixotic expectation. Numerous studies have brought to light not just the overwhelming dependence of hospitals on surgeries etc. but also the flailing finances of the industry to begin with. It’s rather simple; to cover up losses for those which have a strong backbone might still seem easy to digest. However, institutions which lack the ability to cater to Covid-19 patients can in no way be a part of this prognosis. Especially when a recent analysis found that ‘1 in 5 rural hospitals is at risk of closure because of financial difficulties.’
Even in the UK, NHS trusts made headlines by discharging thousands to free up beds and postponing planned treatment of non Covid patients. Ever since early April itself, reports started flowing in about tragic consequences of delayed treatments/check-ups coupled with significant hits to profits.
For a crisis like this one, a robust healthcare sector is the key to bring back any struggling economy. Monetary support from the authorities, especially the Central Bank, is critical. This could be in the form of liquidity infusion, indirect and direct tax benefits, and fixed cost subsidies from the government to address the disruption. As an example, the US Congress recently passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Paycheck Protection Program and Health Care Enhancement Act, ‘providing $175 billion in emergency funding for hospitals and other health care organizations.’
Furthermore, technological prowess can go a long way. In the UK, a new impact & assessment tool from Draper & Dash exploits existing data to allow hospitals to stay above their own Covid-19 peaks as well as prepare for their own future.
For instance, a recent FICCI-Ernst & Young survey in India found that the pandemic has indeed and will most likely continue to affect the sector adversely, ‘resulting in 70- 80 per cent drop in footfall, test volumes and 50-70 per cent drop in revenue in the last 10 days of March already’. Most are under equipped, understaffed and have seen their profits decline and stocks plummet.
What’s more, for the hospitals and clinics that could not sustain the wrath of the Coronavirus, the path to normalcy seems like a rather steep climb, with dried up cash flows. To put the same into numbers, the estimated impact stands around a whopping ₹14,000-24,000 crore.
In the United States as well, the fact that all healthcare personnel and resources have been allocated this unprecedented crisis, ‘Many hospitals are closing outpatient departments and postponing or cancelling elective visits and procedures which potentially threaten the financial viability of hospitals, especially those with pre-existing financial challenges.’ Contrary to a few reports predicting higher revenues due to patient inflow, experts are almost unanimous in declaring this to be a downright quixotic expectation. Numerous studies have brought to light not just the overwhelming dependence of hospitals on surgeries etc. but also the flailing finances of the industry to begin with. It’s rather simple; to cover up losses for those which have a strong backbone might still seem easy to digest. However, institutions which lack the ability to cater to Covid-19 patients can in no way be a part of this prognosis. Especially when a recent analysis found that ‘1 in 5 rural hospitals is at risk of closure because of financial difficulties.’
Even in the UK, NHS trusts made headlines by discharging thousands to free up beds and postponing planned treatment of non Covid patients. Ever since early April itself, reports started flowing in about tragic consequences of delayed treatments/check-ups coupled with significant hits to profits.
For a crisis like this one, a robust healthcare sector is the key to bring back any struggling economy. Monetary support from the authorities, especially the Central Bank, is critical. This could be in the form of liquidity infusion, indirect and direct tax benefits, and fixed cost subsidies from the government to address the disruption. As an example, the US Congress recently passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Paycheck Protection Program and Health Care Enhancement Act, ‘providing $175 billion in emergency funding for hospitals and other health care organizations.’
Furthermore, technological prowess can go a long way. In the UK, a new impact & assessment tool from Draper & Dash exploits existing data to allow hospitals to stay above their own Covid-19 peaks as well as prepare for their own future.
Available Hospital Beds per 1,000 People
Source: OCED/Washington Post
Source: OCED/Washington Post
