Term Paper: Overwhelming Connections Between Healthcare Costs

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[. . .] This is largely due to the change in incentives and compulsions to get insurance. Approximately 800000 fewer people will join the workforce (compared to the baseline scenario of no healthcare reforms) by 2021.

There were three broad mandates introduced through Obamacare healthcare reforms. These were that employers are now mandated to offer health insurance to their employees or face a penalty. The second mandate was that individuals should obtain coverage or face penalty in form of fine. The third was that public insurance was heavily subsidized. In a study by Kolstad and Kowalski (2012), the researchers studied the impact of mandate-based health reforms and expansion in subsidization of public insurance programs in Massachusetts and throughout the U.S. Employer sponsored health insurance was not part of the study. The authors found that nurses and healthcare employees were willing to accept lower wages due to newly-insured value of reforms. In another study, same authors concluded that due to the employee-sponsored-health-insurance (ESHI) program under health reforms package, each full-time worker received $6,055 less per year. However, the labor impact was compensated due to the fact that employees value this provision of insurance. Rossheim observes that healthcare labor economy will have several impacts. There will be enormous job creation in the healthcare sector as the reforms package put great emphasis on primary care. Other sources of labor market change will be community health funding, pharmacists and diagnostic technicians, and related service personnel. The government's estimates of impact of healthcare reforms on the labor market are quite generous. The Whitehouse reports that labor supply will increase as a result of healthcare reforms. Disability and absenteeism will reduce as a result of better integration of healthcare delivery system. The impact of increased labor supply will result in increasing the GDP and reducing the budget deficit. However, the Whitehouse representatives did not provide detailed estimates of increase in labor supply related to healthcare reforms. The government also observes that labor efficiency will increase as a result of healthcare reforms. This is because well-functioning insurance market will ensure that talented workers are available to all the businesses.

6. Reducing waste, abuse and fraudulent practice in healthcare system

Benefits of health insurance reforms, a major part of the reforms agenda, will be most significant for the people who are yet uninsured. Longer life expectancy, reduction in financial uncertainty, and total cost reduction of insurance will result in economic well-being of about two-thirds of a percent of GDP per year (Whitehouse, 2009; p. 4). As in case of succeeding any macroeconomic reforms agenda, the healthcare reforms' success is also dependent on several stakeholders. Policy makers, healthcare providers, intermediaries, insurance companies, and the public at large are the major stakeholders of the reform agenda that President Obama has initiated.

Fig 1

Source: (Whitehouse, 2009; p. 23)

Further, the success of healthcare reforms also depends on the transformation of attitudes of businesses and households towards healthcare costs. The reforms team also predicts that reforms process will 5% of the 20% of the U.S. GDP in providing the health service until 2018. Thus, 1% of economic resources will be freed up by implementing the reforms agenda consistently. The improvement in GDP value will be 1% until 2040 if the reforms are carried out thoroughly as promised. Figure 1 on the previous page indicates that GDP improvement achieved through improving the efficiency of healthcare system (through cost savings) will be significant. More than 2% of GDP increment can be achieved by reducing the healthcare costs just by 0.5%. The improvement in GDP due to decreased healthcare costs may reach a signification 6% if cost growth is reduced by 1%. Reduction in cost growth within the range of 0.5%-1% is reasonably achievable. The improvement of GDP through reduction in growth of healthcare cost can be better understood through expenditure approach also. Figure 2 shows that different levels of expenditure savings can be achieved through different levels of reduction in cost growth.

Fig 2

Source: (Whitehouse, 2009; p. 23)

If the growth of healthcare costs growth remains unchecked, the U.S. expenditure on healthcare will increase to approximately 35% of the GDP by 2040. However, a mere 0.5% reduction in cost growth can bring the expenditure to below 30% of the GDP in 2040. A reasonable target (median target according to graphed data of the Whitehouse) will be reduction of 1% in growth rate of healthcare costs and achieving a subsequent 10% reduction in percentage of GDP spent on healthcare.

7. Impact on savings and capital formation

The impact of Obamacare and overall healthcare reforms can impact the macroeconomic indicators of the U.S. In multiple ways. A snowball effect of improvement in the system is expected as the savings in one area will provide leverage and advantage in other areas of health service delivery. Capital formation in the U.S. GDP will be improved by 3% if only a reduction of 0.5% in cost growth reduction is achieved. Thus, savings and cost reduction in the healthcare industry through the proposed reforms will impact both sides of the system. It will increase the efficiency of the healthcare system and decrease the government deficit incurred in form of federal and state level spending on Medicare and Medicaid programs. One of the main impacts will be reducing the unemployment rate of the U.S. economy by enforcing the reforms in an efficiency manner. Direct and indirect benefits of the reform agenda are assessed to be manifold. It is difficult to assess the complete set of implications that healthcare reforms will have on the macroeconomic indicators of the U.S. economy. However, the data from credible sources indicate that waste, abuse, and inefficiency that has gripped the health service industry will decrease significantly. The firms and entrepreneurs who have been reluctant to participate in the health insurance on their employees will now be participating and developing the group insurance plans. The reforms agenda will help address issues at the both ends, from the perspective of providers, care giver, and the patients. Insurers were always a missing link in the health service delivery chain. By adopting comprehensive reforms of the health insurance industry, overall economy of the U.S. will be better-off as compared to the baseline scenario of no reforms in the system.


CMS. (2013, Nov). National Health Expenditure Projections 2012-2022. Centers for Medicare & Medicaid Services. Retrieved from: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html

Kolstad, J.T., & Kowalski, A.E. (2012). Mandate-based health reform and the labor market: Evidence from the Massachusetts reform (No. w17933). National Bureau of Economic Research.

The Whitehouse. (2009). Deficit-Reducing Health Care Reform. The Whitehouse. Retrieved from: http://www.whitehouse.gov/economy/reform/deficit-reducing-health-care-reform

CBO. (2011, March). The Economic Case for the Health… [END OF PREVIEW]

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