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Thursday, February 7, 2008

The US Health-Care System, Comparatively Viewed

Introductory Comments 

Busy busy for days now, sedulously running down some more data and preparing some charts and tables for the last buggy article in the series on Scandinavian economic performance, prof bug has taken time off every now and then --- if you want, some R&R for the obsessive, hyper-charged mind --- by posting at a couple of very good economic web sites. 

Where Prof Bug Has Been Posting

One of those economic web-sites you already know: it's the Marginal Revolution where the series on Scandinavia originated in some exchanges prof bug had with some Scandinavian posters in the forums there. The other site, interestingly, is also libertarian and is one of the two most empirically grounded economic blogs that can be found on the web: Mark Perry's outstanding Carpe Diem. A professor of business finance and economics at the University of Michigan, Mark Perry, as it happens, is the former pupil of Tyler Cowen, the wide-ranging, unusually cultivated economist who runs the Marginal Revolution, 

Odd, this coincidence ---no? And odd in another way too. 

Prof bug, you see, is not a libertarian, a designation for those free-market champions who essentially favor a laissez-faire form of free-market capitalism, with any government intervention in the economy that goes beyond the basic public goods that Adam Smith himself signaled out as needing government provision politically motivated and destined to backfire and make market outcomes worse in the long-run, not better.   Smith mentioned four such public goods, which self-interested free-market agents --- workers, consumers, firms, and investors --- wouldn't likely provide on their own, owing to what would now be called "collective action" problems like free-riding: namely, a legal system and police that protect the lives and property of the citizenry, the creation of a military and national defense, the supply of basic infrastructure like city roads and ports, and maybe basic state-run education. No need to elaborate here. The next article --- already done, just in need of formatting for the web --- will deal at length with another libertarian economic blog, EconLog, and the naivete of standard-model libertarianism when it comes to international relations: not just in military, diplomatic, and security matters, but also in trade, investment flows, and technological transfers . . . all of which have, potentialy, large security-spillovers that might alter the distribution of economic and military power between countries. 

So, historically over the millennia and since WWII, trade in goods, investment flows, and technological transfers (if any) have flourished either between long-standing military allies but not others, or when there has been a dominant state --- a hegemon, whether an empire that conquers other countries and colonizes them or, starting only with the industrial revolution and first a limited British hegemony in the mid-19th century and a more extensive one under US auspices since WWII that eschews colonizing other countries, has no territorial objectives, and uses its vast economic, financial, and military power to expand international trade in rule-bound institutional ways: think of the World Bank, the WTE, the IMF, and so on.  We can call such a dominant power a liberal hegemon.

To repeat, though, that's for later.

Enter Today's Subject: the US Health-Care System Comparatively Viewed 

Right now, the buggy comments that follow deal with the problems of the US health-care system, in their own right but also, and more to the point for our concerns, as compared with the Canadian and West European state-run health-care systems. Keep in mind as you start to read through those comments that they appeared in a forum where a couple of dozen others had already posted their own views in reply to Mark Perry's stimulating commentary. Keep in mind too, as the next section heading stresses, that we're dealing with the private insurance system of health care in the US, not that of government-run Medicaid, Medicare, and Veterans' Hospitals and Clinics . . . all of which public systems, surprisingly, account for about 40-50% of the huge medical expenses in this country yearly. To clarify, in the private and public spheres together, we spend about 16% of GDP on health-care. The Canadian and West European systems spend roughly anywhere from 8-11% of their own GDP output.

To note this is not to deny that there are problems with our health care system, some of which we share with other rich industrial countries like Canada or those in West Europe, and some that are specific to our unique system.  Four of these problems stand out.  Noting them separately would help, I believe, to stimulate a more focused exchange on the pros and cons of our system, whether in.

Problem One: The Uninsured

This is a problem largely confined to the US.  Until we can reach agreement on roughly the nature of those 45 million residents here --- residents, please note: not necessarily citizens --- the problem is likely to be exaggerated.   No need for me to delve into the nature of those 45 million.  Someone else in this forum has already done a good job of dissecting it, according to the best available information: about 7 million, possibly more, are illegal immigrants; about 9 million are actually on Medicaid for low-income families; several million --- the figures are anywhere from 3.5 million to double that --- are qualified for government health programs, but for one reason or another don't enroll; and anywhere from 8 million to double that are in households with an income twice that of the poverty level, $41, 300 for a family of four.   Click here for the source of the data. For all the data, what's missing in the discussion so far of this problem are two things:

1.How long does the average uninsured person remain without coverage?  Apparently, it's 6 months.  They are people in transition from one job to another, nothing more serious.

2. Are those uninsured persons, including illegal immigrants, deprived of medical treatment?  The answer is no.  Though the laws vary from state to state, in California --- I live in Santa Barbara --- all emergency rooms and public clinics are required to treat anyone without coverage, though those with adequate incomes --- about a quarter to a third of those who are uninsured in this country --- will probably have to pay at least some of the treatment, all depending on what the hospitals and clinics will try to charge and how they'll collect payment.

It doesn't follow that there aren't a large number of those in this group of uninsured who would benefit health-wise from more predictable and dependable medical treatment, but my own knowledge on this point is fragmented and uncertain.

Problem Two: Lack of Portability

This problem is also largely American-made, and it may limit the mobility of our labor force.  In particular, if a job-holder has medical coverage through his or her employer but is dissatisfied with the job for various reasons and would like to move on and take another job that is more challenging and with better prospects, that person might fear such a change if the other, more promising job lacks any medical benefits.  The hesitation here will be all the greater if the job-holder has a family to look after that is currently covered by the existing medical coverage.   Those who think that our economy would benefit from greater choice of jobs --- matching talents, aspirations, and work-commitments more closely to the job market --- would, it seems, support some sort of portability that goes way beyond the existing COLA system, no?

Problem Three: An Aging Population

This, as it happens, is a problem we share with all other industrial countries, except that all of Europe and Japan are starting to find it's more acute. 

That's partly because their populations are aging faster than ours, and their demographic working population --- say, 18-65 --- is shrinking every year.  It's also because their economic growth has generally been slowed than ours since 1975, as has their rate of productivity growth for the last 15 years or so.  No matter.  As is the case abroad, so it is here in the US: more and more retirees who live longer and longer will necessitate more and more medical treatment, a costly prospect that is not going to be reversed no matter what system of medical care a country has. 

About all one can say is that the problem is likely to be more easily handled --- if that's the right term --- thanks to the reproduction levels of the US population, immigration, and steady progress in labor- and multifactor productivity. . . the latter meaning the growth of knowledge, whether embedded in machines or in specific firms' ability to manage and work effectively with an ever more qualified and motivated labor-force. 

Problem Four: Rising Medical Costs.

Though several of the posters in this forum have rightly noted that we spend much more on medical care than Canada (or Japan or West Europe) as a percentage of GDP, these other coutries are experiencing the same sorts of cost-spirals these days that we are. 

In France, just to cite it, the state-run health system has recently ended the ability of its users to choose any doctor they want, including a specialist.  They must now register with a particular general practitioner, and access to specialists and tests will operate more or less like our HMOs.  The French public will also have to pay a larger share of any prescribed medicines.  (France, like almost all of West Europe --- but not Canada outside of British Columbia --- allows individual citizens to supplement tax-supported medical care with private insurance, including the use of specific doctors and privately run hospitals and clinics.)

Once again, I have no knowledge about any solutions here but can add one thing --- a personal note, based on having studied and taught in several European universities over the last 46 years in Britain, France, Germany, and Switzerland.  Namely?  Average per capita income in this country --- and for that matter disposable household income (after taxes, deductions, and transfer benefits are reckoned in) --- is more higher than in West Europe or Japan.  In rounded off figures, per capita income adjusted for purchasing power parity is about $44,000 in the US.  The average for the EU-15 (West Europe) is about $33,000, or about a third higher.  Disposable income is about that much higher too in the US, actually a little more so. 

The Moral?

It may not be the right one, it's only a speculation, little else --- but a richer country's citizenry might prefer to pay more if they think they are getting higher-quality medical treatment and medicines.  So do we get better treatment and medicines than Europeans get? 

Yes, I think so --- but to understand this point, we need to leave aside the statistical bandying back and forth that some posters have engaged in about the treatment outcomes and longevity in Canada as opposed to the US.  With one or two exceptions, most of the claims fail to isolate the effectiveness of various health-care systems, which means timely diagnosis and treatment outcomes, from the wider sources of medical pathologies that flourish more in some societies like ours than in others.  In our inner cities, you find mainly broken families, fatherly abandonment, low educational levels, lots of new immigrants who can't even understand the prescritions on the drugs they obtain from doctors in public clinics and hospitals --- a problem that also flourishes in much of the inner cities' minority communities whose members are born in this country --- not to forget bad diets, excessive drinking, excessive smoking, excessive drug use, and lots of violence . . . the homicide rate among black men, especially youths, several times higher than in the white and Asian communities.  All these social pathologies have been aggravated by the flight of the black middle classes to the suburbs, the collapse of community organizations in the inner cities, and a startling illegitimacy rate of around 70% among African Americans.  Is it any wonder that over 50% of black youths --- and almost 60% of Hispanic youths --- drop out of the Los Angeles school system before graduation? (For a laudably illuminating article on these matters, see Linda Gottfredson, Social Consequences of Group Differences in Cognitive Ability

Back to the central issue here: do we get better medical treatment from the high level of money that we spend compared to Canada and West European countries?

In my own experience, over years and decades of being treated by British, French, Swiss, and German doctors and nurses, I can say straightforwardly that American doctors are much better trained than their counterparts in the countries I've mentioned; have access to far better diagnostic equipment, and with a rapidity for the patient unknown in Europe; and can call on more expert specialists to treat their patients far more efficiently and promptly than elsewhere.  Nor is that all.  If an operation is needed, it will also be scheduled promptly here, and it will be done in hospitals that are generally far cleaner and more comfortable than in Europe, though Swiss ones may be something of an exception here.  Follow-up visits to the surgeons or other specialists are also far easier to schedule here, and in a timely manner.  Note though.  Whether these American advantages exist vis-à-vis Holland or Scandinavia is another matter.  I can't say.  I've never had to be treated there on vacation visits. 

These observations, to repeat, are strictly subjective, though --- for what it's worth --- they are shared by most other Americans I have met who have lived in West Europe for several years or more.  Granted, whether the higher quality treatment here is proportional to the much greater percentage of GDP we spend than  Canadians or West Europeans do is a separate question.  Most likely, the answer is no. 

Costs of Medicines Here and Elsewhere

Oh, almost forgot: the costs of medicines here and in Europe. 

We do pay more here than Canadians or Europeans, much more . . . and overwhelmingly because of the decentralized nature of our health system compared to the monopsonistic buying power of European and the Canadian governments.  The core reason besides the buying power of single-payer systems?  In effect, these governments are free-riding on the pocketbooks of American health consumers who, alone, support the high costs of pharmaceutical R&D.  Ultimately, it's true, the initial cost burdens of such R&D will be offset by the availability of generics  --- more widely used, until very recently, in this country than in the four European countries I mentioned ---  but whether those low generic prices fully compensate us for the free-riding of others is another matter.  I don't know.  I do know that if we were --- as is unlikely --- to move to a state-run health system, the US government would also adopt a monopsonistic buying stance and hence the costs of medicines in Canada and Europe would have to rise in the upshot. 

In the meantime, part of the higher expenditures on medical care in this country compared to Canada and West Europe goes back to our being both richer and able to afford pharmaceutical R&D at the technological frontier.  Whether that's "fair" or not is another matter. 

Michael Gordon, AKA the buggy professor

Two Postscript Add-Ons

1)  Just remembered, in line with what Mark Perry has mentioned the last few days in his blogging posts.  In Santa Barbara, down the steep hills where I live not far from downtown, there's a shopping street that largely serves the city's fairly large Spanish-speaking minority: most citizens, but with lots of illegals.  There are, in a stretch of about 13 blocks, two community-supported clinics manned by good doctors and nurse practitioners that are open to all, with minimal fees.  There are also two privately owned walk-in clinics.  One of those just opened, run by a doctor who was at the other private clinic.  He's an excellent practitioner, whom we use for our own doctor; he speaks excellent Spanish; his new offices are immaculate and attractive; and he has a sign out in front in Spanish: $40 a consultation. 

The moral here?  We can certainly expect far more of these private initiatives to materialize all over Southern California and  no doubt elsewhere. 

2) Added on after prof bug published this buggy article: specifically, thanks to a poster at Carpe Diem, he found a link outstanding web-site analysis of the US health-care system,  Here is one excerpt from that article:

Myth No. 6: Single-payer systems achieve better health outcomes.

Most single-payer advocates point to life expectancy and infant mortality as evidence that single-payer systems produce better health outcomes than the U.S. And, indeed, the U.S. has lower life expectancy and higher infant mortality than many nations with a single-payer system.

The problem is that life expectancy and infant mortality tell us very little about the quality of a health care system. Life expectancy is determined by a host of factors over which a health care system has little control, such as genetics, crime rate, gross domestic product per capita, diet, sanitation, and literacy rate.

The primary reason is that the U.S. has lower life expectancy is that we are ethnically a far more diverse nation than most other industrialized nations. Factors associated with different ethnic backgrounds -- culture, diet, etc. -- can have a substantial impact on life expectancy.

A good deal of the lower life expectancy rate in the U.S. is accounted for by the difference in life expectancy of African-Americans versus other populations in the United States. Life expectancy for African-Americans is about 72.3 years, while for whites it is about 77.7 years. What accounts for the difference? Numerous scholars have investigated this question. The most prevalent explanations are differences in income and personal risk factors. For example, one study found that about one-third of the difference between white and African-American life expectancies in the United States was accounted for by income; another third was accounted for by personal risk factors such as obesity, blood pressure, alcohol intake, diabetes, cholesterol concentration, and smoking and the final third was due to unexplained factors.

Infant mortality is also impacted by many of the same factors that affect life expectancy -- genetics, GDP per capita, diet, etc. -- all of which are factors beyond the control of a health care system. Another factor that makes U.S. infant mortality rates higher than other nations is that we have far more pregnant women living alone; in other nations pregnant women are more likely to be either be married or living with a partner. Pregnant women in such households are more likely to receive prenatal care than pregnant women living on their own.

Perhaps the biggest drawback of infant mortality is that it is measured too inconsistently across nations to be a useful measure. Under United Nations' guidelines, countries are supposed to count any infant showing any sign of life as a "live birth." While the United States follows that guideline, many other nations do not. For example, Switzerland does not count any infant born measuring less than 12 inches, while France and Belgium do not count any infant born prior to 26 weeks. In short, many other nations exclude many high-risk infants from their infant mortality statistics, making their infant mortality numbers look better than they really are.

In areas where a health care system does have an impact, such as treating disease, the U.S. outperforms single-payer systems. For example, the U.S. has a higher five-year survival rate for victims of heart attacks than Canada, due to the fact that we do more bypass surgeries and angioplasties in the U.S. Hospitals in the U.S. also commit fewer errors than hospitals in countries with single-payer systems like Australia, Canada, New Zealand, and the United Kingdom. [Back to Top]