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The Economics of Health and Healthcare | WGU

Nov 24, 2021

Healthcare in the U.S. can be complicated, as the system is made up of government agencies, nonprofit organizations, independent regulators, and for-profit businesses. All of these entities are impacted by health economics, numerous economic issues that can influence their ability to serve their communities to the best of their abilities. Profit and loss concerns can impact the availability and quality of patient care, as the current system was built on a deep connection between economics and healthcare. It can be a challenge to balance public health needs with the financial needs of a healthcare facility.

Those who are interested in working in business administration in the healthcare industry or in managing the medical care side of healthcare management need to become well versed in the complications surrounding healthcare economics. Knowing this information enables healthcare managers and administrators to effectively support both the healthcare establishment they work for and the patients they serve.

How Do Economics Influence Healthcare?

Economists know that there are numerous economic factors that can influence the economics of healthcare, impacting both costs and spending for an industry organization. Public and private organizations can be impacted by the state of the economy and the healthcare market, as can government agencies, individual patients, insurers, and providers.

For example, an economic downturn may influence employers to restrict employee eligibility for health insurance or to change their benefits structure and cost-sharing to save money. As such, patients with less advantageous health insurance, or high premiums, may be hesitant to make routine appointments or opt for elective procedures, or be unable to cover the cost of their medical bills. These health economics factors affect facilities who have staff to pay or want to invest in their infrastructure and could lead to layoffs or use of outdated equipment, as their financials are unable to support growth.

Positive and Negative Externalities in Healthcare

An externality relates to an activity performed by one person that influences another person who isn’t compensated for the results. A positive externality presents itself when the influence is beneficial, while a negative externality is connected to an adverse outcome. Often, market externalities have an impact on the healthcare industry, which can lead to an inefficient outcome that could turn into a market failure. In that event, the government steps in to correct the market. For example, vaccinations are a positive externality, but people may choose not to get vaccinated if the cost is too high. In this instance, the government can correct the market by supporting the manufacturing and distribution of vaccines or implementing a vaccination requirement.

How is Health Influenced by Economics?

The relationship between economics and healthcare goes past the healthcare market. Socioeconomic disparities and inequalities also influence health, as well as access to healthcare. The three determinants of health are healthcare, environmental exposure, and health behavior, and each category is strongly influenced by a person’s economic status. Studies have shown that people who have lower socioeconomic status can have a lower life expectancy, poor general health, and more chronic issues.

Socioeconomics don’t just relate to a person’s ability to afford healthcare. There are many related factors, a small change in which, can help improve health. They may live in a rural area that makes it difficult for them to receive medical care due to the distance to the nearest medical facility. They may not have access to beneficial over-the-counter treatments more widely available from pharmacies in densely populated areas. Or they may not have access to education, healthcare providers that can help guide their healthcare choices, or the technology that could support telehealth appointments. The more health economics barriers that can be removed, the better chance the healthcare industry has of providing quality care to all.

The State of Healthcare Economics in the U.S.

The state of health economics in the U.S. is challenging, with substantial issues that need to be addressed so care providers can function without threat of financial instability and patients can receive the care that they need. Fortunately, technology is helping to bridge the gap with the increasing popularity of telehealth, connecting patients and doctors safely and securely, providing more options for those who may have travel difficulties. Telehealth is also beneficial to overworked providers, allowing them more time to spend with critical patients in-person, while still providing exceptional care to patients with less urgent needs.

As the health care system continues to evolve and embrace next-generation approaches to patient care, patients have more opportunities to receive the care that they need no matter their economic background. It may not be the magic key to solving all the economic issues that plague the healthcare system, but it’s a start.

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