Economic Terms and Health Care History Essay Sample

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Health care in the United States of America is a delicate balance between the supplier and the demander. The supplier is the person or company providing health care services, procedures, or good, and the demander is the consumer who is in need of the health care services, procedures, or goods. Supply and demand between these two sides of health care is how the prices of health care services are created. This equation has been the backbone of providing health care and paying for the services rendered. The economics of health care is rich in history. Early relationships between patients and physicians required payment for services rendered and bartering was an accepted custom. Bartering allowed the physician to acquire products or services he or she may need that the patient had to give in exchange for medical treatment. Using bartering as a method of payment at some health care facilities is at the discretion of the organization rendering the service.

According to CBS News, “True North Medical Center in Falmouth, Maine, has been offering its patients the option of paying with their time – part of its goal to make care accessible to everyone” (“Bartering,” 2011, p. 1). Health care insurance began with the establishment of Blue Cross after World War I in the late 1920s. Quickly health care costs began to rise and in the 1930s the microeconomics of health care began supporting the evolution of insurance plans. As health care quickly became more advanced and services more in demand after World War II the cost of health care became increasing higher with advancements in technology and the need for educated staff. According to Sciencescribe, “life-saving drugs, such as penicillin, and inoculations against diseases, such as polio, had created an ever-deepening scientific culture that included laboratory technicians, therapists, widening roles for nurses, and increasing specialization among physicians” (Fillmore, 2009, p. 3). Macroeconomics affects the relationship between the country and health care.

With the creation of Medicare and Medicaid in 1965 by President Lyndon Johnson, the government stepped into the health care industry and started regulating how health care was paid for and how it was supplied to older or disabled Americans. Initially taxes and government funding funded the program. As the elderly population has increased rapidly and the need for health care services has increased the funding for the Medicare and Medicaid programs has risen as well. The government budgets 16% of the federal budget to fund Medicare alone. That budgeted number is forecasted to increase rapidly because of the retiring and aging Baby Boomer population. The Gross Domestic Product (GDP) is the market value of goods and services produced within the United States within a designated period. Health care accounts for nearly 18% of the GDP in the United States of America.

Rising health care costs, malpractice suits, costly procedures, and caring for the elderly are contributing factors in the costs of health care. The Affordable Care Act (ACA), otherwise known as “Obamacare,” was signed into law on March 23, 2010 by President Barack Obama and is designed to help uninsured Americans afford insurance and to help reduce health care costs. The ACA will have a tremendous impact on the GDP both negatively and positively. A negative impact can be directly to working Americans who may have their hours cut to part-time if they work in the restaurant or retail sectors. To save money and not have to offer health care insurance to employees some large companies have stated that they will move their workforce to part-time employment. A positive impact will be cost savings to Americans who think they are trapped in their current job and are working for the health care benefits.

With the ability to purchase their own health care plan, the individual may feel freer to move to a different position or company with financial benefits to his or her personal economy. When people have more money, they spend more money. In addition, with provisions for Americans with disabilities who may not have been able to move off government assistance because of their dependence on Medicare or Medicaid to cover their medical needs there may be a greater option to some people to gain employment for the insurance benefits. Although The Affordable Care Act is the largest health care act implemented in the United States since Medicare and Medicaid in 1965, there are many problems that need fixing before the advantages and disadvantages are recognized. Elasticity in health care, as in any business, equals responsiveness. When there is an increase in demand for a product or service and the price for the product or service goes down the product or service is considered elastic. An example is prescription medications.

When a medication first becomes available to health care providers to prescribe to consumers the cost is significantly higher to the consumer in his or her co-pay and to the covering insurance company. As that medication is increasingly prescribed, the cost may come down because the supply and demand is more affordable for the pharmaceutical companies. Inelasticity is the opposite of elasticity and equal unresponsiveness. As in the example above, but in reverse action, a medication may be expensive to manufacture and may only help a small-targeted group of patients.

As a result, the cost of the medication does not come down because there is not enough use to increase the supply and demand to help reduce the cost of manufacturing the medication. Understanding the economics of health care and the terms and definitions used within the industry is a benefit to any employee. Managers in health care need to have a good understanding so that they can help regulate the practice or department economics to be the most successful. Economics and understanding the impact on a business, or even on an individual, is vital for making the best decisions and developing the best outcomes.


Fillmore, R. (2009). The Evolution of the U.S. Healthcare
System. Sciencescribe, 336-338. Retrieved from Unusual arrangement: Bartering for health care. (2011). Retrieved from

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