10 Comments

Health Care Tour Around The World

Today, I want to invite you to an exciting tour around the world of health care systems!. Let’s make comparisons, charts, and do some mythbusting! I’ll start right away showing you a concise summary of the findings of Michael Tanner, who has done an extensive survey on behalf of the Cato Institute.

health care table

If you read Michael Tanner’s comparison in detail, you will see that all health care systems around the world fight a losing battle against increasing costs. However, they not only fail in this battle, but quality and accessability are also destroyed as collateral of socialized health care. I’ll now try to describe the most important aspects of this issue for all readers, who don’t have time to read Tanner’s paper.

First of all, you have to realize that those allegedly private health care systems in the US and Switzerland are still far away from what a real private system would look like. The governments of both countries heavily regulate insurance companies and their products to make sure that every citizen gets almost full coverage (All-You-Can-Eat principle) and they reduce competition between insurers.

Secondly, it is very important to understand that the different types of health insurances around the world all exhibit the same major problem: they aim for maximum coverage and try to eliminate fees that are correlated with the amount of services consumed. So they all give incentives for overconsumption. To be precise, an insurance that covers every possible expense is not an insurance anymore, so it is kind of misleading to call some of those systems “insurance”. Anyway, for the sake of simplicity and comprehensibility, I shall stick to this common term usage.

Now, compare countries that are similar with regard to health status of the citizens and culture, i.e. eating and general living habits, for instance Great Britain, France, Germany, and Italy. The difference between the most expensive (France, 11% of GDP) and the cheapest (Britain, 8.4%) is approximately 25%. The French system has big problems with overconsumption, especially of prescription drugs, due to the fact that patients still have free choice of doctors and co-payments aren’t high enough to deter overconsumption. The government and the insurance companies didn’t introduce rationing yet. Instead, they rely on private insurances to take off some pressure from the system.

The NHS of Britain also encourages overconsumption due to the fact that patients do not have to pay a penny at the counter, since everything is financed by taxes. So the government simply rations health care in several ways: it takes expensive pharmaceutical drugs off the market; hospitals are overcrowded and understaffed, so they simply don’t offer many treatments; and practitioners keep patients away from hospitals or expensive treatment in general.

So it is very surprising to see that, despite heavy rationing, costs are still only a relative 25% down compared to France. It is reasonable to assume that costs would be even higher than in France without rationing, which is in line with what economics would predict, as the British system has even less hurdles for overconsumption than the French. By the way, the same comparison, with the same results, can be made for Germany and Italy, with Germany taking the role of France and Italy that of Britain (Italy copied the British NHS in 1978).

Let’s have a look at the US and Canada, two arch enemies with regard to health care systems. The US consumes 16% of GDP for health care, Canada only 10.1%. So Canada saves proximately 38% over the US. Just like the British system, the Canadian system knows no barriers for overconsumption, were it not for the heavy rationing of the supply of health care. The US system has also comparatively few incentives to control consumption, since co-payments are often very low and employers pay the biggest chunk of premiums. It seems that Canada is more successful in cutting costs than Britain, but there are several factors, that are responsible for this misleading image.

Firstly, Canadians tend to be healthier than Americans, which is probably mainly a result of cultural differences and eating habits. Secondly, the US has a 25% higher GDP than Canada. Economic theory and empirics tell us, that health care will take an ever bigger chunk of consumption expenditures with rising income, as affluent societies can easily afford basic consumer goods and have increasingly higher (relative) preferences for health care. So, if we crudely adjust for the aforementioned two factors, the difference between USA and Canada becomes much smaller. The remaining difference is contributable to the rationing, just like in Britain, where it perhaps saved over 25%. This should explain the “Canadian cost miracle”.

Finally, let’s have a look at Switzerland and The Netherlands. These two countries rely solely on private insurances, which are heavily regulated to offer broad coverage for many important treatments. If someone wants even more extensive coverage, he can choose to buy additional private insurances. The most important features of both countries are, that the insurances have high deductibles (up to thousands of Euros) and that there are relatively large co-payments to pay (several hundreds of Euros per quarter). This keeps consumption at least a little bit in check. And the results can be seen in the table above. Although Switzerland and The Netherlands have the second and third highest GDP in this comparison (Norway is on top), the share of health care of GDP is only 10.8% and 9.8%, respectively. Further, Switzerland probably has the highest incomes for physicians in Europe, so you may want to adjust the data for that fact, too. Most European countries are massively suppressing physician incomes in an effort to reduce costs.

To conclude, let me show you a list of lessons that we learned during our tour around the world of health care systems:

– The best way to cut costs is to reduce incentives to consume too much, i.e. introduce co-payments and high deductibles, narrow down the insurance coverage to catastrophic events

– The health care systems, which achieve lower costs, do so only by rationing, which leads to lower quality and less availability of services

– No OECD country has the guts to liberalize and privatize health care, so what we’re doing now is only comparing socialistic systems with each other

– Nevertheless, it is crystal clear that every little bit of liberalization and privatization is a step in the right direction to reduce costs without worsening quality and accessability

– Socialized health care means choosing the wrong solution (rationing over reducing overconsumption) to the same problem (overconsumption)

Wow, I think it can’t be explained easier and more clearly. Let’s hope that the message gets spread around and people finally learn something!

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10 comments on “Health Care Tour Around The World

  1. I agree with most of your analysis, but I grind my teeth every time I see a comparison of relative expenditures on health care.

    Expenditure data, by itself, does not take into account many factors which contribute to it. It doesn’t make any more sense to compare relative expenditures on health care than it does to compare house prices of different size and quality houses in different parts of the US.

    To make an analysis of expenditures worthwhile, you’d have to look at differences in age distributions, personal lifestyles, quality of care, availability of procedures, etc.

    There’s a dangerous conflation between costs and expenditures without any mention of relative quality.

    I don’t buy that Americans hate our health care delivery systems. Sure, there’s much to complain about but competition for health care resources is no different than competition for anything else that’s worthwhile. Few people enjoy house-hunting and buying either, except for the super-rich.

    • Yes, I know that cost comparisons are difficult. That is why I wrote that one can only roughly adjust for some of the possible reasons for cost differences that you mentioned. This post was already becoming too long without any detailed cost analysis, but I promise to post something about this issue as soon as possible.

      Regarding the happiness survey, I just put it up there so that you can see that happiness in not at all correlated with how the system works or what outcome it produces. I’m currently making charts to visualize this, so, please, wait, there’s coming more! 🙂

  2. My bad. I first read your post on my itty bitty telephone screen and didn’t see the part where you talked about genetics, lifestyle and income differences. I talked about lifestyle, genetics and quality but duh, I forgot about income. You’re absolutely right that the wealthier you are, the more you spend on health care – especially elective care.

    I wonder how much of US expenditures are for purely cosmetic, elective, or precautionary purposes and how this compares to the rest of the world.

    Litigation expenses are another thing to consider.

    Your best point is that it’s hard to compare.

    BTW, the US now has more Nobel Prizes in Medicine and Physiology than the next 15 nations combined and almost as many as the rest of the world. We have 12 of the top 20 pharmaceutical companies. Our medical R&D, education, and training are second to none.

    The father of my girlfriend in Germany was a doctor. He always complained about the health care system. When his secretary went on paid maternity leave, he hired another girl. Then she got pregnant too. So he was paying three front office women and only one was working. He swore never to hire a child bearing age woman again.

    How is maternity leave affecting female unemployment? How is the assimilation of the Ossies going? What are people saying about your Cash for Clunkers? I know the TUV was used for years to boost domestic auto production. VW is now on top of the world.

    • Maternity leave is definitely causing unemployment, though I can’t say how much (there’s probably been a paper written about it). My parents (doctors) experienced it first-hand. It’s the same story as what you wrote. One gets pregnant, so you hire another, and she gets pregnant, too. Before you know it, you’re paying 2 girls two years long for staying at home. It’s insane. The logical consequence is that everybody tries to avoid hiring women who are in their “pregnancy age”, i.e. 25-40.

      Further, you try to avoid hiring people for regular jobs, because of the heavy employment protection. So, you look for the really young apprentices (16-20 years old), and get rid of them before they become regular employees. Or you don’t hire anybody at all, which is the preferred option with doctors in Germany today. Much has changed in health care in the last 20 years since you were in Germany. Doctors are paid half of what they earned then, they have less than half the number of staff to work with, and most private practices are just short of being broke.

  3. Thank you for the comparison, and I look forward to your map/chart of health care happiness. Also, several times you said “GDP” when I’m sure you meant “GDP per capita.” Please don’t do that again, it makes me sad.

    • I’m sorry. Of course, it has to be GDP per capita when I compare the GDPs of different countries! I was in a hurry when I wrote the post. Thanks for the hint!

  4. Some info on the German system: it´s not as socialist as one would think and the health system not fully public.
    Self-employed people can opt out and subscribe to private health and pension plans. There is somewhat of a cat and mouse game about who can claim to be self-employed, typically it applies to the liberal professions (consultants, doctors, lawyers, etc) – the state tries to limit the professions which are exempt and workers who are not employees try to categorize their profession to meet the self-employed criteria.
    Even if you are an employee, you can still opt for a private health plan if you make over a certain income. I can´t remember how much but a significant proportion of the population is eligible, but from what I´ve been told once you go private you can´t return to the public health system and my impression was that employees were scared to go into a private system in case their premiums went up when they were married with children.
    I suspect these professions have the power and influence to have pressured politicians for these exemptions from the public system.
    I have a private limited health plan (pay the bills, if covered by the insurance then claim them).

    • It’s correct that about 8% of Germans have private health insurance. People with incomes over €50,000 a year can opt out of the public insurance funds. As you said, once you are out, you are not allowed to go back. Further, until now you had to earn above this income threshold for over 3 years to become eligible. The pension plans of those professions you listed are mostly similar to the public pension plan when it comes to expected returns (I don’t know what they do wrong), so it’s still crappy.

      The problem with private health insurance is, a) the government will try to abolish it, b) it doesn’t help you when you have to go to hospitals, which are ruined by the policies of the government, whether they are publicly or privately owned doesn’t matter, because the government sets their incomes and the list of treatments they have to offer.

  5. Why do you put n/a for “waiting” for all the countries with free choice? Private systems have lines too. I often waited much longer in the USA than I do now in Sweden.

    Or do you mean “not available” instead of “not applicable”?

    Also, I’ll bet you would get a very different picture from a study by a group with different politics than Cato’s. These things are maddeningly biased (on all sides) lately.

  6. Er…I think you need to do some source critique here. I know two health care systems well, Norway and the UK. And nearly -everything- in that table on them is wrong. Except the easily checked one, costs.

    The amount of wrong ranges from “Michael Moore wrong” to “Opposite of reality”

    Here is an excercise you may find useful later: Look up the facts on the statements in that table, and compare them with the table. I think it is an experience that will stand you in good stead through most professional careers.

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