Government-run health care is more efficient. Why?

Conservatives love to hate government, and they often say that the free market is more efficient than government at providing services.

Inconveniently for conservatives, government-run health care systems in other industrialized nations provide higher quality health care at far less cost than America’s complicated market-based system.  And Medicare has lower overheads that private insurance.

And it’s not just health care. Government can do banking better too.  The state-owned bank of North Carolina outperformed Wall Street.

Conservative messaging about government

That government is inefficient is the central dogma of modern conservatism.  Until the 1980s, the extreme anti-government stance of the John Birch Society and libertarians such as Barry Goldwater was a fringe movement on the right.   Republican presidents such as Eisenhower and Nixon were moderates.  Starting with the Reagan presidency, extremism became the norm within the Republican Party.   Reagan famously said: “The nine most terrifying words in the English language are, ‘I’m from the government and I’m here to help.'”  But even Reagan raised taxes. Nowadays he’d be too moderate to win a GOP primary.

Anti-government libertarianism is a huge fraud foisted on the American public. It’s been used to justify tax cuts and deregulation that crashed the economy; drove up the debt;  concentrated wealth and power in the hands of the few; led to underfunding of education, research, social services, public media, and infrastructure; caused wasteful privatization of defense and education; resulted in the commercialization of medical care; and led to exporting of jobs and profits.

It’s important to appreciate the extent to which conservatives have succeeded at convincing vast swaths of the American public that government is inefficient. Harold Meyerson in the winter 2015 issue of The American Prospect reports that 54 percent of voters in the 2014 elections believed that government is doing too much.  And 52 percent of white working class people agree with the statement “government spending is almost always wasteful and inefficient.”

Meyerson  also reports that in the 2014 elections Democrats lost among white working class voters by 30 points.  No doubt, this is partly due to wedge issues (guns, gays, and God), racism, and opposition to immigration. But GOP messaging about alleged government inefficiency must have contributed to the outcome too.  Ramussen reports that Americans continue to trust Republicans more than Democrats to handle the economy. (On the other hand, the low turnout of 36.4% in the 2014 elections probably reflects voter mistrust of both parties.  In Sept of 2014, Congress’s approval rating was at about 14%, according to Gallup.   People who bother to vote may be voting for what they perceive as the lesser of two evils.)

Conservatives succeeded at convincing much of the public that government doesn’t work by making sure government doesn’t work for any but the few.  Waste, fraud and corruption flourished when Republicans controlled the White House and Congress during the early years of the Bush II presidency.  When conservatives were out of power, in the beginning of the Obama Administration, they filibustered and voted (often unanimously) to obstruct and dilute the Democrats’ policy proposals. Even if there was evidence that a government program worked, Republicans opposed it, on principle. (Here is an example.)

Yes, conservatives complain about government waste and spending. But it’s Reagan and Bush II who drove up the debt, via tax cuts and disastrous wars, while Clinton had a huge surplus and under Obama government spending actually decreased.

Conservative messaging and policies have convinced Americans that government can’t be trusted and that it offers little of value, though without government we’d be hunter-gatherers, and without government protections and services, corporations couldn’t function (Government is like a Computer Operating System). Fraud and reckless deregulation crashed the economy.  Without government bailouts we’d be in a depression.

In the rest of this article I’ll summarize some facts about healthcare and about how the US system is less efficient than overseas systems that rely on government to run or regulate healthcare. I’ll then formulate a high-level explanation why government is more efficient for  health care and certain other industries.

The US health care system is inferior

The World Bank reports  that in 2009 (before the start of the Affordable Care Act) the US spent 17.7% of GDP on health care — a higher percentage than any other nation on the list.  In contrast, France (which conservatives love to hate) spent 11.7% of GDP on health care.  In 2011 OECD reported that the US spent $7900 per capita on health care. The next highest spending was $5348 in Norway.  France spent $3930.

France is rated number 1 in health care quality by the World Health Organization. The US ranks #38, behind Costa Rica and Dominica.  France covers every resident of France and guarantees everyone a roughly equal level of treatment.  They have more doctors per capital and more hospital beds.  They go to the doctor more often than we do (8 times a year versus 5).

The Commonwealth Fund rated the United States dead last for “healthy life expectancy at age sixty.” They also rated the US the worst of the developed countries for avoidable mortality. “The number of people under seventy-five who do die from curable illness was almost twice as high in the United States as in … France, Japan, and Spain.”

On infant mortality too, the US rates low: 6.8 out of 1,000 births. That’s higher than Poland (6.4). Sweden has 2.4 deaths per 1,000 births.

Reid says that a key reason for low infant mortality overseas is that most countries offer free prenatal and neonatal care.

Japan spends about half as much per person on health care  (8%of GDP) as the US (17.7%) . But “the average Japanese visits a doctor about 14.5 times a year — three times as much as the US average, and about twice as often as any nation in Europe.”   They do twice as many CAT scans and three times as many MRIs, and hospital stays are on average much longer (8 to 10 days for birth). They use twice as many prescription drugs as we do.  And Japan has the highest life expectancy.   “The Japanese system, in short, provides care to every resident of Japan, for minimal fees, with no waiting lists — and excellent results.”

In 2007 OECD ranked 34 countries on health outcomes. The US ranks 31st in infant mortality, 28th in low birth rate, 26th in life expectancy, and 25th in maternal mortality.

America is one of the few industrialized nations that doesn’t provide health care for all its citizens. In The Healing of America: a Global Quest for Better, Cheaper, and Fairer Healthcare,  Washington Post correspondent T. R. Reid describes four models for health care systems: the Bismarck Model, the Beveridge Model, the National Health Insurance Model, and the Out-of-the-pocket Model.

With the Bismarck model — used in Germany, Japan, France, Belgium, and Switzerland –  health care providers and payers are private entities.  The payers are insurance companies. As in the US, most employees pay insurance premiums via payroll deductions. But there’s a difference:  the insurance companies are basically non-profit: they are highly regulated and the government determines fees via negotiations among affected groups.   Universal coverage doesn’t require public ownership of doctors, hospitals, and insurance companies. But it does require price controls:  the reasoning, I suppose, is that it’s unethical to let the market determine health care costs, because people will pay as much as they can to save their lives and because it’s unfair for rich people to get preferential treatment, at least when it comes to baseline care.  People can still purchase supplementary insurance.

With the Beveridge Model — used in Britain, Italy, Spain, most of Scandinavia, and Hong Kong (China permitted them to continue using it when it took over from Britain) — all or most hospitals and clinics are government owned, and all payments are handled by the government. This is what people have in mind when they speak of socialized medicine.  Reid points out that the U.S. Department of Veterans Affairs is a pure Beveridge Model.

With the National Health Insurance Model — used in Canada, Taiwan, and South Korea — health care providers are private but the payer is the government. In the US, Medicare follows the National Health Insurance Model.

The Out-of-the-pocket Model is used in third world countries, as well as in the US for the tens of millions of American who have no insurance. In fact, the US health care system is mismash of all four models. As Reid puts it:

For most working people under sixty-five we’re Germany [Bismarck Model].  For Native Americans, military personnel, and veterans, we’re Britain [Beveridge Model].  For those over sixty-five, we’re Canada [National Health Insurance Model].  For the 45 million uninsured Americans, we’re Cambodia [Out-of-the-pocket Model].

Lots of single-payer advocates on the left in America were outraged that President Obama and the Democratic leadership didn’t give them a seat at the table when negotiations were underway early in the Obama presidency for developing the affordable Care Act (Obamacare).   I share that outrage, but I also believe that something like the Bismarck Model, with highly regulated insurance companies, would be an easier fit  in the US.  The ACA is a step towards a Bismarckian model. ACA contains provisions that limit the profit insurance companies can make to 85% of revenue. See The Bomb Buried In Obamacare Explodes Today-Hallelujah!.

Countries overseas regard health care as a human right.

All the developed countries I looked at provided health care coverage for every resident, old or young, rich or poor. This is the underlying moral principle of the health care system in every rich country — every one, that is except the United States.

“Blacks and Hispanics are less likely than whites to get treatment for serious disease and are more likely to die from it.”

Reid writes that when he tells people overseas about the bankruptcies and lack of health care in the US, people are shocked.

Yet every country struggles with providing affordable, high quality health care, and everyone complains about their systems. But people overseas think the US system is worse.

In The American Health Care Paradox: Why Spending More is Getting Us Less, Elizabeth H. Bradley and Lauren A. Taylor argue that a major reason for poor health outcomes in the US is our low spending on social services compared to other countries.  The US spends a huge amount on medical care, but relatively little on education, housing, mental health services, nutrition services, unemployment compensation, job training, and preventive medicine.  If you take into account both medical and social spending, US spending is average compared to other countries, according to Bradley and Taylor.   The authors present evidence that it’s not only poor people who suffer from lack of social services.  Middle class white, employed people also have poorer health outcomes compared to people in Scandinavian countries.

Once upon a time, I got into a discussion with a stranger about medical care. I mentioned single-payer and other government run systems overseas. Unbeknownst to me, the stranger was a conservative and was armed with his talking points. He angrily said that such hospitals are filthy, the people get poor care, and there is little choice of provider.  The evidence from books I’ve read suggests otherwise.

Arnold S. Relman, in A Second Opinion — Rescuing America’s Health Care, reports on empirical studies comparing for-profit and not-for-profit medical care in the U.S.

Almost all of this evidence supports the conclusion that business ownership of health care facilities is more expensive and less efficient than non-profit ownership (that is, has higher overhead and administrative costs), despite all the mythology to the contrary, and that it delivers services of no better — and sometimes inferior — quality.

Relman, a former editor-in-chief of the New England Journal of Medicine, laments the conversion of medical care from a service profession to an industry. Marcus Welby was the model of the beloved family physician who had a fundamental professional obligation to look after the welfare of his patients. Nowadays, the commercialization of medical care has resulted in a situation in which many doctors are investors in businesses (diagnostic services, pain treatments, etc) and are in business arrangements with drug companies and equipment manufacturers. The fee-for-service nature of medical care, and the reliance on third-party insurance, encourages over-spending and over uses of diagnosis and treatment options that are not necessarily in the best interests of the patient.

Relman reviews studies that evaluate the costs and effectiveness of for-profit versus not-for-profit hospitals. The studies suggest that for-profit hospitals are actually more expensive at providing care, contrary to the dogma of free-market fundamentalism. On average, too, the for-profit hospitals cover fewer indigent patients, leaving those to the public and teaching hospitals. Quality too is not better in for-profit hospitals.

One careful study in 2002 reviewed all the available data from U.S. private for-profit and not-for-profit hospitals, pooled the results, and found that the risk of patient death was 2 percent higher in the for-profit hospitals.

Relman speculates that the reason is that for-profit hospitals reduce staffing to cut costs.

Relman reports about studies showing that the mortality rate, accounting for factors like age and severity of disease, was 20 percent higher in for-profit kidney dialysis centers than in not-for-profit centers, and patients were 26 percent less likely be placed on waiting lists for life-saving transplantation (presumably because the investors have an incentive to continue profiting from the patients).

Similarly, for nursing homes, “deficiencies in patient care identified by state inspection where 56 percent more common in private for-profit than in private-not-for-profit facilities and 43 percent more prevalent than in public facilities.” Nursing staff levels are generally lower in for-profit nursing homes.

Consumer-driven health care and HSAs

Conservative economists and the The Bush II Administration encouraged the use of Health Saving Accounts (HSAs) and other “consumer-driven” health care initiatives. Their goal was to encourage consumers to assume more of the responsibility to control costs, by letting them choose between providers and services and by giving them more “skin in the game.”

For example, my employer contracts with Premera to provide me with a high-deductible PPO plan and an associated Health Savings Account. My employer contributes each year to the HSA. From the HSA I pay for medical and dental expenses — mostly co-pays and deductibles. Any money left over in the HSA at the end of the year is mine to keep.

Relman is skeptical of the ability of such consumer-driven health care (CDHC) to control costs. First of all, there is an “asymmetry of information”: the health care providers know a lot more about what the patient needs than do the patients. To a large extent, this is unavoidable. Moreover, it is desirable for a knowledgeable physician familiar with the patient to manage care and recommend services. Shopping for services undercuts managed care. Secondly, the sickest 10 percent of the population accounts for about 70 percent of health care spending, and that spending exhausts the deductibles. High-deductible plans are appropriate for healthy, young people, but won’t work for the sick people who consume most of the health care budget. Also, there is evidence that CDHC disproportionately influences the medical care of poorer people, since they have to choose between rent and food, on the one hand, and medical care on the other hand. Moreover, Relman points out, CDHC addresses only the consumer side of health care. It does not directly control costs that are encouraged by the fee-for-service, high-tech, overly specialized nature of America’s health care system. In short, providers and insurance companies have an incentive to keep costs high.

Another factor is implementation: I’ve had my HSA plan for three years but only recently did I realize that I am supposed to shop around for a primary care physician. My employer never told me this, and though Premera reps came to our office, they never mentioned this, to my recollection. I had figured that Premera negotiated the prices that providers can charge, but a Premera rep recently told me that it’s not so for regular office visits: that responsibility is mine. I found out from a colleague that my provider, Swedish Medical, apparently has much higher costs on average than other local physicians. Premera has a tool on their website for comparing costs of providers. I needed to enter a service name — I entered “physician office visit” — and the tool showed dozens of doctors and clinics, with details about names, addresses, insurance coverage, and price ranges and average prices.   Many entries omitted prices.    But among those that did list prices, the average prices are less than half of what Swedish has been charging me. Here are some typical entries from the tool (I have omitted the providers’ names):

Treatment Estimate:   Range: $71 – $151  Average:  $111
Treatment Estimate:   Range: $61 – $114  Average:  $88
Treatment Estimate:   Range: $73 – $112 Average:  $92

Swedish Factoria Primary Care has

Treatment Estimate:  Range: $107 – $143 Average: $132

But I often pay far more than $132.   A recent bill was for $216; the physician just reviewed the outcome of some blood tests.  Am I being ripped off? I presume so, but it’s hard to say. Was the extra money worth it because of better care? I have no way of knowing. I’ve been using Swedish Medical for almost a decade and I have come to know and trust the physicians.  I figure if had I known about Swedish’s high charges, I (or my insurance company) could saved thousands of dollars over the last decade.

They ain’t Marcus Welby, I guess.

What can one conclude from this anecdote?  Obviously, nothing definitive, but it’s a warning that CDHC is unlikely to work if consumers aren’t given the tools and information needed to make decisions.

By the way, another reason I am dissatisfied with Swedish Medical is that they were recently acquired by Providence, which is controlled by Catholic bishops.  In the waiting room, I notice that educational materials all mention “unborn child” instead of “fetus.”

Why government-run health care is more efficient

The government-run models are better able to simplify billing, eliminate overheads (for advertizing and paperwork), and negotiate lower fees with providers. US insurance companies spend about 20 percent of premium revenue on administrative expenses. In France the corresponding figure is below 5 percent. Traditional Medicare spends 1% of costs on overheads. Medicare Advantage, which is privately managed, spends about 6% of costs on overheads. (source)

Lovers of free markets say competing corporations are better able to innovate than top-down planners.

Yes, competition may be beneficial for high-tech ventures such as auto making, software, and electronics. But for economic sectors such as health care payment, health care delivery, insurance, loans, and banking, there is little scope for innovation. (Beside, derivatives and other “innovative” financial instruments may have done more harm than good. They certainly require substantial government regulation to avoid abuse and risk.) For such low-tech industries, bureaucrats are needed to apply rules, process paper work or data entry, submit bills, and pay funds.  Such industries can be more efficiently handled by a  central government bureaucracy with low overheads, such as Medicare.

Furthermore, even in the case of high tech industries, government-funded researchers in universities and government labs have provided many innovative ideas that were the basis for commercial products. The Internet was developed by DARPA.  In The Truth about the Drug Companies, a former Editor in Chief of the New England Journal of Medicine writes of the drug industry, “Instead of being an engine of innovation, it is a vast marketing machine. Instead of being a free market success story, it lives off government-funded research and monopoly rights.” See also The Horrifying Hidden Story Behind Drug Company Profits.

There has been work on health care innovation, but much of the innovation requires central planning or targets specific technologies.

France has the carte vitale card, which contains encrypted health histories of the patient and which is used for initiating payments.  It’s innovative.  There is little or no paper work in the French medical system.  That innovation required central planning.

Arnold Relman, in Second Opinion, referenced above, points out that patients are not in a position to effectively evaluate the quality of medical care. They generally must trust the professional judgement of their doctors. When seriously ill, patients are in no position at all to compare prices. You don’t want to shop around for the cheapest surgeon. Medical care is not a market like other markets. But that’s what it’s become in the U.S., under the influence of free market fundamentalism.

Relman summarizes: “Thus, the best available empirical data are consistent with the conclusion that in health care, the business imperative to make profits does not produce the social benefits claimed by market advocates.”

In the case of private corporations, profits motivate innovation.  Profits also motivate rent-seeking, fraud, and monopolistic practices. In the case of academic researchers, researchers innovate because of the desire to get tenure and respect, but also because they enjoy the thrill of learning and the chance to contribute to the pool of knowledge and technology.

Conservatives prefer individualism over cooperation and top-down control. But corporations engage in extreme levels of top-down planning and control. When you work for a corporation, you must coordinate with others and follow directions from management.

Evolution may be based on competition. But in human affairs we need to design our artifacts. Why shouldn’t that apply to many aspects of a national economy?

Is cooperation (collectivism) a dirty word for conservatives?