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Health Economics and Medical Care Essay (Article)


Lanis Hicks is the author of Economics of Health and Medical Care, the book about economics, various economic tools and methods that can be used in health care, and health policies that have to be taken into consideration. The book is divided into several parts with a number of chapters in each section. In this project, Chapter 14, titled “Financing Health Care” will be summarized and analyzed. At the beginning of the chapter, there are six main objectives set.

One of the tasks the author of the chapter offers is the identification and description of basic insurance terminology. In other words, it is necessary to clarify the main terms in order to use them properly. In health care, there are three main methods of financing that are “out-of-pocket payments by consumers, insurance premiums, and taxation” (Hicks 385). Each method has its own characteristics, types, impacts on different groups of people, and various costs. It is not enough to know the existence of such methods. It is more important to comprehend how to use the offered methods and what benefits or challenges to expect.

Importance of Financing Characteristics

The main characteristics of financing health care methods vary considerably including the sources of payment, the reasons for payment, etc. For example, such financing category as consumers’ out-of-pocket payments may contain plenty of techniques and approaches such as deductibles that may influence certain administrative costs, copayments that are applicable when certain health care services have fixed prices, and coinsurance that is used to pay the difference, full consumer payments, etc.

The impact of each financing method varies because of the different characteristics of people, who are involved in financing operations. Much attention is paid to income levels or family sizes. It is important to evaluate patients’ abilities to pay for health care services and establish the most appropriate for their opportunities. For example, taxes depend on people’s incomes and the choice of products.

People with different incomes cannot allow themselves to have the same level of taxes. Besides, people can analyze their working conditions to make sure who should pay for health care services. In some situations, the same financing methods may be paid in a variety of ways. For example, it is possible that patients themselves or their organizations could pay a patient’s insurance premiums any time they find it necessary. Hicks also underlines that some financing methods may be interrelated. So that insurance premiums may be partially excluded from taxation (Hicks 385).

Key Terms of the Chapter under Analysis

In this chapter, the author focuses on the terms that have to be properly understood by the reader. There are many insurance concepts that should be clarified before the evaluation of health care financing and health care costs occurs. The description of each term has its reason and an overall impact on the financing process. The following definitions are given:

A deductible

Is a fixed amount that should be paid by a person before a company starts paying for their health care services. It helps to eliminate the processing of claims that could be in a form of small amounts or significant amounts. If the deductible is high, it is possible to expect a few claims. Besides, the deductible is a great burden for people with low incomes because it turns out to be a huge percentage of total income (Hicks 386).

A copayment

Is a significant part of an insurance policy that represents a large portion of income. When a person visits a doctor, needs some prescription drugs, or asks for primary care, they have to consider this amount in addition to the payment offered by the insurer.


Is the percentage of costs that is spent on medical services by the beneficiary and paid by the insurer as a kind of balance between what is spent by the patient and required by an organization. It helps to lower the price of the covered medical services in regard to the sum paid by the insurance company.


Is a type of insurance that protects people against various unpredictable losses and reduces the possible risks connected with catastrophes that cannot be controlled or predicted by people.

Community rating

Is the method that covers all taxpayers and identifies the same payments for all people regardless of their family size, incomes, and the number of their addresses to hospitals and requests for health care. It means that there is a group of people, who use health care services frequently, and there is a group of people, who use the same services rarely. Still, both groups pay the same amount of money, and the first group of people gets more benefits in comparison to the second group of people.

Experience rating

Is the opposite of the community rating method. There are people, who have already used health care services and paid for them, and people, who use such insurance the first time. The result is the possibility to get different rates that depend on their experiences with the usage of medical services. This method helps to define low-risk groups of users so that they can pay low insurance amounts.

Financing Health Care in the United States

As soon as general terms are identified, and clear explanations are given, the author focuses on the health care of the United States, describes the mechanisms used by different insurance companies, and uses statistics to prove that the chosen topic is burning and interesting for discussions. For example, it is concluded that, in 2010, more than $2,500 trillion was spent on health care in the United States with about $300,0 billion financed by out-of-pocket payments by consumers (Hicks 388).

Besides, certain comparisons were given to explain how the American health care insurance system has been developed with time. For example, in 1965, only 24% of private health insurance occurred. In 2010, the percentage was about 33%. Employment-based insurance remains to be the main coverage for the majority of people. The author introduces the table with clearly identified sections and numbers to demonstrate the changes between 1965 and 2010.

A number of premiums are usually paid by employers. Such a decision is made to gain the required workplace benefits and to cover the changes connected with income taxes. Employees have to spend small amounts of money and, as a result, bear a certain share of such premium costs because of low direct wages (Hicks 388). Taxation is defined as one of the frequently used finance methods based on the Medicare program. Certain individuals, employees, and organizations pay different taxes in regard to their wages and experience. In America, $1.35 trillion of total health care financing was based on taxation.

Sources of Health Care Services Funding

In fact, the sources of health care services funding vary considerably and have been enlarged with time. In addition to the already mentioned funds such as out-of-pocket methods and private health insurance, there are such public funds as Medicare and Medicaid. There were absent in 1965. Still, nowadays, more than 20% (Medicare) and 10% (Medicaid) of health care insurance come from these organizations.

There is also a small portion of people, who rely on such funds as Veteran Affairs, General Assistance, Department of Defense, etc. Still, each financing method has its burdens that may be imposed on different groups of people. Therefore, the author suggests examining and analyzing various situations to comprehend the benefits and shortages of different financing methods in health care.

Alternative Payment Methods and Sources

In the chapter, the author also discusses several additional payment methods such as insurance premiums and taxation that are available to people and their impact on employees and companies’ owners. Insurance is available to people in two forms: first, they can purchase them independently, and second, they can get it through the workplace. It can be paid by employees, employers, and the combination of both. The system of insurance premiums is not complicated.

If employees are worth a certain amount of money, employers will be ready to pay the same amount of compensation that can be in a form of salaries or special benefits. In case the increase in benefits is observed, the employer has the right to reduce salary. In such a situation, the economic burden will fall on the employee directly or indirectly (Hicks 391). There are also mandated insurance benefits that can be used by individuals to cover their treatment using special laws and legal explanations of the possibilities of having free treatment.

Taxation is another alternative method of health care public funding. Taxes are usually regarded as income reductions without any benefits. Though some benefits could be observed in this financing method, they can hardly be observed directly and at the moment of payment or using services. As a rule, taxation could be direct (levied on income and cannot be shifted) and indirect (can be shifted). Payroll taxes and sales taxes as the main types of taxes that people should be aware of.

Payroll taxes are usually levied on wages that used to finance hospitals. A worker pays it. The peculiar feature of this tax is that it is equal for all people, who work. Sales taxes are levied on services or products that are offered to people (Hicks 397). They are defined as the main sources of revenue. There are three types of sales taxes: general, modified general, and specific. Taxes can also be regressive (low-income individuals are less dependent on their incomes in comparison to high-income individuals) and progressive (high-income individuals are less dependent on their incomes in comparison to low-income individuals). There are also neutral taxes when the same relative impact on all income cohorts (Hicks 399).

In general, in this chapter, Hicks explains that people should have enough amount of information in order to make the right choices and consider personal incomes to make reasonable payments. The evaluation of the financing system in the United States is an attempt to understand that the benefits of financing practices actually cover all costs and challenges of the process.

Works Cited

Hicks, Lanis. Economics of Health and Medical Care. Burlington: Jones & Bartlett Publishers, 2012. Print.

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"Health Economics and Medical Care." IvyPanda, 30 Aug. 2020, ivypanda.com/essays/health-economics-and-medical-care/.

1. IvyPanda. "Health Economics and Medical Care." August 30, 2020. https://ivypanda.com/essays/health-economics-and-medical-care/.


IvyPanda. "Health Economics and Medical Care." August 30, 2020. https://ivypanda.com/essays/health-economics-and-medical-care/.


IvyPanda. 2020. "Health Economics and Medical Care." August 30, 2020. https://ivypanda.com/essays/health-economics-and-medical-care/.


IvyPanda. (2020) 'Health Economics and Medical Care'. 30 August.

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