Doctors
A new word has recently entered the English language: Obamacare. It does not yet appear in any dictionary, probably because nobody yet knows its precise meaning. But judging from the proposals debated in Congress so far, all signs point towards a much enhanced role for the state in American healthcare.

For European opponents of healthcare liberalisation, the American system is a blessing. It seems to confirm all their prejudices. With 47 million uninsured, healthcare in the US is highly inequitable. And it is not particularly cost-efficient: last year, more than 16% of US GDP was spent on healthcare. Proponents of socialised healthcare see this as proof that laisser-faire healthcare not only fails the poor, but nearly everybody. The profit motive is alleged to drive up costs and encourage unnecessary spending through means such as advertising.

Undoubtedly, US healthcare needs a serious overhaul. But does it really suffer from “excessive” liberalism? It’s true that more than half of US healthcare spending comes from private sources, compared with less than a fifth in the UK. But private spending does not in itself make a market.

First of all, while we hear a lot about the American health insurance market, such a thing does not exist. Each US state regulates its health insurance industry differently and requires its citizens to purchase health insurance in their state of residence. This peculiar form of internal protectionism artificially fragments the market and suppresses competition. It has been estimated that the number of uninsured would drop substantially if a national health insurance market was allowed to develop.

Secondly, the purchase of health insurance is tied to employment. Employers usually arrange group contracts for their entire workforce. If you are unsatisfied with your health insurer, you may need to change your job. Opting out of workplace-provided insurance is not prohibited, but usually unwise: employment-related health insurance is tax-deductible; individually (or otherwise) purchased health insurance is not. Apart from dulling competition in the insurance market, this provision has a pernicious side-effect: when people lose their job, they automatically lose their health coverage with it. Of those lacking coverage, 45% are uninsured for six months or less, so these are most likely people who are between jobs. Providing a general tax allowance for the purchase of health insurance, employer-sponsored or otherwise, could go a long way in tackling this problem. Those on very low incomes or with pre-existing conditions could be given a health insurance voucher.

Then there is the medical tort system which makes dubious malpractice lawsuits lucrative. This drives up costs in two ways: firstly, physicians’ liability insurance premiums are sky-high, and of course it is ultimately the patient who pays them. Secondly, it incentivises physicians to provide expensive services not out of medical but out of legal considerations, as a means to hedge their bets.

Costs are also affected by the high entry barriers to the medical professions. Relative to population size, the US has fewer physicians and medical graduates than any Western European nation. Accordingly, their remuneration is higher relative to GDP per capita.

There can be no doubt that US healthcare is seriously flawed. But before being too enthusiastic about making their healthcare system “more Canadian” or “more European”, maybe Americans should first consider making their healthcare system more genuinely American.

Kristian-Niemitz-2012_0.jpg

Head of Health and Welfare

Dr Kristian Niemietz joined the IEA in 2008 as Poverty Research Fellow, becoming its Senior Research Fellow in 2013 and Head of Health and Welfare in 2015. Kristian is also a Fellow of the Age Endeavour Fellowship. He studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). In 2013, he completed a PhD in Political Economy at King’s College London. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and at King's College London, where he taught Economics throughout his postgraduate studies. He is a regular contributor to various journals in the UK, Germany and Switzerland.

22 thoughts on “Obamacare: will US healthcare go European?”

  1. Posted 19/08/2009 at 10:32 | Permalink

    Without the National Health Service I would not be alive today. I will always be grateful for the excellent service I received

  2. Posted 19/08/2009 at 10:32 | Permalink

    Without the National Health Service I would not be alive today. I will always be grateful for the excellent service I received

  3. Posted 19/08/2009 at 10:46 | Permalink

    According to Daniel Finkelstein in today’s edition of The Times, the US government spends more each year on healthcare per head of population [$3,076] than the UK government does [$2,457]. This hardly suggests laissez-faire!

    According to World Health Organisation records, he says, total American spending on healthcare in 2006 amounted to $6,719 per head, compared to $2,815 per head for Britons.

    This implies that annual non-government spending on healthcare was $3,643 for Americans but only $358 for Britons, less than one tenth as much.

    Would it be possible, I wonder, to develop a system which allowed British people to spend more on health at the margin? Vouchers come to mind.

  4. Posted 19/08/2009 at 10:46 | Permalink

    According to Daniel Finkelstein in today’s edition of The Times, the US government spends more each year on healthcare per head of population [$3,076] than the UK government does [$2,457]. This hardly suggests laissez-faire!

    According to World Health Organisation records, he says, total American spending on healthcare in 2006 amounted to $6,719 per head, compared to $2,815 per head for Britons.

    This implies that annual non-government spending on healthcare was $3,643 for Americans but only $358 for Britons, less than one tenth as much.

    Would it be possible, I wonder, to develop a system which allowed British people to spend more on health at the margin? Vouchers come to mind.

  5. Posted 19/08/2009 at 12:02 | Permalink

    Sandra – It’s terrific that you received good service from the NHS, but many patients are not so lucky. International comparisons suggest the NHS is one of the worst-performing healthcare systems in the developed world.

  6. Posted 19/08/2009 at 12:02 | Permalink

    Sandra – It’s terrific that you received good service from the NHS, but many patients are not so lucky. International comparisons suggest the NHS is one of the worst-performing healthcare systems in the developed world.

  7. Posted 19/08/2009 at 14:56 | Permalink

    Sandra – do you really mean “without the NHS”, or do you rather mean “without healthcare”?

  8. Posted 19/08/2009 at 14:56 | Permalink

    Sandra – do you really mean “without the NHS”, or do you rather mean “without healthcare”?

  9. Posted 19/08/2009 at 16:36 | Permalink

    Dont buy into the leftist numbers.

  10. Posted 19/08/2009 at 16:36 | Permalink

    Dont buy into the leftist numbers.

  11. Posted 19/08/2009 at 16:45 | Permalink

    (the insane characters left isn’t helping any)

    Let me spell it out.

    The numbers include anyone who has expericed a period in the last year “adequate” insurance.

    There are some people who would rather have a BMW. They may be making the right choice.

    The also include a percentage of people who are not legal residents.

    And they also include the rich for whom it’s a poor economic decsion to buy insurance.

    Look for an alternative view. Accepting the numbers the left puts forward is always stupid.

    And of another thing: How much does the us *state* spend on healh care? Did you know its more that we do?

    You do realise that there is extensive state provision (17 chars left).

  12. Posted 19/08/2009 at 16:45 | Permalink

    (the insane characters left isn’t helping any)

    Let me spell it out.

    The numbers include anyone who has expericed a period in the last year “adequate” insurance.

    There are some people who would rather have a BMW. They may be making the right choice.

    The also include a percentage of people who are not legal residents.

    And they also include the rich for whom it’s a poor economic decsion to buy insurance.

    Look for an alternative view. Accepting the numbers the left puts forward is always stupid.

    And of another thing: How much does the us *state* spend on healh care? Did you know its more that we do?

    You do realise that there is extensive state provision (17 chars left).

  13. Posted 19/08/2009 at 16:46 | Permalink

    Change the comments system.

  14. Posted 19/08/2009 at 16:46 | Permalink

    Change the comments system.

  15. Posted 19/08/2009 at 18:36 | Permalink

    You’re right that US healthcare is seriously flawed, but I think you need to check your facts about our taxes and healthcare a bit more. Granted, we have the most complicated tax code around, but it’s a bit different than what you said. You can tax deduct health insurance costs in the US (but, since it’s the US, that’s probably complicated too). But, if the employer pays for health insurance, it doesn’t get reported as income, which is better than a tax deduction. Also, since the employer negotiates the plan for a group, that’s a huge benefit for people with pre-existing conditions.

  16. Posted 19/08/2009 at 18:36 | Permalink

    You’re right that US healthcare is seriously flawed, but I think you need to check your facts about our taxes and healthcare a bit more. Granted, we have the most complicated tax code around, but it’s a bit different than what you said. You can tax deduct health insurance costs in the US (but, since it’s the US, that’s probably complicated too). But, if the employer pays for health insurance, it doesn’t get reported as income, which is better than a tax deduction. Also, since the employer negotiates the plan for a group, that’s a huge benefit for people with pre-existing conditions.

  17. Posted 20/08/2009 at 05:41 | Permalink

    IMO the struggle over ObamaCare is not about ObamaCare. It is a struggle between the Democratic Party and a political vacuum. I’ll can that the Anti-Democrats, ADs.

    I didn’t write “GOP” because ADs are not automatically Republican supporters. That hapless party doesn’t seem to know what it wants.
    Traditionally the two party system provided significant choice. That is no longer true. The GOP is inept and disorganized. Neo-Whigs.

    If my view is correct the details of any proposed legislation won’t matter and there will be a huge fight no matter what is in the bill.

    The Democrats still have the advantage on ObamaCare. And they are organized. I think they will push it through.

  18. Posted 20/08/2009 at 05:41 | Permalink

    IMO the struggle over ObamaCare is not about ObamaCare. It is a struggle between the Democratic Party and a political vacuum. I’ll can that the Anti-Democrats, ADs.

    I didn’t write “GOP” because ADs are not automatically Republican supporters. That hapless party doesn’t seem to know what it wants.
    Traditionally the two party system provided significant choice. That is no longer true. The GOP is inept and disorganized. Neo-Whigs.

    If my view is correct the details of any proposed legislation won’t matter and there will be a huge fight no matter what is in the bill.

    The Democrats still have the advantage on ObamaCare. And they are organized. I think they will push it through.

  19. Posted 21/08/2009 at 01:41 | Permalink

    DRM, I think this may be a case where vouchers don’t work (and I’m not convinced they are ever a sensible liberal alternative to money). Presumably we give people vouchers rather than money because we don’t trust them not to blow money on something irresponsible. I wouldn’t think that governments would know better than individuals how best to apportion their budgets. But if we assume that this is sensible paternalism, it depends for its effectiveness on how tradeable the vouchers are. In the case of education, probably not so much. But in the case of healthcare, a liquid market ought to develop quite quickly, unless we did something to pin the voucher to the person. Might as well give cash.

  20. Posted 21/08/2009 at 01:41 | Permalink

    DRM, I think this may be a case where vouchers don’t work (and I’m not convinced they are ever a sensible liberal alternative to money). Presumably we give people vouchers rather than money because we don’t trust them not to blow money on something irresponsible. I wouldn’t think that governments would know better than individuals how best to apportion their budgets. But if we assume that this is sensible paternalism, it depends for its effectiveness on how tradeable the vouchers are. In the case of education, probably not so much. But in the case of healthcare, a liquid market ought to develop quite quickly, unless we did something to pin the voucher to the person. Might as well give cash.

  21. Posted 21/08/2009 at 16:06 | Permalink

    Re: spending more at the margin:
    We would be a huge step closer to that if the NHS was transformed into a reimbursement agency, not involved in the provision of healthcare. There would then be a standard reimbursement amount for a particular medical service/product. But people could use a fast-track/luxury alternative that costs £X more, have the NHS reimburse the standard amount, and pay only the additional £X out of their own pocket (or have a top-up insurance package covering it).
    At the moment, the private healthcare sector in the UK largely duplicates what the NHS does, only with shorter waiting times and better services. Hugely inefficient. If you use it, you pay twice.

  22. Posted 21/08/2009 at 16:06 | Permalink

    Re: spending more at the margin:
    We would be a huge step closer to that if the NHS was transformed into a reimbursement agency, not involved in the provision of healthcare. There would then be a standard reimbursement amount for a particular medical service/product. But people could use a fast-track/luxury alternative that costs £X more, have the NHS reimburse the standard amount, and pay only the additional £X out of their own pocket (or have a top-up insurance package covering it).
    At the moment, the private healthcare sector in the UK largely duplicates what the NHS does, only with shorter waiting times and better services. Hugely inefficient. If you use it, you pay twice.

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