A response to T R Reid’s recent, interesting article in the Washington Post (http://www.washingtonpost.com/wp-dyn/content/article/2009/08/21/AR2009082101778.html).
I will discuss each of the myths not necessarily in an effort to refute the author’s point but rather to add some depth and counterpoints that are worth considering. His commentary makes some excellent points but leaves out some important distinctions not all of which have I touched upon.
Myth #1: It’s all socialized medicine out there.
The author is correct to point out that there are varying degrees of ‘socialization’ of medicine world-wide. It appears that his definition of ‘socialization’ is whether the facilities are government property and the care providers are government employees. The real issue is the degree to which the government is involved in, and influences, the health care sector. For example, he cites Japan as a country that provides care entirely through private sector mechanisms but does not mention that the government sets the prices, control reimbursements, and citizens are required (by law) to pay into a mandatory employer-based system. Sure the government doesn’t own the assets but it effectively controls them through reimbursements and pricing controls.
The author cites the US Veterans Administration as one of the most ‘socialized’ systems in the world- this is true and it is also true that it is considered to be one of the poorest quality, least customer friendly systems in the world (along with the US Native American system).
So one big question is: given the US tradition of individual liberty/responsibility just how much government intervention/control do we want in the healthcare sector? Which begs a second, more thought provoking question- what is the appropriate relationship between the individual and the government?
Myth #2: Overseas care is rationed through limited choices or long lines.
This statement is true in the more ‘socialized’ systems of Canada (see the Frasier Institute’s report “Waiting Your Turn”) and the UK (over one-million people awaiting treatment at any one time; one in five colon cancers progresses to an untreatable state while waiting for treatment). Other nations (France, Japan, and others) use co-pays to manage demand for medical services. Unlike in the US where the percentage of healthcare that is paid for by patients is dropping, in France and Japan the percentage of health care paid by patients is going up. This is achieved through a combination of increased co-payments (from 10-40% in France) and increased taxes. In such cases, the government has constructed barriers to utilization by effectively pricing consumers out of the market. This is not a bad idea in that it helps avoid the Samaritan’s Dilemma that we face with Medicaid here in the US- unlimited demand for a ‘free’ product. Recently, Investors Business Daily published an editorial discussing how increasing healthcare costs in France are forcing higher taxes and co-pays. (http://www.ibdeditorials.com/IBDArticles.aspx?id=336178343967257)
The author claims that “Germans can sign up for any of the nation’s 200 private health insurance plans — a broader choice than any American has.” While technically this is true as most Americans are limited in their choices to the plans offered by their employer, actually there are over 1,000 providers of health insurance in the US. Americans who receive health insurance through their employers do have their choices artificially limited by their employer as usually the employer chooses one insurance company and offers only that insurer to its employees. Employees have an incentive to use that insurer in order to take advantage of the tax benefit given to employer-based coverage. A change in the tax treatment of health insurance expenditures would better open up the market for individuals so they could purchase what they wanted and it could even allow companies to cut their overhead by getting rid of the administrative functions that currently manage their benefits programs.
Myth #3. Foreign health-care systems are inefficient, bloated bureaucracies.
There are two responses to this: First, regardless of which country you consider, (France, Germany, Switzerland, the US, etc.) they all have a cost control problem- health expenditures are blowing out the budgets and causing nations to take steps to either raise revenue (more taxes/fees) or limit utilization (waiting lists or higher co-pays). At a basic level, it does not really matter what the administrative costs are if the whole system is in the red. Second, the profit motive of private insurers also reduces the amount of fraud as they have an incentive to control fraud. The fraud and corruption in the Medicare/Medicaid programs run into the billions of dollars- the state of Florida recently investigated a group of HIV clinics and discovered that several of them were actually pizza parlors; one woman submitted thousands fraudulent Medicare/Medicaid claims through her laptop and was reimbursed tens of millions of dollars.
It is noteworthy as well to consider that no nation with a highly centralized healthcare system is nearly as large as the United States- either geographically or demographically. One finds it difficult to conceive of the scope of the bureaucracy necessary to manage a healthcare system this large- just consider how large and complex the Medicare/Medicaid/VA complex is and they don’t cover even half of the US population. As recently as 2004, the National Health Service of the UK was the 3rd largest employer in the world behind the Chinese Army and the Indian rail service. Consider the implications if the US system becomes more centralized than it already is.
Myth #4: Cost controls stifle innovation.
In response to this I will quote directly from a 2008 Cato Institute Study on health care systems in other countries (http://www.cato.org/pubs/pas/pa-613.pdf ).
“Moreover, the United States drives much of the innovation and research on health care worldwide. Eighteen of the last 25 winners of the Nobel Prize in Medicine are either U.S. citizens or individuals working here.32 U.S. companies have developed half of all new major medicines introduced worldwide over the past 20 years.33 In fact, Americans played a key role in 80 percent of the most important medical advances of the past 30 years.34 As shown in Figure 2, advanced medical technology is far more available in the United States than in nearly any other country.35 The same is true for prescription drugs. For example, 44 percent of Americans who could benefit from statins, lipid-lowering medication that reduces cholesterol and protects against heart disease, take the drug. That number seems low until compared with the 26 percent of Germans, 23 percent of Britons, and 17 percent of Italians who could both benefit from the drug and receive it.36 Similarly, 60 percent of Americans taking anti-psychotic medication for the treatment of schizophrenia or other mental illnesses are taking the most recent generation of drugs, which have fewer side effects. But just 20 percent of Spanish patients and 10 percent of Germans receive the most recent drugs.37 Of course, it is a matter of hot debate whether other countries have too little medical technology or the Unites States has too much.38 Some countries, such as Japan, have similar access to technology. Regardless, there is no dispute that more health care technology is invented and produced in the United States than anywhere else.39 Even when the original research is done in other countries, the work necessary to convert the idea into viable commercial products is most often done in the United States.40 By the same token, not only do thousands of foreign-born doctors come to the United States to practice medicine, but foreign pharmaceutical companies fleeing taxes, regulation, and price controls are increasingly relocating to the United States.41 In many ways, the rest of the world piggybacks on the U.S. system.”
It is also true that foreign consumers benefit from the presence of the US healthcare system because US consumers pay higher prices for drugs thus enabling pharmaceutical companies to recoup the R&D costs required to develop new drugs. The ‘low’ costs negotiated by other countries are sufficient to cover the incremental (marginal) costs of a new drug but not the fixed costs thus the US consumer is subsidizing innovation for the rest of the world. To put it another way, pharmaceutical costs to US consumers are kept artificially high because consumers in other countries are paying too little for the medicines.
Consider also, that when people the world over want the best healthcare they can get- they come to the US.
Myth #5: Health insurance has to be cruel.
No doubt insurance companies have some culpability in this area- there are plenty of accurate stories of heartless behavior. There are three responses to this: first, the great thing about having a market with over 1,000 providers is that if you are not happy with the product you are receiving you can change to another provider (just as you would with housing, food, or transportation). In places where there are few providers or where the providers have very little autonomy, the consumer has very little recourse in cases where they have been ill-served. Second, the purpose of insurance is to protect against significant/catastrophic loss not to handle every little niggling, minor expenditure that comes down the pike. To the extent that consumers/regulators/government have expected insurers to handle everything, the insurance companies have responded by creating systems to enable them to control costs, pay accurately, AND try to serve customers (with varying degrees of success). In addition, insurance companies have had to deal with an increasing regulatory burden: 30 years ago there were approximately 250 state mandates on health insurance companies, now there are almost 2,000. In addition, laws require the insurance companies to maintain separate companies within each state in which they do business. Consumers are not allowed to purchase health insurance from outside their state of residence. (Health insurance in New Jersey is several times more expensive than health insurance in other states). Such regulatory constructs automatically drive up the cost of insurance. Third, neither insurance companies nor the government is responsible for an individual’s health. Individuals take decisions every day that have more long term (and short term) influence over their health than almost anything an insurer or the government does. The problem usually comes when the sum of poor decisions results in a health problem or crisis. Individuals do not want to take responsibility (in the form of bearing the cost) for their decisions and seek instead to transfer the costs to others. In an insurance setting this handled through the mechanisms of risk pooling and pricing adjustments while in a more government controlled system this is addressed by transferring the cost to other tax payers in the form of taxes and fees.
What are described as ‘insurance companies’ internationally are not really anything more than payment clearing houses as they do very little to pool and manage risk. Thus, comparing them to US insurance companies is not accurate. It would be more accurate to compare their activities to the payment/fulfillment functions of Medicare/Medicaid.
The HIPA Act of 1996 provides for pre-existing conditions- if you have been insured for the previous twelve months you cannot be rejected for a pre-existing condition with the exception of a waiting period for coverage which is shortened by the amount of time within that preceding twelve month period you were insured. (http://www.dol.gov/ebsa/faqs/faq_consumer_hipaa.html)
Finishing notes: Much has been made of the World Health Organization rankings that showed the US as having the 37th ranked health care system in the world. I encourage you to read the CATO Institute’s analysis of that ranking and it’s study of other national health care plans @ http://www.cato.org/pubs/pas/pa-613.pdf . The analysis shows that in a qualitative, non-politicized study the US would have ranked much higher. I have also used the information in the study in this response.
In addition, we hear commonly that 46-47 million people are uninsured in America. Sally Pipes at the Pacific Research Institute, in an article in the Washington Examiner, breaks down the numbers and shows that the reality is much different. Feel free to read about it at: http://www.washingtonexaminer.com/opinion/columns/More-OpEd-Contributors/The_truth_behind_the_Census_Bureaus_insurance_figure.html
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