- Economic Advantages and Disadvantages of Public Health Spending - Free Economics Essays Economic Advantages and Disadvantages of Public Health Spending

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Economic Advantages and Disadvantages of Public Health Spending

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Public health is the science and the art of preventing disease, prolonging life and prolonging health through the organized efforts and informed choices of society, organizations, communities and individuals (C.E.A Winslow, 1920). It focuses on threats to overall health of a community with an aim of controlling rather than treating diseases through surveillance of cases and promotion of healthy behaviors. It also focuses on treating diseases in case of outbreaks. The role played by public health in improving lives through prevention and treatment of diseases in order to contribute to a state of total physical and mental well being of individuals cannot be overlooked.

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Health Care Statistics

The 2009 U.S. census bureau of statistics records indicate that 16.7 percent of U.S. residents were uninsured (US Census Report, 2009). Further statistics indicated that more money is spent on health care in the U.S than in any other United Nations Member country (WHO, 2009). The U.S. has the third highest public healthcare expenditure per capita because of high cost of medical care in the country (WHO, 2009). Further US statistics show that 46.2 percent of all personal bankruptcies in 2001 originated from medical debt, while 62.1 percent of filers for bankruptcies in 2007 claimed high medical expenses, leading to an increase in the number of uninsured and underinsured people (7,8).

Some critics of healthcare provision have argued that the system does not deliver equivalent value for the money spent, highlighting that US pays as twice much yet, it lags behind other wealthy nations in infant mortality and life expectancy. According to MacDorman & Mathews (2009) statistics rank US life expectancy as 42nd in the world, below other industrialized countries such as Japan, UK and Germany. WHO (2000) ranks U.S. health care system as the highest in cost, 37th in overall performance and 72nd by overall health among 191 member nations included in the study. Furthermore, US has been pointed out as the only industrialized nation that does not ensure that all citizens have private or public health insurance (American Journal of Public Health, 2009). Further statistics indicate that lack of health insurance results to estimated 18,000 deaths annually in US IN 2004, with the number increasing to 44,800 in 2009 (American Journal of Public Health, 2009).

47 percent of U.S. healthcare spending comes from the government via Medicare, Medicaid, VA system and from state among others. According to CBO’s report, universal health insurance is estimated to raise U.S. healthcare spending by $123 billion annually (The Economist, 2009). Universal health care insurance would greatly increase funds flowing to private medical investors without necessarily solving or improving healthcare provision for US citizens.

Advantages of Public Health Spending

Increased healthcare spending aimed at improving quality of healthcare services results to a decrease in medical care expenses through increased and improved access to new technologies that provide for new treatment options and treatment for large number of individuals (Newhouse, 1993).

At local level, healthcare spending is beneficial because it creates employment for healthcare specialists, increases wages for health care workers, expands local tax revenues and increases demand for related goods and services.

As the health sector becomes a greater portion of GDP, employment and related activities in health sector also grow. The national Bureau of Labor Statistics reveal that health sector employed 6.3 million practitioners and technical workers in by November 2003 (US Department of Labor, 2004), and a further 3.2 million Americans were employed in health care support occupations. The health sector is therefore a significant source of employment for America workers. Further statistics reveal that American hospitals account for over $1.3 trillion in economic activity annually (Trend Watch, 2004) while by state, hospitals account for 4.1- 13.3 percent of employment. It is therefore evident that although healthcare costs are a significant burden to all levels of government, the spending represents a substantial economic asset and potential leverage for improving job growth and wages.

Increase in spending for results to greater interpersonal transfers of wealth from younger to older segments of population .


Raising healthcare spending could lead to slow economic growth and employment (Monaco & Phelps, 1995). Raising healthcare spending has significant impact on federal budget (Monaco & Phelps, 1995). Many employees are interested in limiting their contribution to increasing healthcare costs by requiring their employees to increase their contributions or by providing different forms of coverage that potentially reduce available household income as more costs are shifted from employer to employee (Monaco & Phelps, 1995).

The overall economic growth for US is 3.6 percent, while healthcare spending is estimated at 9.3 percent. A larger share of resources is therefore allocated on health care, negatively impacting on private and public sectors of economy (CMS, 2003). Furthermore, federal states and municipal governments are faced with the cost rising more rapidly than revenues, placing high scrutiny on all discretionary healthcare spending. Companies faced by rising healthcare spending may be forced to cut other expenses, reduce wages, reduce health insurance benefits, or advocate for the employees to pay a greater share of costs. This leads to shifting of more costs to consumers, making them to choose between high value of health care and other goods and services.

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Rapidly rising healthcare spending lowers GDP and overall employment, raising inflation (Monaco & Phelps, 1995). However, this may be viewed as transfer resulting to real employment growth and financial prosperity for companies that are largely American owned. The Congressional Budget Office (CBO) notes that as income rises, consumers may choose to assign larger portion of their resources to health care services and a smaller portion to other goods and services.

On the side of government, public health spending places an economic burden upon citizens to finance the spending inform of increased taxes and increased long term borrowing. Increasing taxes reduces the amount of income that firms and households would have for other activities (Paul, 2003). Furthermore, increased government borrowing to finance healthcare spending growth has similar impact on availability of resources for other activities. As interest rates increase due to government borrowing, the cost of capital firms and households also increase leading to a crowd out investment in some activities that would been undertaken. (Paul,2003).

Increasing health care costs reflects on the final product cost and could make the US goods and services being less competitive in international markets , resulting to US trade deficit.

Increasing health care costs has led to increase costs of insuring workers and their dependants, placing a burden on employers. This has consequently resulted to a 63-68 percent decrease in number of employers offering health insurance to their employees and their dependants since 2001 (Kaiser, 2004).

Statistics have revealed that increase in health care cost are offset by direct reduction of wages, increased employee cost sharing and unionized contracts (Porter, 2004). In cases where the employers are unable to offset increased cost of employees health care via reduction of wages and increased hours of work, workforce reductions could result to layoffs and increasing number of part time and temporary workers. Recent statistics indicate that while the overall labor force grew by 1 percent between July 2003 to July 2004, the number of individuals employed in temporary positions grew by 9 percent during the same period (32), evidently employees are choosing differentially fill positions with temporary workers who do not have the attendant rising healthcare cost of full time benefit, eligible employees.

Rising health care costs impacts negatively on households as savings that could be used on consumer goods and covering education costs are diverted towards health care services (Tu, 2004). Low income households without access to government or private charity programs may be particularly impacted by rising health care costs. Statistics reveal that between 2001 and 2003, the percentage of insured low income individuals with chronic conditions that spent more than 5 percent of their income on health care increased from 28 percent to 42 percent. Almost half of uninsured low-income chronically ill individuals have problems paying medical bills, which has less likely contributed to delaying or foregoing medical care (35). Further statistics reveal that increased spending on health care resulted to almost 6 million Americans seeking complementary and alternative medicine treatments in 2002 as a more affordable option compared to traditional medical care (Tu, 2004).

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