Economy

Affordable Public Health Care in the US

By Ryan McGreal
Published May 18, 2007

In various recent news reports, a number of US corporations are starting to recommend that the US adopt some kind of single-payer health care system as a response to skyrocketing health care costs.

Predictably, this is running into serious interference from investors and managers in the health care industry, plus the extensive 'bought priesthood' of pro-market pundits and analysts.

Their arguments gain additional traction from the pervasive, self-serving mantra in the US that the government can't do anything right.

Resource Allocation and Market Efficiency

Market price brings supply and demand into balance in part by pricing some potential buyers out of the market. If you cannot afford something, you have no economic "demand" for it (even if you need it to survive).

Economists call this "rationing" because it allocates resources based on ability and willingness to pay. Public health care systems, by contrast, use non-price rationing: allocating resources based on medical need as assessed by doctors, triage nurses, and so on.

According to market ideology, goverment monopolies are inherently inefficient because efficiency isn't rewarded financially. Markets maximize allocative efficiency - directing flows of investment into where they will generate the best return.

Since market forces don't apply in a government system, the argument goes, capital is mis-allocated and people have no incentive to cut waste or respond to demand.

However, the evidence is inescapable: universal, single-payer health care costs less and works better than private health care.

By costs less I mean less money must go into the system to fund it. By works better I mean everyone has medical coverage, and decisions on how to allocate and ration care are based on medical need rather than ability to pay.

These two properties of universal, single-payer health care only seem contradictory to people who look at the problem through the filter of free market ideology rather than looking at what's actually happening.

Public Health Care is Not a Monopoly

A monopoly refers to a single seller for a product (i.e. buyers have no choice and the seller is protected from competition). With single-payer health care, there is a single buyer and many sellers. The government doesn't provide the health care services, so the health care system isn't a government monopoly.

This changes pretty dramatically the dynamics of the business. In particular, patients have freedoms and choices that a private market cannot provide.

You can choose which doctor or medical centre to use (as long as they're accepting patients) and get a second (or third) opinion if you're unsatisfied.

Doctors make medical decisions based on what you need. They don't order unnecessary tests to avoid potential liability or deny services because it's not covered or you have a pre-existing condition.

Even in a "free market" for health care, there's still going to be some provision for the poor, because most people are not psychopaths. That means you're going to pay for someone's health care through your taxes no matter what.

However, because the mishmash of Medicare, Medicaid, charity, and written-off accounts payable are inefficient and ineffective, Americans end up paying as much in taxes to support their broken fragments of a system as Canadians spend to finance their entire system.

Undermining Health Care

None of this has stopped the corporatist right wing from trying to undermine public health care since its inception, with a relentlessly negative propaganda campaign about how public health care would cost a fortune, be a bureaucratic nightmare, and kill patients through incompetence, cronyism and rampant waste.

Of course, the exact opposite happened: costs grew much more slowly than in the US, coverage was extended to just about everyone in the country, and medical professionals retained their competence at diagnosing and treating illness. They somehow managed to find the motivation to stay in the country and work for 'only' $100,000-$500,000 a year, depending on their specialty.

Rich conservatives in Canada resent the fact that they can't buy their way to the front of the line - that care is allocated by triage, or medical need. To paraphrase Richard Perle, There's got to be some advantage to being super-rich.

Above all, they resent the fact that it's hard to get rich off treating sick people. They can't get rich off fat contracts with manufacturers, risk selection against pre-existing conditions, or legislated corruption like the ghostwritten provision in the US pharmacare bill that forbids the government from negotiating volume discounts for its purchases.

Corrosive Cronyism

This last part is really significant: where cronyism and corruption destroy public-private enterprises is where for-profit corporations are able to lobby governments to change the conditions of their contracts in ways that benefit the corporations at the public expense.

Because for-profit health care is (more or less) illegal in Canada, the people providing care are either non-profit hospital corporations or individual doctors/small businesses billing directly to the government on a fee-for-service, capitation, or combined basis.

In other words, Canadian medical professionals are not a bloc of executives, investors, and lobbyists in a for-profit corporate environment who have been socialized and selected to try and game the system.

Instead, the people working in the Canadian health care system generally support the ethical principle of universality, make a good living providing it, and recognize the myriad tangible benefits of a health care system that, for example, doesn't leave pockets of squalor where diseases can fester and threaten the larger population.

Further, their organizational affiliations (the federal and provincial medical associations, nurses' unions, etc.) are democratic organizations in which every member has an equal say in what the organization stands for, rather than for-profit corporations where one's vote is equal to one's share of ownership.

When they lobby the government, they lobby for what their members want, not for what their owners want. What their members want is good governance.

Savings and Efficiencies

In a universal, single-payer system, there's little or no need for accounts payable departments, collection agencies, vast legal departments, marketing and advertising teams, auditors, investigators, and all the encrustation that piles up on for-profit health care providers.

They don't need it because the billing system is straightforward, there's only one payer, and they're not in competition with each other for market share.

In fact, as I hinted above, it would be possible for the US to operate a Canadian-style health care system for what they're already spending on Medicare and Medicaid.

According to the World Health Organization's World Health Report 2005 [PDF], the US government spends $2,368 USD per person per year on public spending toward health care (out of a total of $5,274 per person per year).

In Canada, total (public and private combined) health care spending is only $2,222 USD per person per year. Of that, the government spends $1,552.

In other words, Americans' taxes would not go up, but their out of pocket expenses and payroll costs would do down, making the country more productive and more competitive.

The Two Systems Cannot Coexist

Opponents of public health care often argue that they should be allowed to maintain a private system based on ability to pay that runs "parallel" to the public system.

The problem is that as soon as you introduce for-profit health care corporations, they immediately start trying to game the system to their benefit by pouring money into the campaigns of politicians who will support them by changing the rules to ensure their profitability and crowd out 'unfair' competition from the public system.

At the same time, people who choose to pay for "parallel" care resent having their taxes go to support the public system. This results in underinvestment, draining the public system of resources and establishing a spiral of declining care, which pushes more people into private care, further undermining the public system.

This is what happened in the US. Forty years ago, the US and Canada had very similar health care systems: private, for-profit, mostly consisting of individuals and small corporations. After Canada adopted universal care (like nearly every other industrialized country) and the US did not, they diverged rapidly and markedly.

As a result, the US health care system is the fastest growing industry (especially after the housing boom collapsed), and is on track to swallowing 20 percent of GDP in a couple of decade or so if growth trends do not change. This fact, of course, is why some manufacturing companies are considering a public system in the first place.

As long as big, for-profit corporations are delivering health care in the US, the system will never be fair, it will never be democratic, and it won't even be capitalistic, in the sense of competition in a free market. The health care industry would never allow it.

Inherent Stability

Canada broke the backs of its health industry parasites before they became too big to manage; the US did not, and is now stuck with a bloated, corrupt leviathan of self-serving pork that sucks real wealth out of the economy, leaves some people under-medicalized and others over-medicalized, and dumps most of its research and development money into expensive, dependency-inducing disease management instead of prevention and vanity interventions instead of holistic care.

This bears repeating: a big part of why the Canadian system sustains itself as well as it does is that it simply isn't under nearly as much pressure from industry to compromise public values for private profit.

It's the reason we can afford universal care for what Americans pay toward Medicare and Medicaid. It's the reason our total medical expenses (public and private) are only half the total US medical expenses, but we still manage to extend care universally.

A country can try to balance a triangle on one point and exhaust yourself keeping it upright (by trying to stop health care corporations from peddling influence), or it can establish a system that inherently tends toward balance and stability.

Market forces, however useful, are simply not appropriate to solve every problem, and certainly not every public policy problem.

Market Demand is Incompatible with Medical Need

The ultimate failure of market-based health care, even if a country somehow manages to keep your corporations in check, is that the effective demand for health care (medical need) is not correlated or compatible with market demand (ability to pay).

As soon as you have to introduce a public bureaucracy to cover the market failures among those people who need medical care but can't afford it, you establish capital and operating costs for providing that public stopgap. The public health infrastructure is approximately a fixed cost, so you want to maximize the utility of that fixed cost by extending coverage to more people and reducing the per capita fixed expense of the system.

It turns out the best way to do this is to extend public health care to everyone. The savings from eliminating means testing, auditing, investigations, and so on (since people no longer have to jump through hoops to prove that they are entitled to coverage) cover a big chunk of the variable cost of providing care to all those extra people.

Affordable Public Health Care

The savings from eliminating profit and the other encrustations of corporate health care, plus the economies of scale from a single buyer cover the rest of the variable cost of providing care to all those extra people.

Voila: you've just extended universal health care to every American without raising taxes. You've reduced payroll costs by thousands of dollars per worker per year. You've reduced out-of-pocket expenses, co-pays, and fees.

You've reduced the cost of going into business for oneself. You've reduced the cost of small businesses hiring more employess. You've reduced the incidence of bankruptcies due to illness.

You've also reduced the incidence of disease outbreaks among populations with little or no access to health care.

The conceptual benefit of theoretical "market freedom" is piss in the wind next to a sustainable program that's affordable, effective, efficient, maximizes freedom of choice for all citizens, is fair and equitable, and supports empathy across a mixed, diverse population.

Ryan McGreal, the editor of Raise the Hammer, lives in Hamilton with his family and works as a programmer, writer and consultant. Ryan volunteers with Hamilton Light Rail, a citizen group dedicated to bringing light rail transit to Hamilton. Ryan writes a city affairs column in Hamilton Magazine, and several of his articles have been published in the Hamilton Spectator. He also maintains a personal website and has been known to post passing thoughts on Twitter @RyanMcGreal. Recently, he took the plunge and finally joined Facebook.

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By bluechip (anonymous) | Posted May 18, 2007 at 18:15:36

Same old misinformation. When you have universal coverage and everyone pays taxes to support it, healthy individuals go to the doctor just to feel that they are getting some of their money back. Canadian doctors see an average of 3,143 patients a year compared to U.S. doctors who see 2,222. This overuse steals health care dollars away from those with the greatest needs. Mandatory universal health coverage plans do not provide universal health care. They shortchange those with the greatest need.
The answer in this country is to attack cost and quit buying so much health care. You do that by getting people to stop leading unhealthy lives. We have a diabetes epidemic in this country and it is caused by overweight people not taking care of themselves. People need to change the things that they have control over. These (smoking, weight, lack of exercise, alcohol, etc) accounted for 49% of all deaths last year.

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By greenchip (anonymous) | Posted August 21, 2007 at 09:24:07

@bluechip

Ha ha, you've got to be kidding me. You dismiss a detailed, well-argued essay by noting the fact that canadian doctors see more patients in a year - that canadians are more likely to go to the doctor when they're not feeling well?

Is that really the best you can come up with? I guess the argument is already over.

as for getting people to stop leading unhealthy lives, that's a completely separate issue from how to deliver and pay for healthcare. OF COURSE it makes sense to try and persuade people to live more healthy lives, but guess what: pubilc health care does a better job of this, because each time a patient sees a doctor, that's a chance to talk about lifestyle and it's effects on health.

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By jajjj (anonymous) | Posted October 01, 2010 at 11:53:05

Market demand and medical need are in fact related. If you are concerned about ability to pay, that is where insurance takes place. If you have a portion of the population that can't afford health services, yes, there should be money given.

If you have a consumer driven system, there is an incentive for each policy holder of a health insurance plan to want to buy prevention and health, since a significant portion is coming out of his/her pocket.

There is no reason that most Canadians shouldn't have to pay upfront for a significant portion of normal medical costs.

Most of the efficiencies you talk about are due to free trade, and not the inherent virtues of a socialized system.

For example, in effect, due to the third party payer system in the US, I as an American subsidize your brand name medication. Again, since Canada can push down doctors salaries and prescription salaries by fiat, big pharma takes advantage of third party paying in the US to compensate.

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