The Economist has a graph that doesn’t seem to fit into the worldview of either of America’s political parties:
On the left, pundits often bemoan the fact that America’s government doesn’t provide a generous health care program like those European countries. On the right, the prevailing view seems to be something like, “Thank God we don’t have socialized medicine like those European countries.” But what if they are both wrong? What if our government actually spends more on health care than other developed economies? What should we make of that fact?
I find it interesting that neither political party seems willing to propose the following reform:
Keep US government spending on health care at 8.5% of GDP, but use the money to cover the entire US population. Set up a system analogous to Medicare Advantage, where the government funds various private insurers to provide coverage. Insurers compete for customers by offering as generous a plan as they are able to given the funding provided by the government. Under this sort of regime, the health care would presumably be rather bare bones. People could purchases more extensive coverage out of pocket.
I’m not at all convinced that this proposal is a good idea. Nonetheless, I find it interesting that no one seems to be proposing this sort of system. What can we infer from the fact that almost no one seems to advocate replicating the European system, despite the fact that lots of pundits claim that they like the European system?
America currently spends roughly 17% of GDP on health care. Under my proposed system, Americans could continue to purchase that much health care if they chose to do so. (Real incomes would rise sharply once employers no longer had to provide health care to employees.) But it seems overwhelmingly likely that most people would not choose to maintain current levels of spending on health care. Spending at levels exceeding 8.5% of GDP would come out of pocket. Many people would spend less, and settle for less health care consumption than they currently enjoy.
I suspect that my proposal would hurt people that work in health care, and also hurt people on Medicare and Medicaid. It would help the rest of the public, and the net effect on welfare would probably be positive. But I doubt whether either political party would support this sort of reform.
People on the left say they want a European type system, but I don’t believe them. I suspect they actually support a system where the government spends more like 17% of GDP on health care, not 8%. People on the right say they want to spend less on health care, but I don’t believe that conservative politicians wish to lose the votes of doctors, nurses and Medicare recipients. The status quo is very well entrenched, and would be difficult to reform.
Feb 28 2023 at 11:32pm
The US system is sort of the opposite of what you propose. For 2021 and 2022 under the ACA, the most anyone would have to pay for insurance is 8.5%. Anything above that would be paid by the government. Most people have not clue what the government pays, nor do they care. We have the incentives backwards.
Mar 1 2023 at 10:16am
On what basis did you reach that conclusion, much less “overwhelmingly” so?
They lost the votes of doctors and nurses a long time ago.
I think you reach some odd inferences, because the inference I reach is that Americans like consuming a lot of healthcare and the Europeans rather extremely ration and restrict their peoples’ ability to consume a lot of healthcare, and if we spent a European amount of GDP on healthcare that would mean consuming a lot less healthcare, which everyone who likes consuming lots of healthcare recognizes would suck.
Mar 1 2023 at 11:40am
The Law of Demand: as cost increases, quantity demanded goes down.
Mar 1 2023 at 12:25pm
Would they if they had to pay unsubsidized, full cost?
Mar 1 2023 at 4:57pm
“I think you reach some odd inferences, because the inference I reach is that Americans like consuming a lot of healthcare”
I agree, at least if someone else picks up the tab. I also believe that Americans would buy lots of luxury cars if told that someone else was going to pay the purchase price. Instead of a Nissan, I’d own a Mercedes.
Grand Rapids Mike
Mar 1 2023 at 10:40am
A few of comments: First health care is a luxury good. So the higher the income more is spent from basic item such as dental care, to unneeded items like breast implants and the like. So when looking at data one across countries this needs to be a factor. When I was young my family seldom went to a doctor. Now everyone goes as an example look at kids now days get every shot under the sun, while these may be helpful, does anyone think this going on in India or China. So across country cost comparisons are dicey.
Second a huge part of medical cost driver is the US diet, which consumes a lot of sugar. One clear result is diabetes. The last time I looked at the data the US has the highest or close to the highest diabetes rate in the world. The average cost to treat a diabetes person is much higher than a non diabetes person. So to compare cost, look at the each country sugar consumption rate, a good proxy is the number of Mickey Dees per capita.
Three: Related to the first comment, there is just a tendency to over consume when insurance is covering all cost. So now I have slight pain in my knee, think I will make an appointment with IB&J to look at it.
Mar 1 2023 at 4:58pm
I suspect that your third factor is by far the most important.
Mar 1 2023 at 2:29pm
It’s interesting that probably the world’s best health care system by quality and cost isn’t copied by anybody anywhere.
Singapore spends all of 4% of GDP on health care, compared to OECD average 9.5% and USA 18% (some difference! — total national spending, not government only), attracts a major medical tourism industry (people vote with their feet) including heads of state, and provides the same world-top-quality treatment to rich and poor alike. What’s not to copy? Why no interest?
It has a rigorous competitive market for medical services created entirely and enforced by rigorous government central planning. What’s not to cheer about that? The government mandates universal participation, pays the great bulk of the cost via taxes, sets the rules all must follow, (e.g., banning insurance except for catastrophic events.) etc. The rules are that everybody pays significant out-of-pocket cost for everything to hospitals and doctors who must post fully transparent competitive prices. (Try getting three different US hospitals to bid for your next operation.)
The competitive market really works for maximizing productivity – high quality service produced at minimal cost. As people seek the best prices for themselves, they also obtain the best prices for reducing the government’s subsidies. By “socialist mandate” there is a transparent highly competitive market (freed from innovations like massive obscurant cost-shifting via insurance, one of the banes of the US system). Here’s a video description…
Why does nobody anywhere copy it? Well, socialist leaning political regimes like the government control but not the markets, while liberal leaning regimes like the markets and private spending but not all the government control.
In Singapore itself it all holds together probably only via the force of the one-party “benevolent” authoritarian regime, something that might not travel well to other nations.But still the example should be noted with the lesson that, notwithstanding ideologies from socialist to libertarian, what actually works is what works.
Mar 1 2023 at 4:59pm
Very good points.
James W Oliver
Mar 2 2023 at 12:46pm
Yes, here is my attempt to formulate a way to move in that direction without causing people to feel loss and to even improve on the Singapore system.
Thomas Lee Hutcheson
Mar 1 2023 at 8:19pm
The root problem is that prescribers do not have an incentive to cause spending in relation to benefits.
Mar 6 2023 at 5:26am
I don’t see how some 3rd party could estimate my preference & demand curves for medical services and even medications.
Doc prescribes me with physiotherapy: Maybe my problems are not so severe that I happily skip it to save the $150/hour or whatever it would cost. Or maybe I feel that I need some and I will happily go even without prescription just seeking out someone.
Add in subsidy complexity from insurance -> doctor has practically zero chance of knowing when certain treatments are worth it for me.
Mar 2 2023 at 12:41am
In 2021 I left my job as a full time employee to work an idea. After my Cobra got exhausted after 18 months, I started buying insurance at full price as an individual from Aetna Blue Cross in California. I pay now more than 2 times what I was paying for under Cobra for my previous employer’s plan, while the service and the quality of coverage and care I am getting is significantly worse. Had I known this before, I probably would have stayed a full time employee.
Employers, esp large ones, can negotiate benefits and coverage with insurance companies and hold them accountable in ways that an individual can’t. I suspect this is one reason people like their employer provided health plans so much and don’t want to lose it. I tell my friends these days that the biggest benefit they get from their jobs is not their salary, but their healthcare.
In my opinion, the correct way to set up the healthcare system is as follows: let everyone keep their employer provided benefit if they can/like. Otherwise, let people sign into any of their state’s employee health insurance plans. The state can (and already does) negotiate with insurance companies and gets reasonable prices and quality of care, while keeping the overall costs low, considering the larger pool size. If the Federal government wants to subsidize this, it can through tax credits, including early payments of tax credits for very poor families who can’t afford the premiums.
Mar 2 2023 at 1:35pm
Go to your state marketplace. The government will give you a generous subsidy.
Mar 2 2023 at 4:21pm
I feel these kinds of subsidies are for people who’re actually poor, not people like me who want to work on their own ideas on their own dime
Obamacare is crazier than you can imagine. For different income levels, there are different plans, with different coverage, premiums, etc. From outside, what we hear is that it has solved affordable care, but it’s just a giant bureaucratic concoction. There’s no subsidy. There are different plans based on income. If your income is zero, then you’ll get Medicaid and if more than zero, depending on level, you get a different plan. In the backend, it’s implemented as a tax credit, but in the front end, you only have access to certain plans based on your income (this is absolutely crazy and imo, can only come from a bureaucrat, not someone with any practical experience)
My point was that as much as I’m for free markets, when it comes to healthcare, there are a) supply issues esp in the US. (The idea that doctors in the San Francisco Bay area would compete for my business is just laughable. Seeing my own PCP takes about a month. A specialist takes around 3 months. And it’s not something we can fix so easily. Singapore is a tiny country and doesn’t need as many doctors) b) Insurance companies don’t know anything about my health when I sign up, so in order to minimize risk they jack up their prices. The risk would be significantly lower for them if the state bought wholesale from them, which will lower the cost c) As far as I can see (and I’m happy to be proven wrong here) there’s nothing anti-free market in my suggestion, even though it’s run by the state. The state of CA buys the insurance plans from providers at negotiated prices and gives it to whoever wants them with any administrative costs added. Now, if the state or federal government wants to subsidize this for particular groups, they can through tax credits
Mar 5 2023 at 5:20am
I hear that the VA actually provides the most cost-effective healthcare. I avail myself of their services and have no complaints. I appreciate their emphasis on preventive healthcare. So why not VA for all? Granted, such a system would be rather like the NIH.