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A Look at Health Economics in American Society

January 12, 2018
Kent MPH Healthcare Economics

If “public health” refers to caring for the collective health of a population, then “public health economics” is the science of how a society takes on and manages this responsibility with limited resources. Public health policy is broad: While some of it does focus directly on healthcare, other areas as disparate as environmental protection, individual habit change and infectious disease control all contribute to the economics of public health.1 Studies indicate that there are economic benefits to preventing disease, not just for sick individuals, but for society at large.

What Is Health Economics?

Health economics is the study of the economic impact of human health. The scope of health economics ranges from the micro-level of individuals and households to the macroeconomic impact of health on a country's current and future gross domestic product.2 The role of economics in healthcare is to help provide "the optimum use of resources for the care of the sick and the promotion of health. Its task is to appraise the efficiency of the organization of health services, and to suggest ways of improving this organization."3

The U.S. Centers for Disease Control and Prevention (CDC) compares the costs and consequences of alternative health strategies with economic principles and methods. CDC uses economic tools such as cost-benefit and cost-effectiveness analyses and predictive modeling, along with regulatory impact, budget impact and health analyses.4

Who Pays for Healthcare?

Americans spent $4.5 trillion on healthcare in 2022, or about $13,493 per person. The largest share of this cost, 33%, was borne by the federal government, while 28% of costs were handled by consumers. The remaining expenditures were distributed between private businesses, state and local governments, and other sources of funding.5 This means that 72% of healthcare costs are not charged to consumers, but to some collective source of funding. Each individual is responsible for their own health, but we are all responsible for the costs of public healthcare.

The Power of Preventative Care

One of every four dollars spent on healthcare in the U.S., or around $413 billion per year, is spent on caring for people with diabetes.6 As discussed above, these costs are shared by our society, so it is in our collective interest to work toward ways to lower these expenditures. On the individual level, it has been shown moderate amounts of physical activity per week combined with a healthy diet and losing extra weight can significantly decrease an individual’s risk of contracting type-2 diabetes.7 Diabetes patients spend, on average, 2.6 times more on healthcare than other Americans.6

Vaccines and Screenings

Not all interventions save money in the long run, but studies indicate that there are effective measures that can reduce overall healthcare costs. Flu vaccines for toddlers prevent the disease from spreading to adults and impacting their productivity. Cochlear implants for profoundly deaf children have been shown to both decrease the cost of their care over time and markedly increase their quality of life. And mandatory screenings such as colonoscopies for men over the age of 60 have also been shown to reduce our shared healthcare costs.8

The Hidden Costs of Infectious Diseases

Public health economics isn’t just about saving money on healthcare itself; it’s also about avoiding the costs that arise from disease outbreaks and pandemics. Each year, the flu creates a total economic burden in the U.S. of about $11.2 billion. That includes $3.2 billion dollars in direct healthcare expenses and $20.1 million in lost worker productivity. Deaths, hospitalizations, and emergency department visits also figure into the economic cost, as well as the toll of human misery.9 Preventative measures, like promoting and distributing the flu vaccine, could serve to decrease not only the healthcare costs, but also the costs of lost business opportunity and human suffering.

Gray Areas in Healthcare Economics

The economics of healthcare aren’t always as cut and dried as the scenarios described above. For some preventative measures and treatments, such as flu vaccinations, the healthcare economic benefits are readily apparent. Other initiatives, like screening all adults over the age of 65 for diabetes, must be viewed holistically. The increased costs of screening are offset by significant savings in Medicare expenses and improved quality-of-life benefits for the affected population.10 The societal benefits of healthcare policy decisions are not solely economic, and thus it’s not always clear whether or not healthcare decisions that cut overall costs are truly in the public interest.

Who Decides How to Spend Public Health Money?

In the healthcare arena, sometimes good outcomes are simply worth the money. It is the job of policymakers and their administrations to ensure that each public dollar spent on healthcare is spent wisely. Economics for healthcare is a developing field. Economists are still learning how to design clear, evidence-based research projects to present policymakers with the best information possible to make healthcare policy decisions, and the success of these projects depends on another significant economic factor: research funding. Ultimately, the best healthcare delivery methods are the ones that work, and the more research that can be done into the ability of economic tools and concepts to make these methods more accessible, the better for all of us.

Explore the importance and far-reaching impact of healthcare economics and consider how an online Master of Public Health from Kent State University could help you not only initiate vital conversations but effect meaningful changes in the public health sector as well.