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Rising Health Care Costs: Analyzing Issues


American health care is, on the one hand, an ordinary branch of the capitalist economy with all its characteristic features. On the other hand, it is a special socially oriented sphere of the modern economy. Substantial elements of state regulation are embedded in the mechanisms of market relations, which stimulate and guide the development of this social sector of the economy. There is a tendency to expand and strengthen the distribution function of the state.

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The most crucial characteristic of healthcare in the United States is the legal protection of the patient. The system of legal acts has created the conditions in which neither health care providers nor the state cannot treat human health arbitrarily. This mechanism is organically rooted in the system paradigm of a democratic society.

However, in health care, as perhaps in any other socio-political sphere, there are quite acute problems that cause a certain fragility and relative instability in this area. One of the main causes of the social insufficiency of health care in the USA lies in the presence of numerous sources of payment for health services, and this creates confusion and chaos. Of course, in European countries, healthcare services are also paid for by a third party (mainly the state), but these governments do not claim to have market relations in this area. Most civilized countries have a well-coordinated health care system that is financed by a single-payer.

In the USA, there is no universal budget, and the interaction among parts of this system lacks consistency and harmony. Instead, there is a confused structure of payers-insurers and manufacturers of health services, that operate regardless of one another. All these parties usually strive for different aims, which, in general, contribute to the rise in prices of health services and, consequently, their inaccessibility.

Each government is responsible for the well-being of its residents, including the state of their health, the availability, and the effectiveness of means and ways of ensuring health. However, in a globalized world, all parts of which are interconnected, health issues require a common approach, taking into account the situation around the world. Money spent on health care can’t be spent on other necessary things. Health is vital, and it is a fundamental human right. But there are other inalienable rights — the right to education, the environment, justice, freedom, and national security. It is clear that sick people value health most of all, but healthy people understand the value of other important things. The media makes us think that all that matters in life is being healthy. It is not true: health is a means, not an end.

Health care spending is growing faster than the global economy and accounts for 10% of global gross domestic product (GDP). According to the World Health Organization (2019), the curve of these expenditures is rapidly rising, which is especially noticeable in low-and middle-income countries, where the annual growth of these expenditures is, on average, 6%. In high-income countries, this figure is about 4%. Increasing public spending on health care reduces the risk of people becoming impoverished due to the need to pay for medical care. Meanwhile, government expenditure contributes to reducing inequality in access to health services only if budget allocations are carefully planned to ensure that primary health care is provided to the entire population.

The issue of employer-based health insurance

Insurance in the US is an exchange of the risk of enormous costs for a guaranteed small fee every month. If the risk increases, so do the monthly fee: it is much more expensive to insure as a 60-year-old pensioner than if you were 21. Buying health insurance is costly, but it is even more expensive to be treated without it. There is a common belief that the principle of social responsibility of employers for preserving the health of employees is an indispensable condition of insurance medicine in a civilized society. However, employer-based health insurance is a rather complicated system that has some intricacies.

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Since health insurance in the United States has become mandatory, the number of insured citizens has grown significantly, and the medical service packages have also expanded. However, hospitals began to incur huge costs, and insurance premiums increased along the chain. It is worth mentioning that the insurance coverage does not encompass every illness, but only a quite limited list of health services excluding, for instance, the services of a psychologist, dentist, oculist, pediatrician, etc. Only very wealthy people can afford insurance that provides for all the necessary services. As a consequence, huge bills for medical services can lead a person to bankruptcy.

Therefore, the issue of pre-existing conditions is quite complex; if a person suffers from a serious illness recorded in the case history, the insurer will either not pay the costs of this part of treatment or simply refuse to enter into a contract. As a result, the dependence on the employer increases. An employee just can’t leave their job; otherwise, they will be left without insurance and will pay for treatment out of their own pocket.

The current private insurance system in the US does not guarantee the patient full coverage of the cost of all medical services received. Group health insurance, which is tightly linked to the workplace, holds the threat of adverse consequences for employees in case of losing or changing the workplace. Besides, the “voluntary” provision of health benefits by entrepreneurs leaves millions of workers and employees outside of health insurance. Therefore, the system of private insurance is insufficient in terms of the social needs of society. It is the main reason for the objective need for the emergence and development of state programs like Medicare and Medicaid.

The plight of Medicaid

The Medicaid program, from a socio-economic point of view, performs the function of redistributing income in the country. It is a tool not only to equalize opportunities for different categories of the population but also to maintain a relative balance of starting opportunities for States with different economic potential and development. The latter characteristic distinguishes it from the Medicare program. This kind of medical assistance program could only appear if the state as a whole had sufficiently developed material and financial resources and was interested in maintaining the socio-political status quo in the country.

The Medicare state health insurance program is an essential mechanism for achieving social balance in society. Like any other state social program, this one serves as a provider of equal access to health care services for diverse groups of the population, helping to stabilize the society. This program has not only increased access to health care for the elderly and elderly but also improved its quality. While the government’s Medicare program doesn’t fix all the health problems for senior citizens, it does have a lot of value.

Disabled and older people, as well as those who have proven their low income, receive assistance free of charge – the Medicare and Medicaid insurance programs cover them. According to Mankiw (2016), “Medicaid provides health care for the poor; this program is managed by the states, but much of the funding comes from the federal government.” (p.232). In theory, pregnant women, foster children under 26 years of age, and large families can receive assistance in paying for medical expenses.

The authorities make a decision on assistance after reviewing an application left at the office Of the Department of medical services. The problem of these two programs is that a significant number of people fall through the cracks: they are either too young for Medicare or not poor enough for Medicaid, and their jobs aren’t good enough to come with health benefits (Krugman, 2020). It should be understood that programs to support the poor and the elderly have been in place since 1965.

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Every year, they require more and more funds from the Federal budget and, of course, affect the increase in the US national debt. On the other hand, prices for the services provided by doctors are rising, and the quality of these services is continuously falling – because there are more and more patients, especially after the implementation of the Obamacare program. Every year, waiting lists for doctor appointments are also growing, and there is an increasing shortage of doctors in the country.

The long-term problem of the federal government’s solvency

Well-functioning health care system is a necessity for any state, regardless of its level of economic development. Health policy in the United States has regulatory functions that cover relations between various social groups, citizens, and the state. Health policy has a strong impact on the economic sphere of society. State health policy, as part of social policy, provides for comprehensive control of the authorities over the entire system of medical care in the country, despite the diversity of its forms and methods, and the state of health of the population.

Total health expenditure consists of state budget expenditures, cash payments made by the population (i.e., out-of-pocket expenses for health services paid by the population), as well as amounts received from sources such as voluntary health insurance, employer-provided health insurance programs, and non-governmental organizations. According to the World Health Organization (2019), on average, in countries, about 51% of health expenditure comes from the state budget, and more than 35% comes from cash payments made by the population. One of the consequences of this is that almost 100 million people end up in extreme poverty every year.

In the USA, $7.3 trillion was spent on health in 2015, accounting for almost 10% of global GDP. By comparison, only about 5% of global GDP was spent on education. In high-income countries, the largest share of GDP is spent on medicine — about 12% on average. Middle-income countries spend the smallest share of GDP — 6%. In low-income countries, where the need for medical services is usually high, about 7% of GDP is spent (World Health Organization, 2019). The American healthcare system is complex, cumbersome, and does not provide guaranteed medical care.

In the vast majority of countries, most of the expenses are directed to treatment and recovery after the onset of the disease. Such medical care is expensive and highly dependent on high technology. The lion’s share of this money is spent on hospitals, medical consultations, and emergency care. Commercial organizations that strive for rapid and early implementation of their innovative products are one of the crucial reasons for the increase in medical costs.


The economic problems facing medicine are complex and deep, but they are not only a cause but also a consequence. Behind them are social attitudes, many of which are encouraged by medicine, which leads to an inexorable increase in costs. State activity in the sphere of health management is objectively necessary. On one side, a pressing need to comply with state priorities in the area of public health, and on the other side — the need to unite the real capabilities of the country with the occasionally opposing interests of society. Meeting these objective needs of citizens is the central point of the activities of state bodies in the healthcare sphere.

The US experience shows that in a market economy, it is optimal to switch to a state health insurance system. The introduction of a health insurance system based on state insurance is a reasonable and objectively necessary measure in any country with a market economy. At the same time, there is a limited capacity of the state to solve the problems of the medical provision by simply increasing the number of funds allocated. It is necessary to organize the health care system in such an effective way that real payments are made for the medical services provided. It is crucial that the actual price, first, is set on the basis of a balance of supply and demand, and secondly, no monopoly position distorts the real price.


Krugman, P. (2020). Arguing with Zombies: Economics, Politics, and the Fight for a Better Future. WW Norton & Company.

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Mankiw, N. G. (2016). Principles of economics. Cengage Learning.

World Health Organization. (2019). Global spending on health: a world in transition. Author.

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