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.