Healthcare reform: is the NHS a socialist nightmare?
Investment Director – The Fleet Street Letter
David Stevenson Aug 21, 2009
The NHS has recently been dragged into America's increasingly vicious healthcare debate. Why all the fuss? And what will the outcome be? David Stevenson reports.
Why are some Americans attacking the NHS?
President Obama is proposing the biggest-ever reform to America's medical care system. Some observers even suggest that he's planning to introduce the US equivalent of the National Health Service (NHS). That's got reform opponents hot under the collar. "When it seemed that the US healthcare debate was in danger of hyperventilating, and a few deep, calming breaths were in order, it's just got more hysterical still," says The Guardian. "Not content with claims that Barack Obama's wish for reform represents socialism, and that state apparatchiks would decide which doctor treats whom, those who oppose reform are now likening the hapless president to Hitler."
Why is Obama pushing for reform?
Of the total population of 300 million, 47 million Americans have no medical insurance cover, so have to stump up hard cash for healthcare as needs dictate, assuming they can afford it. Medical costs accounted for 60% of American bankruptcies in 2007, and this includes many who were insured. Further, since medical insurance is often provided by employers, it can be another big cost of losing a job. That's proving ever more of a worry as the dole queues lengthen.
Meanwhile, "the incentive structures in the US lead to costly oversupply of services without consideration to the value they provide. Experts suggest up to 30% of US healthcare spending could be saved by changing this," notes The Spectator's Henry Featherstone. As things stand, premiums are rising fast and deductibles (similar to the 'excess' on a UK insurance policy) are also climbing. They now exceed $1,000 for almost 20% of those with insurance.
How much is US healthcare costing?
In 2007 the US spent $2.2trn (£1.34trn at then prevailing exchange rates) on healthcare, more per head than any other major country. The proportion of personal consumer spending on healthcare has been climbing steadily for years, as the chart shows, as costs have fast outstripped average increases in inflation.
Judged on quality, access, efficiency, fairness and healthy lives, America's healthcare provision lags behind Britain, Australia, Canada, Germany and New Zealand, says the Commonwealth Fund, a private foundation aiming to promote a better healthcare system for the country.
So what is the Obama plan?
Part of the problem is "he doesn't really have one", says Nigel Hawkes in The Independent, "but is leaving Congress to bring forward proposals that meet three objectives". These are "reducing costs, guaranteeing that every American has the freedom to choose their own health plan (including a public plan to compete with private insurers) and ensuring that all Americans have quality and affordable healthcare".
Isn't that what Americans want?
It seems not. Fewer than 20% of Americans believe their healthcare system is in crisis, says Hawkes – a proportion that hasn't changed in 15 years. That's because, at its best, US medicine is outstanding, says Hawkes. "Based on health insurance, supplemented by Medicare for the over-65s, and Medicaid for the poor, the system at its best provides good care". The US scores well on rapid access to elective treatment (second only to Germany) and preventive care, where it's the best of all – largely due to managed care plans trying to save costs by keeping people out of hospital.
How has the NHS been dragged into this?
Americans have recently been served up many rumours about the NHS, says health economist Zack Cooper on The Huffington Post, "of long waits for care and patients being denied coverage because care is too expensive". These, he says, "range from the benign to the outright asinine", as waiting times are no longer a huge problem, and very little care is denied on the basis of cost. But much of the latest furore has been stirred up by Tory MEP Daniel Hannan – for "daring to criticise the National Health Service on American television", says Nile Gardiner in The Daily Telegraph. Yet Hannan "deserves praise, not condemnation" for his comments, says Gardiner. He "has done his country a huge service by raising the issue of the inadequacies of the NHS".
So which system is best?
Neither, says Featherstone. While total spending on health is very different – 9% of GDP in Britain and 17% in America – the extent to which both healthcare systems save lives "shows the US as the worst in the developed world and the UK not far behind".
Furthermore, although the defenders of the NHS claim it's free, of course it isn't – the 2007/2008 NHS budget added up to £1,500 for every man, woman and child in Britain. As David Rawcliffe on Adamsmith.org points out, although we know that the NHS is paid for by taxation, with a mix of national insurance contributions, stealth taxes, PAYE and government borrowing, it's all too easy for us to forget how much we actually pay. What's more, much of the money goes on administration. Despite a total payroll of over 1.5 million – worldwide, only the Chinese People's Liberation Army, the Wal-Mart supermarket chain and Indian Railways directly employ more people – less than 50% are clinically qualified. That makes the NHS "a bureaucratic monstrosity", says Tim Worstall, also on Adamsmith.org.
How does the NHS compare internationally?
It only scored 18th place in the most recent World Health Organisation survey of national healthcare systems in 2000. But only 37.5% of its index was based on measuring healthcare itself. The rest gauged how that care was distributed and how it was financed. "When 62.5% of the weightings are given to the things the NHS is supposed to be good at" – such as financial fairness and equal care for all – says Worstall, "and still it only comes 18th, it must be pretty bad at providing the healthcare level and responsiveness... This might be a clue to why no one has ever bothered to copy the British healthcare system, for all we've been told for decades that it's the wonder of the world."
So is the US versus UK debate valid?
Despite the furore, "insurance would still be the basis of the US plan, not tax as in the UK". So much of the recent frenetic talk is well wide of the mark. More to the point, "instead of arguing about which flawed healthcare system should be adopted, the question should be: how do we deliver better outcomes for less money"? says Featherstone. That means looking elsewhere (see below).
Has any country got healthcare right?
France – which offers universal healthcare, along with Germany – topped the 2000 World Health Organisation list of best national healthcare services. But US healthcare reformers should be looking across the Pacific. The Singaporean government spent just 1.3% of GDP on healthcare in 2002, while the combined public and private healthcare expenditure was just 4.3% of GDP. Yet infant mortality and healthy life expectancy rates are better in Singapore than in America (see map below). How come?
Singapore's secret is to mix market pricing with incentives to minimise costs and waste. So the government pays for basic healthcare, but recovers between 20% and 100% of its outlay from patients. A government hospital patient who chooses an open ward is 80% subsidised by the state, but patients may choose more comfortable wards with lower, or no, government subsidies.
Meanwhile, private individuals must save up for potential medical expenses through mandatory pay deductions, which are supplemented by employer contributions, into ring-fenced personal healthcare accounts – the 'Medisave' scheme.
But only approved medical expenses can be funded this way, while consultations with private practitioners for minor ailments must be paid for. So the private healthcare system, which has to publish price lists to encourage comparison-shopping, competes with public healthcare, which helps curb the prices of both. Further, to protect patients, a regulator monitors service levels and costs.
In a nutshell, patients can choose what to spend their money on, while the government ensures they can afford healthcare. Singapore's policies "show that the 'free lunch' offered by greater government control is meagre compared to the 'free lunch' offered by old-fashioned individual incentives", says Bryan Caplan of Liberate Healthcare.
FREE - MoneyWeek's daily investment email
Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.
Sign up FREE to Money Morning here.