Healthcare and the health of the economy...

We live in a country, in which the economy generally speaking, operates under free market principles, thus consumers control the allocation of resources. In such an economy, where spenders dictate how much money flows through the economy and what resources are purchased, the different markets of the economy are intertwined. If one market experiences an increase in demand, some other market generally experiences a decrease in demand, and accordingly a decrease in the money flowing in that market. Consequently, the different markets of the economy as a whole affect each other and are controlled by consumers.


The United States in general operates under a free market such as the one described. With the growing health care market, and its growing cost, I ask what, if any, is the causal relationship between the rising cost of health care and the economic recession we are facing?


Health care costs in the United States have been increasing and continue to increase. As a result, Americans are spending a larger percentage of their disposable income on healthcare. Although this is good for the health care market, as it continues to expand, it increasingly affects other markets. As consumers spend more money on health care costs, they have less “spending money” to use elsewhere in the economy. Thus, spending slows which hurts the economy and causes slowed or less growth in other markets.


With health care costs being a rising concern, that impacts the economy, there have been different solutions offered. One school of thought advocates increasing the competition in the healthcare market to help control costs. This thought argues that like other markets the healthcare market should be subject to competition. Competition would give the consumer power to choose among services and products. By increasing competition and giving the consumer more power, individual companies are no longer able to control prices. Thus some argue that this could alleviate the increasing cost of health care in America. On the other hand, some argue that rising health care costs should be addressed by creating a national health care plan, or universal health care. Under this type of system, every citizen is mandated to have health care coverage, or coverage is provided by the government through taxation. Thus, this type of system involves more government regulation of the market and patient care.


With health care costs on the rise, and arguably affecting the economy, it has become a top issue raised during the election campaigns. So, what do the candidates propose? And what, if any, is the causal relationship between the candidate’s plans for controlling health care costs and future changes in our economy?


Senator John McCain proposes a plan to control health care costs that is similar to the argument to create a competitive health care market. McCain proposes to alleviate rising health care costs by providing more competition in health care insurance market and increase the variety so that consumers can pay for what they need. He also advocates portability of health insurance across state lines and from job to job. Further, to combat the rising health care cost, he proposes a tax credit to help pay for health care costs.



Senator Barack Obama proposes a plan that uses more government intervention in the health care market, specifically in health insurance. Obama proposes that Americans who like their health insurance policies can keep those policies, however other, who are uninsured or dissatisfied with their insurance would be able to purchase affordable insurance through a National Health Insurance Exchange. Obama also advocates making the insurance market more competitive to control prices.



So I toss the question to everyone, does either plan offer a solution to the rising health care costs? Will either one save our economy?

One more video, one more perspective!