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Economics and Impact on Health Policy

Health policy in the United State of America has become a very contentious issue in the recent past. This is because the health care spending has increased at a faster rate than the gross domestic product, inflation, and population since the late 1990’s. This lead to the introduction of the health care reform bill which was signed into law on March 2010 with an aim of reducing the effects of the high healthcare costs (The Christian Science Monitor, 2010).  The reforms were implemented after the consideration of a number of effects on the economy. Explained below are some of the economic issues that must be considered when contemplating changes in the health policy.

Government Spending

The government of the United States of America funds some of the projects and services provisions to make them affordable to the public. This means that the government has a responsibility of ensuring that the essential services like education and health care are available to the public at an affordable price. The government funding to the health sector has doubled from about 25% in the 60s to about 50% in the 20s. The increased spending by the government is ultimately passed on to the public thus making it important to consider the level of government spending when coming up with a change in the health policies so as to avoid excessively burdening the public.


A good health policy should ensure that the levels of taxation to the public are at a moderate level. This is because a health policy that is expensive will require a lot of funding which most likely will come from the public in form of increased taxation. However, a relatively cheap policy will translate to the public being taxed less. Hence, the ideal health policy should consider the resulting levels of taxation after the implementation.

Income Levels

A policy that aims at increasing the cost of public health sector would result to a decrease on individual’s levels of income. This has been witnessed in the U.S.A where majority of people pays their health covers through their employers. Hence, when the health cost rises, the employers revise the policies to accommodate the rise. As a result the employee’s direct wages are reduced and hence reducing the income. Therefore, an ideal health policy should consider the income levels of the citizens (Conover, 2009).


A rising health cost acts as a catalyst to the increase in inflation. This is because the high health cost forces the employees to demand an increase in wages. As a result, the production cost goes up forcing the shoppers to spend more on the same product than they were doing before. Hence more money buys the same product as lesser money was doing in the past. Hence the money value drops prompting an increase in inflation.

Household Spending

The average household in America spent 4.5% of its income on healthcare in the year 1999. This rose to 4.8% per every household in the year 2002 because of the rising health cost. This resulted to the families spending more on health care but less on the other requirements. Hence when changing the health policies there should be consideration of the household spending so as to ensure that households do not spend most of their income on health care and forfeit the other requirements.

Interest Rates

A policy, which seeks to increase the cost of health care negatively, affects the borrowing power of the people. This is because the market’s interest rates also rise. As a result, their capability to borrow and pay debts decreases. The net income decrease also leads to people who were in the process of paying a debt being declared bankrupt due to the reduced capability to pay debts (U.S Department of Health and Human Services, 2005).

Growth Domestic Product (GDP)

The America’s growth domestic product is negatively affected by the continuously rising health care cost. This is because the government and employer put a lot of emphasis on the amount spent on the public and employees cost to the extents that the issue becomes the main expenditures concern. A good demonstration of this fact is that in the year 2004 employers contributed an average of $ 3,137 for single insurance coverage on health and $ 7,289 for family cover. This has resulted to a lot of funds being channeled to health care and hence spending on other products decreases resulting to the drop in the gross domestic product.  Hence, a change in health care policies should consider the levels of the gross domestic product.

Exchange Rates

The rise in health care cost with the other factors of production not changing results to the increase in products prices. This makes the local products more expensive while compared to the other countries whose cost of production does not change. As a result, the expensive products perform poorly in the international market resulting to a decrease in the value of the exchange rates in the international market. Hence, an ideal health care process should consider the effects of the exchange rates.


It is evident that health care policies are entangled with the economic performance of any developed country like the United States of America. This means that the economic performance can improve or decrease depending on the health care policies in place. Some of the financial and cost elements that impact the health policies and should be considered when contemplating on changing the health policies includes;  GDP, inflation, borrowing, household spending, income levels , taxation, government spending and exchange rates amongst others

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