Applied Project: Politics of Healthcare Legislation

Applied Project: Politics of Healthcare Legislation


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Applied Project: Politics of Healthcare Legislation

Executive Summary

            Supply and demand play a crucial role in controlling various markets and sectors. Fluctuations in the two entities determine the stability, future and efficiency of various sectors. Healthcare is one of the fields affected by the two forces. In the sector, supply and demand determine the quality of the care that patients receive, as well as the expenditure that the government has to dispense. Because of this, the two forces share an intricate relationship with healthcare legislation in which they invariably affect each other.

            The politics behind healthcare legislation is complicated and divisive. The recently passed Affordable Care Act exemplifies this more than anything else does. Despite the fact that the bill seeks to extend the government’s cover to more of the unemployed and uninsured, its opponents argued that it could cause businesses to fail or make some people lose their private insurance. Regardless of this discourse, the bill’s passage drastically changed the shape of the sector. High demand coupled with inaccessibility had been a key reason for the bill’s formulation and a year after implementation, the situation has changed to one involving even higher demand and low supply.

            Research shows that supply and demand and healthcare legislation affect each other in various ways. Firstly, one of the reasons why the Obama Administration felt the need to introduce new legislation was high demand in the field. An increasing number of Americans were in need of healthcare, but at the time, it was inaccessible to most. Alternatively, the formulation of ACA has led to a situation where even more people are seeking medical services because of their availability. However, the supply of these services is not enough to deal with the bulging demand.

            Supply and demand are key variables in the field of healthcare. The forces are capable of influencing the shape of the field. In addition, the formulation of new healthcare legislation is a process that needs to consider the two forces. Doing so would avoid creating large disparities between the supply of healthcare available and the demand for it in the market.


            Healthcare is one of the most sensitive issues in the world today. As lifestyle diseases continue to ravage the developed world, more people are becoming concerned about the kind of care that they receive from medical facilities, the cover that they get from insurers and the laws that deal with matters concerning their health. The recent healthcare debate in the United States has exposed a deep rift within the country and shown that even such important issues are vulnerable to political interference. The healthcare sector in the United States is currently focused on achieving three aims; to improve the care experience, improve the health of the country and reduce the costs that the state incurs in the process of providing medical services (Berwick, Nolan & Whittington, 2008). Several economic models can help explain the politics behind healthcare legislation by analyzing the various dynamics behind the debate. Supply and demand share an intricate relationship with healthcare legislation in which each can affect the other positively or negatively, depending on the surrounding circumstances.

Healthcare Legislation and Supply/Demand

Healthcare Legislation

            Healthcare is one of the most is one of the most divisive and complicated sectors within the United States. For most of America’s history, healthcare has remained untouched even as key reforms go through key sectors such as the financial and national defense dockets. Economic difficulty over the past decade, particularly the late 2000s global recession, led to widespread calls for healthcare reform in America (Iglehart, 2009). These reforms would make it possible for people from different backgrounds to access medical care at affordable rates. The reforms would also ensure that vulnerable people, such as the elderly and the unemployed, received some form of cover that made it possible for them to receive medical services when the need arose.

            According to Berwick et al. (2008), healthcare legislation normally involves three key issues. The first issue is the quality of the care. It is important for people to receive good quality care in any medical institution that they visit. A recent survey gave the United States a rating of sixty-six percent out of one hundred. Despite spending more on healthcare than most of the developed countries, the United States still ranks lower than most of those nations on life expectancy and infant mortality (Joumard & Nicq, 2010). This suggests that the quality of services that the healthcare sector provides is still quite low. The second issue regarding healthcare legislation is expenditure. The findings of the survey above reflect the situation concerning expenditure as the quality of care in the US is currently not matching expenditure in the sector. Lastly, another key issue regarding healthcare is the health of the population. The ultimate aim of every healthcare system is to improve the health of the masses, and the American system is currently not achieving that aim (Berwick et al., 2008). Resultantly, the government has had to spend more and more money, as the population’s healthcare needs increase.

            In light of these issues, the Obama administration came into power with healthcare reform being one of the government’s key agendas. President Obama insisted that there was a need to improve healthcare in the United States such that insurance coverage was expanded, the standards of care were improved, and the increased spending on medical care was curbed (Iglehart, 2009). Despite the seemingly benevolent aims of these reform measures, Democrat attempts at introducing new healthcare legislation into the US were met with widespread opposition from Republican politicians and their supporters (Iglehart, 2009).

            Political discourse concerning healthcare legislation in the US has involved issues such as taxation, government control and budgeting. Some of these issues are directly related to economics such as taxation, while Republicans have opposed key Democrat proposals using financial argument as their basis. For example, one the most divisive issue in the discourse concerns the level of involvement that the government should have in the insurance market, with one side calling for stronger regulation while the other pushing for independence that would allow market dynamics to be the controlling force (Orszag & Manuel, 2010).

Supply and Demand

            Economists widely consider supply and demand to be some of the most influential driving forces in any market. These two forces are capable of determining the growth and success of markets, industries and entire economies. Within a perfectly competitive market, supply refers to the availability of a commodity at a given price. Alternatively, demand is the amount of a good or service that consumers are willing to purchase given a certain price (Whelan & Msefer, 2008). The two forces go together because changes to either of them often affect the other. Within a perfectly competitive market, increases in the price of a good will mean that the producers will be more willing to manufacture their product leading to an increase in supply. Alternatively, consumers will be reluctant to purchase the product forcing its demand to go down (Whelan & Msefer, 2008).

            Many factors influence the forces of supply and demand within a market (Whelan & Msefer, 2008). This influence tends to go both ways with the factors being capable of causing an increase or decrease in either of the two. A good example of factors that influence supply and demand is the price, as it is capable of causing an increase or decrease in either of the two. Similarly, the presence or absence of substitutes and complimentary goods affects the demand and supply of a product. The effects of different variables on the demand and supply of a product is referred to as elasticity (Whelan & Msefer, 2008). For essential and irreplaceable goods, the supply and demand curves remain inelastic regardless of the status of different variables. Healthcare is one of the products that have inelastic supply and demand curves. There is no substitute for healthcare and people will always seek medical attention regardless of the availability and cost of the services.

Supply and Demand in Healthcare Legislation

             The economics of supply and demand are involved in healthcare legislation through many ways. Disparities between supply and demand in healthcare tend to affect all aspects of the sector and are likely to blame for the current state of the American medical care system. A survey by the Commonwealth Fund into the American healthcare system revealed several issues regarding supply and demand in the sector that are likely to have an effect on political discourse regarding the area.

            The first part of the study revealed that the United States spends more on the healthcare than twelve other developed nations that were involved in the research (Squires, 2012). A key mitigating factor behind this expenditure was that of all the countries that the researchers the studied, the US had the highest population. However, per capita spending in the sector was still higher than in any other nation. As of 2009, the US was spending $7,960 per capita on healthcare. The government was providing more than half of these funds through public spending. The study attributed the high outlay to a rising demand for medical services (Squires, 2012).

            One of the reasons why the spending is so high is that the demand for medical services in the US is quite large. One reason for this is that a large section of the population, the baby-boomers, is entering retirement age, a time when their healthcare needs increase (Carrier, Yee & Stark, 2011). Additionally, there has been an increase in lifestyle diseases, in the US. Of the thirteen countries included in the study, the US had the lowest number of smokers but the highest incidence of obesity. Put together, these factors have led to a sharp increase in healthcare demand over the last few years, placing a strain on the healthcare system and budget in the United States.

            The other part of the Commonwealth Fund study entailed supply. The study gauged supply in the healthcare field by looking at the availability of physicians and hospital beds. Despite the high medical expenditure, the US has the lowest number of physicians and beds per 1000 people (2.4 and 2.7 respectively) (Squires, 2012). Additionally, the price of drugs in the United States is higher than in any other country that was a part of the study. The findings of this study imply that the healthcare system in the United States is struggling to keep up with the growing demand for the services, especially with regard to quality (Squires, 2012). The fact that the government’s expenditure in the sector is quite high suggests that the real problem in this case concerns policies and regulations.

Economic Forces affecting Healthcare Legislation

            The recent global economic recession deeply affected the healthcare sector in the United States. The financial losses that people incurred during that period meant that people had less money to spend at a time when the cost of medical services was rising steadily. Kiselev (2010) argues that medical services are usually under some form of economic strain, but the recent crisis only served to worsen the strain. Through this crisis, it is possible to tell the different ways that economic forces affect healthcare legislation.

            One of the economic forces affecting healthcare legislation is unemployment. The late 2000s recession forced many businesses and companies to shut down or downscale their operations. For most entities, either form of action meant that they had to lay-off employees. As unemployment increased, many people turned to government programs such as Medicaid as they sort medical cover. This situation was one of the key driving factors behind the Obama Administration’s bid to develop a universal healthcare plan. The ACA was formulated as a way that uninsured people and unemployed people could get proper quality medical care. The ACA provides alternatives for uninsured and unemployed people to acquire healthcare. Even though the act faced stiff political opposition from different quarters, all parties involved in the legislation process agreed that there was a need for bettering the situation faced by vulnerable people. This realization was borne out of the rising unemployment in the recession.

            Government spending is another economic force that affects healthcare legislation and the politics behind the issue. Governments are constantly faced with key decisions regarding their budgets and expenditure. A government’s expenditure is crucial to issues such as development, security and health. Government spending probably affects healthcare legislation more than any other thing because in most systems, the government is the key contributor to the sector. Depending on the economic climate, governments may choose to delay payments and in doing so affect the quality of care provided. Such a situation occurred during the economic recession when the government chose to introduce legislation that allowed it to delay payments for patients treated under the Medicare and Medicaid programs. Alternatively, other forms of legislation at the time saw an increase in the healthcare expenditure as the cost of medical services was subsidized.

Application of Supply and Demand Forces in Healthcare Legislation

            The forces of supply and demand share an intricate relationship with legislation concerning healthcare. President Obama’s Affordable Care Act is an excellent example of a legislation that has been formulated with the economic forces in mind. By analyzing the circumstances surrounding the ACA, it can be possible to see how supply and demand interact with healthcare legislation. Firstly, the analysis can show that the ACA was a bill introduced by necessity, with demand being the key driving factor behind it. Secondly, the analysis can also show that supply and demand are the ACA’s biggest threat. The bulk of people seeking medical attention under provisions created by the act are likely to cause a significant increase in standard, in the sector’s quality of supply. The increased demand is also likely to result in a shortage of supply within the sector.

            Rising demand for healthcare was one of the key reasons why the government formulated the ACA bill. Two key issues forced the government to come up with the ACA. Firstly, the increasing number of lifestyle diseases such as heart disease, diabetes and obesity had led to a rise in the demand for medical services. As of 2009, a third of the US population was obese, a rate higher than that of any other country from the Organization for Economic Cooperation and Development (OECD) (Scherer & Devaux, 2010). Researchers estimate that ten percent of the economic outlay into medical care goes towards dealing with obesity. The second driving force behind the ACA legislation was the economic instability brought about by the recession. The economic deterioration of the country that took place during the recession saw a large number of people end up unemployed (Iglehart, 2009). This meant that they were unable to get proper insurance cover, with many resorting to out of pocket medical care. Through the ACA, unemployed and uninsured people can get quality medical attention.

            With the federal government implementing the ACA, it is likely that there will be a sharp increase in the supply and demand for healthcare. When the government formulated the bill, the key concern was to deal with demand for healthcare by making it accessible to a large number of people who were not insured or employed. The government structured the bill in a way that the primary focus was on making the sector accessible to citizens. However, the healthcare sector itself did not undergo any significant expansion (Truffer, et al., 2010). This has resulted in a shortage within the field of medical services. Estimates suggest that there is already a shortage of 17,000 healthcare personnel in some parts of the country, who are needed to help the sector cater for the increased number of patients (Truffer, et al., 2010).

Assumptions and Limitations

            One key assumption that the contractor can use in their work is that the demand for healthcare in the country will increase steadily as the supply decreases. In 2013, the government rolled out the universal health plan that the ACA initiated. This has resulted in a steady increase in the number of people who can now afford medical care. With more people affording medical services, the demand for healthcare. However, without a matching increase in staff and facilities, supply is steadily decreasing in a county where it was already short. Any future action by the contractor should therefore be guided by the premise that demand will soon be high and supply will be low in the sector.

            One limitation that the contractor will have to work with concerns stability in the future of the area. The disparity between supply and demand is likely to cause many problems within the field of medical aid. This could cause a lot of uncertainty with investors particularly skeptical about the area. Another possible source of stability within the region comes from the nation’s politics. The ACA was perhaps the most divisive bill in America in the last decade. It polarized the country and left the relationship between Democrats and Republicans in tatters. It is possible that there will be more opposition to the bill and its features in the coming months and years leading to further instability within the system.


            Several recommendations can be made to the contractor regarding supply and demand and healthcare legislation. Firstly, for key legislative bills to work, the forces of supply and demand must be considered. This means that any action to increase demand or accessibility should also look into increasing supply. While the aims of the ACA were primarily benevolent, the bill’s proponents ignored the possibility of there being a large disparity between supply and demand, as is presently the case. Such disparities threaten the stability of the sector and undermine the quality of the services that people in the field provide.

            Another recommendation for the contractor is that legislation in the healthcare sector be guided mostly by statistical figures and data. The study by the Commonwealth Fund showed that the US already had a supply shortage in the healthcare field even before the government introduced the ACA bill. If the government had observed such data then it would have understood that action is needed in various areas and not just the affordability of medical care to most people.

            Lastly, even though supply and demand can dictate issues such as quality and need concerning healthcare sector legislation, there is still a need to review the way that the money in the field is spent. The fact that the US uses more on healthcare than most developed countries but still suffers from shortages shows that the appropriation of funds could be inaccurate. This issue is not related to the ACA bill or the forces of supply and demand. Rather, it concerns the government’s prioritization of the money that it spends on the area. Finding a solution to this problem is related to the issues concerning supply and demand because it could help the government free up some money to help increase the number of personnel and equipment in healthcare.


            The link between supply and demand and healthcare legislation means that the two affect each other in various ways. The recently passed ACA bill is the best evidence of this deep link between healthcare legislation and the two economic forces. America has been struggling to meet the demand for healthcare in the country for some years now. Additionally, the affordability of healthcare in the nation has been a contentious issue for a long time. The impact of supply and demand on healthcare legislation has been significant, as it has led to the formulation of new bills aimed at solving the existing problems. However, legislative’s failure to consider the forces when coming up with the bill has resulted in a rather ironic situation where the Affordable Care Act appears to have worsened the situation in terms of supply and demand.


Berwick, D.M., Nolan, T.W. & Whittington, J. (2008). The triple aim: Care, health and cost. Health Affairs, 27 (3), 759-769.

Carrier, E.R., Yee, T. & Stark, L. (2011). Matching supply to demand: Addressing the US primary care working shortage. Policy Analysis, 7, 1-7.

Iglehart, J.K. (2009). The struggle for reform – Challenges and hopes for comprehensive healthcare legislation. The New England Journal of Medicine, 360 (17), 1693-1695.

Joumard, I., Andre, C. & Nicq, C. (2010). Healthcare systems: Efficiency and institutions. OECD Economics Department Working Papers, 769.

Kiselev, M. (2010). Hospitals in distress: How the economy has affected financing of healthcare. Illinois Business Law Journal, 21 (34), 21-30.

Scherer, P. & Devaux. M. (2010). The challenge of financing healthcare in the current crisis: An analysis based on the OECD data. OECD Health Working Papers, 49.

Squires, D.A. (2012). Explaining healthcare spending in the United States: An international comparison of supply, utilization, prices and quality. Commonwealth Fund, 10, 1-13.

Truffer, C.J. Keehan, S., Smith, S., Cylus, J., Sisko, A., Poisal, J.A., Clemens, M.K. (2010). Health spending projections through 2019: The recession’s impact continues. Health Affairs, 29 (3), 522-529.

Orszag, P.R. Manuel, E.J. (2010). Healthcare reform and cost control. The New England Journal of Medicine, 363 (7), 601-603.

Whelan, J. & Msefer, K. (2008). Economic supply and demand. (Unpublished dissertation). Massachusetts Institute of Technology, Cambridge. 

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