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Free market efficiency in health – not

Written By: - Date published: 7:05 am, March 15th, 2017 - 37 comments
Categories: capitalism, health, socialism, us politics - Tags: , , , , ,

Health care in the USA is very much in the news at the moment. That country likes to consider themselves the self appointed leaders of free market capitalism, but it’s well known that their market based health system is a train wreck compared to many state run systems. This piece (from a couple of economists) makes the point again:

Improving U.S. Healthcare and Coverage

As economists, we are genuinely partial to market-based solutions that allow individuals to make tradeoffs between quality and price, while competition pushes suppliers to contain costs. But, in the case of health care, we are skeptical that such a solution can be made workable. This leads us to propose a gradual lowering of the age at which people become eligible for Medicare, while promoting supplier competition.

Before getting to the details of our proposal, we begin with striking evidence of the inefficiency of the U.S. health care system. The following chart (from OurWorldInData.org) displays life expectancy at birth on the vertical axis against real health expenditure per capita on the horizontal axis. The point is that the U.S. line in red lies well below the cost-performance frontier established by a range of advanced economies (and some emerging economies, too). Put differently, the United States spends more per person but gets less for its money.

It really doesn’t matter how you measure U.S. health care outlays, you will come away with the same conclusion: the U.S. system is extremely inefficient compared to that of other countries.

Looking around the world, the healthcare delivery systems that have advanced longevity most at lowest cost—those at the top left of the first plot […] tend to be universal and with a substantial government role that establishes a statutory standard of insurance. At one end of this spectrum, Britain’s National Health Service is both the sole payer and provider—analogous to the workings of the U.S. Veterans Administration. Other systems offer a combination of statutory and private components: in the case of Germany, the former is several times larger than the latter. Our view is that the provision of universal care in the United States will require that the government assume a larger role than it has thus far.

The data behind that main graph, and a discussion of some possible explanations, can be found at OurWorldInData.org. Most of the countries that outperform the USA have state run / universal health care. Of those that do not, it would be interesting to know what legislative frameworks constrain private provision.

The idea of free market efficiency is not nearly as powerful or universal as its (often fanatical) proponents would have us believe. The sorry state of the USA’s health system is yet another compelling example of its limitations.

37 comments on “Free market efficiency in health – not”

  1. Andre 1

    Fundamentally the US model adds enormous administrative cost with the insurance model. There’s all the administration overhead, marketing, and profit on the insurance side. But it may be even worse for the administrative inefficiencies it imposes on the healthcare providers even just for routine stuff let alone the time sucked up if there is a dispute with insurers.

    • Andre 1.1

      There’s always voices in the US calling for single payer, even among conservatives. Here’s one that seems to have Trump’s ear, at least sometimes.

      http://www.vox.com/policy-and-politics/2017/3/14/14923784/christopher-ruddy-medicaid

      I’m really disappointed at how many US pollies missed their opportunity when Trump said “who knew healthcare was so complicated”. They should have been shouting “wanna make it simpler and cheaper? Go single payer. Medicare for all”

      • aerobubble 1.1.1

        14? million just lost access to healthcare, Trump delivered, he’s making it better, more inefficient more restricted. Trumps American dream.

        • Andre 1.1.1.1

          Has something just happened? Don’t see it on any news websites. As far as I know, the state of play is Ryan has shown his bill, the Congressional Budget Office has said it’s a steaming pile, more and more Repugs in the House and Senate are turning and saying they won’t vote for it when it comes up.

    • Sacha 1.2

      And the NZ govt wants to apply the same approach to privatising our social services. What could possibly go wrong?

      • Andre 1.2.1

        I’m more worried about how the US model is steadily creeping into health in NZ, stealthily under the radar. The big steps proposed for other services seem to spark more publicity and opposition.

        • Michael 1.2.1.1

          I agree. Labour must defend the public health system robustly, even if that means telling the people they will have to pay for it through progressive taxation.

      • Draco T Bastard 1.2.2

        Of course they do – the US healthcare system generates massive profits for the bludging shareholders.

        • AmaKiwi 1.2.2.1

          Draco, you’re spot on.

          Follow the money.

          Obama Care had to make huge compromises to be enacted. Add together the lobby bribes of the insurance companies, drug companies, and private hospital industry and you have mountains of money buying the legislators.

          “Sad”

          No. Criminal bribery.

  2. AsleepWhileWalking 2

    I heard that there is plenty of money but it is grossly misallocated. I was then given examples of outrageous G&A expenses.

  3. Bill 3

    NZ – an equal opportunity to receive a diagnosis (maybe). An equal opportunity to go on a waiting list…and then there are the outcomes.

    Private health insurance? Sorted.
    No private health insurance? How’s that wait feeling?

    I could bang on about this, but will limit myself to one instance about two people I know requiring hip replacements. One person, insured, done in a jiffy. The other, whose condition is more marked, but who has no insurance, has been waiting for yonks while their condition and general well being has deteriorated.

    At the moment they struggle to venture beyond the door and their body is fucking out because of the physical stresses and strains associated with compensating for the knackered hip joint. (I won’t go into any suspected opiate addiction resulting from the time spent waiting…waiting….waiting.)

    Still. Another six months and apparently the operation will finally be done…and any secondary complications may or may not iron themselves out after that. Or not.

    Healthcare should be about equal outcomes, not equal fucking opportunity.

    Wouldn’t it be nice if everyone with private health insurance just cashed in or up or whatever as a mark of solidarity and as a way to insist that this bullshit direction of travel for healthcare in NZ is not. fucking. acceptable…hm?

    Yup. I know. Not happening. Every person with private health insurance will have a reason for marking themselves out as a exception…

    • Draco T Bastard 3.1

      Wouldn’t it be nice if everyone with private health insurance just cashed in or up or whatever as a mark of solidarity and as a way to insist that this bullshit direction of travel for healthcare in NZ is not.

      If everyone had health insurance the wait for everyone would be just as long as the public list.

      You see, the pricing system that the market relies upon is actually there to price people out of the market.

      If people weren’t priced out of the market then the demand for doctors and hospitals and nurses would increase and thus wages would have to go up.

      • Draco T Bastard 3.1.1

        The US system and the NZ health insurance system proves that we cannot have an effective market in healthcare. It’s a natural demand monopoly – everyone needs it and a market is about pricing people out of getting that service.

        Healthcare, and many other modern services, isn’t something people should be priced out of getting.

    • AmaKiwi 3.2

      The rich would make sure waiting times disappeared if they did not have the fall back position of going privately.

    • miravox 3.3

      Agree Bill.

      I bang on about similar experiences in chronic care – specifically for conditions that requires ‘tweaking’ of medicine to control pain and progression of disease. I’ve known of public hospital care where the gap between appointments was 9 months. Pay for private care and the gap was the recommended 3 months.

      I’ve no idea how a person is meant to manage knowing that the constant stream of cumulative delays means they are in constant pain that affects all aspects of their lives and with the anxiety and stress of knowing the delay is not just enduring more pain, but also worsening the disease outcome.

  4. Tuppence Shrewsbury 4

    New Zealand still has a market in healthcare. And it’s very advantageous for consumers because of the nature of it. Health care is supplied at low cost by the state that’s pricing model is semi subscription on semi occurrence based, with subscriptions being arranged at a macro level. The othe key part of this is upstream where the state has almost monopsony like control In health. For 90% of health products it is the only purchaser, it is therefore the price setter.

    That’s not to say this is the most efficient model, but it works well with insurance companies having strong competition in the state itself and the state having its short comings compensated for by private medical care.

    It’s an efficient method of providing a public good. Probably why we see it mirrored in education too. If only we could admire it’s benefits and extend to other areas?

    • Draco T Bastard 4.1

      Bollocks – see above.

    • AB 4.2

      “and the state having its short comings compensated for by private medical care”
      That compensation of shortcomings is available only to the few who can afford private insurance.
      As these people also tend to be the powerful/decision-makers, the trend is towards the gradual degradation of the publicly-available services. Mainly because the powerful are happy to take resources off the public sector in order to award themselves the tax cuts with which they can pay their private health insurance premiums

    • Tophat 4.3

      Health is for those that can afford it. Our health system is great until you actually become sick.
      Our doctors only diagnose what their governing dhb can afford.
      Going on a wait list to get on a wait list is a very real issue, but being placed on that initial wait list is real work. Being told that having surgery would be, “contraindicative,” to your health is code for, “we have no money to carry out your surgery.”

      pharmac is great if you need paracetamol ,antibiotics etc but try to get a medicine that is not generic/commonly used, you will pay for it in total yourself.

      Acc is as useless as tits on a bull. All it does is deplete our access to proper accident insurance and reasonable compensation. They will try to break you by denying treatment costs and income compensation, sending you broke, forcing claimants to settle for far less than they deserve.

      While there may be a conscious effort to make going to the GP more affordable, only the looks have changed. It is certainly less expensive to catch flu these days but get truly sick and you’ll find the real costs of illness in NZ.

      • Draco T Bastard 4.3.1

        They will try to break you by denying treatment costs and income compensation, sending you broke, forcing claimants to settle for far less than they deserve.

        That sounds remarkably like the US health insurance industry as reported in Michael Moore’s Sicko.

        ACC, as envisioned and put into practice initially, was great. Neo-liberalism for the last thirty years has screwed it over thoroughly.

  5. Draco T Bastard 5

    That life expectancy chart is out of date: Life Expectancy In U.S. Drops For First Time In Decades, Report Finds

    One of the fundamental ways scientists measure the well-being of a nation is tracking the rate at which its citizens die and how long they can be expected to live.

    So the news out of the federal government Thursday is disturbing: The overall U.S. death rate has increased for the first time in a decade, according to an analysis of the latest data. And that led to a drop in overall life expectancy for the first time since 1993, particularly among people younger than 65.

  6. AmaKiwi 6

    As important as “life expectancy” is “reduced quality of life.”

    A good healthcare system helps people to be productive and self-maintaining until shortly before they die. A bad healthcare system has many people bed-ridden and/or disabled for many years before they die.

    The personal and social cost difference between the two is enormous.

  7. Paul Campbell 7

    When I lived in the US I had “good” health insurance – that meant that the main gatekeeper for me getting extended healthcare (more than a trip to the GP) was the insurance company’s agent on the phone who had to OK everything.

    That meant that every doctor or dentist’s office had at least one person (roughly per doctor in a multi-doctor practice) in the office who’s sole job was arguing with insurance companies about money) – there’s an inefficiency right there – two people (one at each end of the phone) that we just don’t have in our health system.

    The result is that it’s very hard to see a specialist in the US – took me a year of agony to get a gallstones diagnosis in the US, compared with my wife in NZ who took less than a month – on the other hand once I got my diagnosis I was in to hospital within a few days while my wife took close to a year – why? because in the US there are surgeons (and body scanners, etc etc) sitting idle waiting for work, while in NZ we have queues which mean that those expensive, scarce, resources busy all the time. Again far more efficient.

    Of course I’m arguing that queues for healthcare are a good thing – provided they’re not too long or course

    • Phil 7.1

      …in the US there are surgeons (and body scanners, etc etc) sitting idle waiting for work, while in NZ we have queues which mean that those expensive, scarce, resources busy all the time. Again far more efficient.

      There’s something you don’t see every day;
      an argument that spare capacity in critical societal infrastructure is a bad thing.

      *shrugs*

      • Draco T Bastard 7.1.1

        Cars are used, on average, 4% of the time.

        Does this, in your opinion, show good or poor use of scarce resources?

      • greywarshark 7.1.2

        What do you mean course? If I had to wait a long time in pain as you said you did I’d be course, as would befit someone who has often written on a blog with a love of freedom of expression.

        • greywarshark 7.1.2.1

          Probably I mean coarse. And I am not saying provision of health services is a laughing matter. I have a book on the USA lack-of system or rather it’s monetising of health. In a nation devoted to business and making money, there isn’t much that isn’t up for grabs, from principles to your liver, your health and welfare and everything that you need to live.

          And because money is so much the core of the society, if you can get past the Crime 101 stage and become a Master at it, with lots of dosh you will have broken through the picket fence pale. No longer beyond it you will have become one of the in-group too wealthy to be chastised satisfactorily and with a back door for slipping away. And so bent health professionals with money are vindicated by their wealth and hard to charge or change, despite the attempts of those who still have principles of public good.

    • Draco T Bastard 7.2

      Of course I’m arguing that queues for healthcare are a good thing – provided they’re not too long or course

      Yep, having a short queue shows high efficiency and the right amount of resources being put to use. Having either no queue or a long queue shows either poor use of resources or not enough resources respectively.

  8. RedLogix 8

    Watched Michael Moore’s latest film Where to Invade Next? last night. Hilarious, poignant and Moore at his clever best.

    I’ve always maintained the USA is an extraordinarily diverse nation; the ‘Land of the Free’ … you are free to be pretty much anything you damn well please. There are indeed many Americas, so it is wrong to make dogmatic generalisations about the place.

    Having said that Moore skewers right to the heart of all that is wrong with the American Dream.

  9. Adrian 9

    Aussie being a few years ahead is interesting, maybe it is the warmth, that helps longevity but I wonder if they are counting the Aboriginal stats yet, they weren’t for a long time.

  10. greywarshark 10

    Looking up info on Brit economist Douglas Hague I found some interesting bits in his obituary. He was an early adopter of Friedmans freemarket ideas. and helped Margaret Thatcher understand how to adapt these as Prime Minister.

    …During her tenure as Edward Heath’s education minister, contact with Hague was less frequent — but she insisted that they lunch occasionally (at the Epicure restaurant in Soho) because
    “the Department is full of communists and I need to check on issues… with someone whose views are like mine.”

    When she became party leader in 1975, Hague’s time was largely divided between his Manchester post and the Prices Commission in London, but he also served as one of her speechwriters; and during her 1979 campaign he was one of the very few academic economists who publicly supported her.
    After the election was won, an early paper in her Downing Street in-tray was from Hague urging the abolition of exchange controls — which was done within the year.

    Hague was a consultant to the No 10 Policy Unit from 1979 to 1983, advising on employment and other issues at a time when a gallery of economic thinkers were competing for the prime minister’s ear.
    During the painful 1981 recession he argued (and Mrs Thatcher, guided by another of her gurus, Alan Walters, eventually agreed) that interest rates were too high, and the private sector suffering too much, as a result of excessive focus on control of the money supply.

    Towards the end of his Downing Street stint, Hague moved his academic base from Manchester to Templeton College, Oxford — conveniently closer to London — and responded to a Policy Unit call for more sophisticated British management education by creating the Oxford Strategic Leadership Programme, which became internationally recognised as a stepping-stone for high-fliers.
    The prime minister, however, was initially sceptical: “Leadership?” she said to Hague. “You tell people what to do and they do it. That’s leadership!” …

    From 1983 to 1987 he was chairman of the Economic & Social Research Council, and thereafter he was a non-executive director of a variety of business ventures. He continued to write speeches for the prime minister from time to time, and (as a member of Oxford’s Wesley Memorial Church, which she herself had attended as an undergraduate)
    [He}was particularly proud to have provided her in 1988 with words from John Wesley to support a call to the wealthy, who had recently enjoyed tax cuts, to turn to philanthropy: “Get all you can. Save all you can. Give all you can.”

    http://www.telegraph.co.uk/news/obituaries/11444810/Sir-Douglas-Hague-economist-obituary.html

    (But then I wonder, give to whom? The wealthy often become philanthropists giving away works of art. Applying money to ordinary folks is only worthy when it goes to some special group with some disablement. The disablement of poor childhood in all senses, and the effect of funding a micro bank with myriads of small successes, rates less.)

  11. Infused 11

    I think i’d trust the US system more than most others though. Get cancer or something over there, if you are insured, you’re getting treatment within hours.

    • Bob 11.1

      You’d bloody well hope so if you are effectively paying 3 times as much for healthcare as you do in New Zealand!

    • McFlock 11.2

      lol

      “if you are insured”.

      Yup.
      And driving drunk is a really relaxing and chill way to travel, if you don’t have an accident or get pulled over. /sarc

    • joe90 11.3

      if you are insured

      Indeed.
      /

      Mayo Clinic’s chief executive made a startling announcement in a recent speech to employees: The Rochester-based health system will give preference to patients with private insurance over those with lower-paying Medicaid or Medicare coverage, if they seek care at the same time and have comparable conditions.

      […]

      Mayo will always take patients, regardless of payer source, when it has medical expertise that they can’t find elsewhere, said Dr. John Noseworthy, Mayo’s CEO. But when two patients are referred with equivalent conditions, he said the health system should “prioritize” those with private insurance.

      http://www.startribune.com/mayo-to-pick-privately-insured-patients-amid-medicaid-pressures/416185134/

  12. Richard McGrath 12

    If you think the U.S. has a free market health system, frankly you’re deranged. It is massively regulated.

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