Economic Impact of Public Health Policy and Law

By the year 2007, public health spending accounted for more than 16.3% of the gross domestic product in the US (Kaplan & Rodgers, 2009). Figure 1 shows that public health spending accounted for majority of health spending between 1966 and 2006.

This public health spending has been said to be burdensome on health care consumers and their families. A large and growing share of federal spending is dedicated to public health. A public health policy helps to reduce disparities in health status. A health policy is also implemented to ensure accessibility, quality and affordability of health care especially for the poor members of the community. In 2007, the federal government subsidized health care at a cost of $246 billion. This was done by allowing companies to purchase health insurance for their workers with pre-tax money. Health insurance coverage under the health policy has helped reduce costs of health care for both employers and individuals and also increase revenues for the federal government. Health policy and law have been very contentious in America and they have had a huge impact on the lives of citizens. Some of the effects have been economic and they have been good and bad.

Advantages of Public Health Spending

Public health spending has several advantages. One of them is the fact that some economists have stipulated that public spending on health insurance generates additional savings for the government. Kaplan and Rodgers (2009) stipulate that the Lewin Group has suggested that a public health insurance policy would enable uninsured individuals, large and small organizations to access health care and this alone would generate 45 billion dollars in extra savings for the government. The savings would come from income tax revenue because employers who buy health cover through public health insurance are able to save on medical premiums and thus can afford to pay their employees highly. This increases the tax base and thus tax revenues. Figure 2 shows the different economists who have projected the estimates of savings from public spending on health insurance.

Figure 2: Estimates of Savings on Health Care Expenditures from a Public Option


Congressional Budget Office (CBO)

Lewin Group

Price Waterhouse Cooper

Urban Institute

Formal Cost Comparison with and without a public option





Fiscal Savings

large and positive but unspecified

Not reported for fiscal savings

Large and positive but unspecified

40 billion dollars per year over 10 years

Savings on total expenditures

Large and positive

47 billion dollars per year for over 10 years

Large and positive

79 billion dollars per year for over 10 years

Effect of correcting

Lower premiums, more government savings

Lower premiums, more government savings

Lower premiums, additional government savings

Less premiums additional government savings

Source: Kaplan, E. & Rodgers M.A. (2009). The Costs and Benefits of a Public Option in Health Care Reform: An Economic Analysis. Advancing National Health Reform Policy Brief

Yaqub (1999) states that another advantage of public health spending is the reduction of poverty. It has been stated that public spending on health care means less medical expenses for individuals thus poverty reduction. Public spending on health care also increases labor participation as employers are willing to hire while employees are also willing to work. This is because wages are high and employers have more money to pay due to reduced health care costs. Lack of insurance caused approximately 44,000 deaths every year in the US by the year 2009; public health insurance has thus helped to reduce this number.  Public health spending is also for the greater good of the society. It means that even the less fortunate members of society who cannot afford insurance can access quality health care. Public health spending is also a way for the government to improve equity and effectiveness of the heath system. People who are healthy are more economically productive (Rajikumar & Swaroop, 2008).

The biggest disadvantage associated with public health spending is the high cost. In 2000 the WHO ranked health care costs in America the highest among 191 nations. The bigger share of the federal budget goes to health care. The costs have been attributed to such programs as Medicare and Medicaid. It has also been argued that public health policy which dictates for employers to pay their employees’ health care has a competitive disadvantage on them.  Woolhandler and Himmelstein (2002) discuss that another disadvantage of public health spending is that it results in high taxes for the taxpayers as this money is the one that is used for financing. High taxes results in high cost of living which might result in low standards of living or people having to work several jobs in order to survive. It therefore can be noted that any country needs public health spending and to improve the general health of its people and also for economic benefits. The US government still needs to address the issue of a costly health policy in order to make public health spending like other wealthy economies such as the UK. Other negative economic impacts of public spending on health also need to be addressed.