Good Example Of Essay On History Of Healthcare Economics: USA

Type of paper: Essay

Topic: Health, Health Care, Economics, Insurance, America, United States, Nation, Government

Pages: 3

Words: 825

Published: 2023/02/22

Economics is an educational and practical field dealing with scarcity of resources. Scarcity has two sides; the infinite nature of human wants, and the finite resources. Similarly, in healthcare economics, people want to be healthy, but the resources to achieve this end are limited. Healthcare economics is a branch of economics that is concern with the financing and delivery of health services, as well as the impacts that these services and personal decisions have on human health. Over time, the history of healthcare has developed, with governments attempting to make healthcare available to all its citizens. This essay will describe the history of healthcare economics and funding, with bias towards the United States.
Since the ancient Greek time, pooling resources to spread economic risks have occurred. The Greek had a funeral fund for members that transformed to relief and social funds. In 1854, the State of Prussia, Germany, was the first to come up with a modern mandatory health insurance law. When the United Kingdom observed the German’s success story, they adapted it under what is commonly referred to as ‘social insurance’. Other European countries such as Denmark, Netherlands, Sweden, Austria, and Russia followed suit by 1912 (Braverman, 2010). This kind of healthcare funding can be classified under macroeconomics in healthcare economy. Macroeconomics studies the structure, behavior and performance of economics at a bigger level; usually counties and countries (Cooper & John, 2011).
The money to cater for such programs is sourced from the national government, which is obtained from national output. The mostly used indicator to measure a country’s national output is its Gross Domestic Product (GDP). The national output is then subdivided into various activities such as education, health and transportation among others. Many countries have experienced unprecedented expansion in the health care sector in recent years. This growth can also be measured in terms of the percentage of GDP the healthcare sector receives annually. For instance, in USA, healthcare sector was allocated 5.1% of GDP in 1960 and 15.3% in 2006. In the same period, the allocation for the UK rose from 3.9% to 8.4% (Sloan & Hsieh, 2012).
Early in the 20th century, USA did not subsidize health or make health insurance mandatory, because it thought that the responsibility of health lies with the state. Until today, the debate of how to best take care of the American public’s health is ongoing. In 1912, the Theodore Roosevelt campaigned on the platform of national compulsory health insurance, but upon getting to government, the federal government did not act on his proposal. The support came from outside government in the form of groups such as American Association of Labor Legislation (AALL) and American Medical Association (AMA), though the latter declined that it had favored mandatory healthcare for all. During this time, commercial insurance agencies were also against the healthcare scheme, but what really made the Americans not to adapt the scheme was World War 1. Because of their enmity with Germany, the scheme was disregarded as ‘German socialist scheme’ (Braverman, 2010). The Americans preferred individuals paying for their healthcare, which can be studied under microeconomics in healthcare economics. Microeconomics is a branch of economics that studies how individuals make use of scarce resources, usually in households (Cooper & John, 2011).
In 1920s, the cost of medication in America went up, consuming between 8-13% of individual’s household income. During the Great Depression years from 1929, when there was massive unemployment, it was realized that there was a need of new ways to cater for the costs of healthcare. The agreement of teachers and Baylor Hospital in Texas led to adaptations of reimbursing policies that inspired modern healthcare funding. A committee on the cost of healthcare was formed by President Calvin in 1932, recommending that voluntary healthcare was better compared to compulsory healthcare (Braverman, 2010).
The most important laws in American healthcare, including Medicare and Medicaid, became law in 1965. Medicaid provides basic cover for the poor, while Medicare caters for the elderly. From 1950s to 1965, the national health expenditure rose from US$ 12 billion to 41 billion, and by 1970, it had increased to 73 billion. The rising cost was a concern to the Nixon administration, hence by 1974, the Congress passed the Employee Retirement Income Security Act (ERISA) which encouraged self healthcare funding. Currently, more than 50% of workers in the US are employed by companies that operate self insurance. From 1981-1993, the focus of healthcare was control rather than expanding through strategies such as National health Insurance (NHI). Various attempts were made to reform the healthcare system since the crises of 1970, but this did not succeed (Braverman, 2010), until Barrack Obama signed the landmark Patient Protection and Affordable Care Act in 2010, requiring every person in America to have a health insurance of some kind (HHS, 2014).
Whether covered by insurance or not, everybody is a potential buyer for healthcare (demand). The sellers are the providers of healthcare services, including chemists, doctors, nurses, among others (supply). However, the issue of supply and demand is problematic in healthcare economics. This is because the buyer does not pay the full price of the healthcare; the insurance or government often pays a part of it. On the supply side, some of the providers such as hospitals and nongovernment organizations are not concerned about the price; ergo healthcare economics does not fit completely with classical economic theorems (Cooper & John, 2011). Demand and supply determine price of goods and services. Elasticity measures how sensitive factors such as supply and demand to price occur in a market, while price inelasticity occurs when a market is not sensitive to price (Cooper & John, 2011). In healthcare, inelastic price is more common because of the government and insurance influence. Moreover, when people are in need of medical attention, they often pay for it as long it is affordable, regardless of classical economic rules of demand and supply.


Cooper, R.. & John, A. (2011). Theory and Applications of Economics. Lardbucketbooks.
Braverman, J. (2010). Health Economic : History of Health Economics in USA. Pharmaceutical Press. Retrieved from
HHS. (2014). Key features of the affordable care Act. US Department of Heath and Human Services. Retrieved on from
Sloan, F. A., & Hsieh, C. (2012). Health Economics. Michigan: MIT Press.

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