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Is Private Health Care Economical? Essay

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Updated: Nov 11th, 2019


The U.S invests an estimated 16% of its annual GDP in the healthcare industry (Kelly, 2010). Despite such a heavy investment, not all Americans are fully covered or can afford healthcare services. In spite of high financial spending, the funding does not meet the high demand of healthcare services and facilities.

The larger percentage of US healthcare system is covered by private healthcare providers. Private health care covers the middleclass who form the largest portion of the working class. Employers contribute to the private healthcare as well. This makes private healthcare more economical in terms of providing healthcare facilities and services. The current essay is an attempt to question whether private health care is economical, or not.

Economic Reasoning

The economic aspect of a healthcare system is determined by several economic indicators. They include supply and demand, subsidies, GDP, and marginal Costs. GDP is an economic indicator used to determine the economic health of a nation. The supply and demand are market forces that influence the behaviors of suppliers and buyers.

Increase in demand (healthcare services) due to increase in population leads to provision of better healthcare services because of competition. Demand is the quantity of services required by consumers while supply refers to the amount of services and products a market has. The interaction of demand and supply determines the price of the products and services in a market.

On the other hand, GDP relies more on the financial markets where it is affected by changes in inflation, interest rates, level of employment, and government spending. Increase in either of these components affects the GDP negatively. A subsidy is a government financial benefit given to people or individuals in the form of tax reduction or cash payments. Lastly, marginal analysis examines the benefits relative to the costs.

Literature Review

Preker and Harding (2000) address the roles played by the private and public health care providers in the society. However, the public healthcare sector provides services and facilities which are of low standard compared to the private sector. Parker and Harding (2000) note that there has been a discrepancy between the public and private healthcare sector. This has rendered the healthcare systems dysfunctional. Based on the analysis of Parker and Henderson (2000) the private sector plays a greater role in the healthcare sector.

A large percentage of population in the US lacks healthcare insurance (Helmer & Laura, 2005). This means that they cannot afford healthcare facilities and services. However, more than 60% of the population is able to enjoy healthcare service provided by the private sector (Helmer, 2005). This has been necessitated by the ability by employers to sponsor their healthcare through the private sector.

The private healthcare sector funds most of the U.S population given that more that 60% of the population are the working class and can afford private healthcare insurance cover (Kelly, 2010). However, a good percentage of the population is not covered by the health insurance cover because they cannot afford the private healthcare services and they are not eligible for the public healthcare cover (Kelly, 2010). This creates a discrepancy given that they also contribute to the public healthcare funding through federal government funding.

Henderson (2009) has analyzed the healthcare economics and policies that have been made over the years. The demand for healthcare services increases as the cost to treat the person declines. With the increase in old age population, the demand for healthcare services also increases.

According to Henderson (2009), the private health care has been spending less compared to the public healthcare. The reason why private healthcare is preferred to public health care is because it supports other family members with no limits. Lastly, there has been a shift in healthcare delivery whereby there has been a change in pricing, deregulation and shift to public funded healthcare services (Henderson, 2009).


The healthcare sector in the United States is controlled by the laws of demand and supply. Because of the inability by the government to provide healthcare services to all the population (Preker & Harding, 2000), the private sector has emerged as the best choice.

The private healthcare is the United States is either funded through personal savings and insurance cover or the employers pay the healthcare insurance cover on their behalf. More than 60% of the Americans receive the healthcare covered by the employers (Hermer, 2005). Because of the increased population and the changing health habits, the private healthcare insurance sector is competing to provide the best services available.

The competition as a result of increased demand has led to high costs of healthcare services. Although it is costly, it has been able to address the issue of healthcare. Through the cost benefit analysis the private healthcare is better off as its marginal costs is equal to the marginal benefits. The higher the paid costs, the better the benefits received.

Public healthcare is funded through the tax payer’s money. This means that the GDP is affected by government expenditures and spending on healthcare. In order to get enough funding for the public healthcare, the government has to burden its citizens through taxation (Henderson, 2009).

This increases taxes on commodities in order to generate adequate money to finance healthcare insurance. On the other hand, the government may be forced to borrow finances to fund the public healthcare. An increase in government borrowing to finance public healthcare affects the interest rates.

Because of the increased borrowing to fund the public healthcare sector and programs, interest rates lowers investment rates. This affects the banking sectors and other lending institutions, as well as the citizens, leading to crowding out where some essential programs remain unfunded.

An increase in interest rates and the level of government spending through borrowing lowers the GDP rate of growth. Lower economic growth leads to increased rate of unemployment which increases inflation, making life unbearable for the people living below the federal poverty level line.

Therefore, GDP rate of growth is affected by increased government spending, borrowing, and increased interest rates. The public healthcare is uneconomical as burden is shared with all people given that it only covers the old, less fortune, old and the veterans.

The private healthcare funded by the employer scheme ensures that the employee and his/her dependants are covered under the schemes. This type of healthcare can be shared between the employer and the employee whereby the employer pays a given portion and employee pays the rest. In the other scenario, the employer pays the whole financial healthcare cover (Kelly, 2010). This relieves the employee from any cost associated with healthcare through taxation.

The employer sponsored healthcare insurance is more economical than the public healthcare since the employee and the beneficiaries are not taxed (Hermer, 2005). This prompts the government to subsidize the private healthcare insurances to compensate the amounts deducted from the federal income tax bill. Compared to the public healthcare insurance which is fully funded through taxpayers’ money, the private healthcare does not affect the economy a lot.

Although the private healthcare is expensive, it is my opinion that it is more economical compared to public healthcare funding. It offers better services; it does not over burden the citizens with increased taxes, but instead creates employment and investment leading to economic growth.

It also covers all the family members despite the level of the employees in the working place thus sharing the individual family health cost (Henderson, 2009). It also does not affect the rate of GDP growth in a negative way but it leads to employment increase and low rate of inflations. The costs incurred in the private healthcare are equal to the benefits derived from its application making it cost effective and economical.


Based on the analysis, private healthcare emerges as the most economical healthcare system because the marginal cost equals the marginal benefits. It does not have negative effects on the GDP growth rate compared to public healthcare sector.

Instead, the private healthcare creates employment in the private sector through private funding which increases GDP growth rate as it acts an investment. Government funding on the public healthcare increases taxation as the burden is shared among the population.

Borrowing increases the rate of interest, leading to the crowding effects, thereby discouraging investments. Reduced rate of economic growth and unemployment leads to increased rates of inflation, thereby affecting the GDP. Therefore, private healthcare is more economical as it satisfies demand and supply, increases GDP and employment, as well as restoring the health of the people.

Reference List

Henderson, J. W. (2009). Health economics & policy. Mason, OH: South-Western.

Hermer, L. D. (2005). Private health insurance in the United States: A proposal for a more functional system. Houston Journal of Health Law & Policy, 6(1), 1-84.

Kelly, P. (2010). Essentials of nursing leadership & management. Clifton Park, NY: Delmar Cengage Learning.

Preker, A., & Harding, A. (2000).The economics of public and private roles in health care. Insights from Institutional Economics and Organizational Theory. Web.

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