Monday, July 16, 2007

Myths & Fact About The American Health Care System

Since the release of Michael Moore's "sicko" movie, the U.S. health care system and its alleged failure have been widely debated. But while the U.S. health care system is far from perfect, it is much better than Michael Moore would have you believe. Furthermore, the real shortcomings that it does have are not the effect of its free market elements, but to various regulations and factors unrelated to the health care system.

This will not be a direct review of "sicko", a movie which I haven't seen. But it will of course be a indirect attack on the movie's thesis. For a listing of the lies present in the movie, see this review.

Myth: "The U.S. has a purely free market health care system"

Fact: The U.S. health care system is indeed more market driven than in most other countries, but nearly half of all health care costs is paid for by the government. Already in 2004 roughly 45% of health care costs were government funded a proportion which has likely increased since then due to Bush's Medicare expansion.

Furthermore, the system is burdened with heavy regulations, which contributes to raising its costs, as The Economist recently reported in an interesting article.

Myth: "The U.S. health care system leaves 45 million (or whatever number is claimed)without health insurance"

Even setting aside that a significant proportion of these uninsured are illegal immigrants, which in Sweden is completely excluded from the health care system, this is only true in the sense that nearly 9 million in Sweden is without health insurance. Everyone in
America over the age of 65 is covered by the Medicare program and low income earners below the age of 65 can get their health care paid by the Medicaid program. And besides, one can always simply go to an emergency room and demand care there since federal law prohibits hospitals from denying people care there, a possibility which has created some problems in the border regions to Mexico since illegal immigrants have been very good at taking advantage of this (more about this in the link in the beginning of this paragraph).
And if you are unable to pay, government will have to compensate the hospitals.

Myth: "Market mechanisms are responsible for the high costs of the American health care system"

Fact: That the
U.S. health care system has a very high cost level is one of the few criticisms of it which is basically true. Regardless of how you calculate, U.S. health care costs are higher than anywhere else in the world. It should however be pointed out that many -including reportedly Michael Moore- exaggerate just how much more expensive it is by comparing the cost in PPP-adjusted dollars per capita. Since the U.S. is still the third richest country (After Luxembourg and Norway) in the world according to that method of comparison and because a higher average income will for various reasons drive up the cost in PPP-adjusted dollars this kind of comparison will exaggerate the relative extra cost, while greatly underestimating it in dirt poor Cuba.

Health care costs in the
U.S. are roughly 15% of GDP compared to roughly 10% in countries like France, Canada and Cuba. What is then the cause of these higher costs?
Well, in part it is actually (see below) the case that
U.S. health care quality is higher, and quality costs. And as is also described below, an unhealthier lifestyle among many Americans also contributes to pushing up costs.

Moreover, as discussed above various regulations have contributed to pushing up costs (see aforementioned The Economist article) and furthermore American doctors and nurses has much higher pay relative to the rest of the population than in most other countries.

And it is also the case that the American health care system in practice function as an Atlas which carries the world's medical research costs on its shoulders. In
Sweden, Canada and most other countries, the government health system purchases medicine for very low prices which doesn't cover the research costs needed to produce it. Drug companies still reluctantly agrees to this since the prices they receive still give them a small profit given the completion of the research needed to produce it and because they can in the United States charge prices which covers not only cost of production but also the cost of research and more. This factors means that real health care costs are overestimated in the United States while being underestimated in the favorite countries of Michael Moore and other socialists.

If the
United States were to act as other countries and pay the same low prices for medicin -something which many leading Democrats have advocated- as other countries this would of course contribute to a significant short term reduction in U.S. health care costs. The problem is that this would mean that new research would be unprofitable and so few or no new medicines would appear which in the long run would raise health care costs everywhere.

Myth: "Despite its higher costs, the World Health Organizations ranking show that the American health care system ranks only number 37 in quality".

Fact: No, it doesn't show that at all. The ranking is actually only to a small extent a ranking of health care quality. If you check its details it measures mostly other things. What is being measured is mostly things like a population's health level (why this is not a good indicator of health care quality see below) and to what extent financing and treatment is in accordance with the WHO:s socialist ideals. That socialist systems are better in accordance with socialist ideals is hardly surprising and is definitely not a valid indicator of health care quality. The only one of their indicators which measures quality is "level of responsiveness" which is based on patient satisfaction and how quickly and efficient the system works. And in this category the American health care system is....number one!

Myth: "The somewhat shorter life expectancy and somewhat greater health problems of the United States shows that its health care system doesn't work as well"

Fact: No, it doesn't show that at all. These indicators vary mainly due to other factors, primarily different life style factors.
Sweden's and Denmark's health care systems -and the economic system in general- are basically the same, yet life expectancy is a few years higher in Sweden. The difference is caused by the fact that Danes have a less healthy life style than Swedes. Hong Kong has a very high life expectancy and low level of health problems "despite" having a health care system largely privately financed like in the U.S. And as Michael Moore himself is a perfect illustration of, the United States have a higher proportion of people who are fat and/or for other ways live a unhealthy lifestyle. This will both contribute to raising the cost of the system and worsening these health indicators.


Anonymous Anonymous said...

Nicely written, sir! It's always entertaining to see someone refute Michael Moore's overly biased criticisms.

6:03 PM  
Anonymous Roger Anderson said...

Andy Grove once said (probably more than once, a perfect market system that is not interfered with is the best solution. The trouble we have in America is that our healthcare system has not been allowed to find the right price. There are so many hands trying to tip the balance in their favor that it is a mess.

Michael Moore only cares about Michael Moore. If he really wanted to make a difference he would contribute all of the earnings after costs to those in need or he would make PBS specials instead. Maybe they would expect honesty, something he cannot hold to.

1:30 AM  
Blogger Marcus said...

"an very high life expectancy"?

9:22 PM  
Anonymous Anonymous said...

The reason of why doctors and nurses get very high pay is because of government certifications, licenses and regulations that restrict the number of doctors.

And your Hong Kong example is false. Asian people live longer than white people.

2:23 AM  
Anonymous Anonymous said...


Even if Asians would genetically live longer than for example Caucasians it doesn't mean that difference in life style does not matter at all.

Mr Lovelace

2:40 AM  

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