Two Facts and One Big Question About American Health Care

For several years, Republicans in Congress routinely made a show of voting to repeal the Affordable Care Act (ACA), which they pejoratively labeled Obamacare.  Having refused to participate in the crafting of health care reform, they offered no alternative to the ACA.  Nor did they suggest ways to improve the system despite the President’s call to work together on modifying the system.  Now that Republicans have a ruling majority, we see hints of new policy but no comprehensive plan to replace the ACA.

One of the most popular features of the ACA is its requirement that insurance companies offering policies in the marketplace cover people with pre-existing conditions.  To maintain this type of coverage, the Speaker of the House suggests a fiddly alternative policy where those with pre-existing conditions are placed in special “high risk insurance pools.”  These pools would be subsidized by the Federal government so that those without such conditions get insurance in markets not contaminated with sick people.  Maine’s Senator suggests a plan where states can keep the ACA if they want or they may abandon it for some unspecified new plan.  Other Republicans suggest allowing the purchase of insurance across state lines, which the ACA does not allow.  Supposedly the big insurance companies would be more competitive with each other across state borders.

Proponents of these policies pretend that the problem with health care in America is that we have failed to structure insurance markets correctly.  The premise is that more competition in insurance markets is all that is required to fix the health care system.  Any careful economic analysis shows that health care markets cannot become competitive, so trying for more competition in insurance cannot fix our flawed system.  To heal a sick system you need to start with a proper diagnosis.  To get a proper diagnosis you need to pay attention to the symptoms. All of these ACA alternatives are flawed because they ignore two fundamental facts.

So what two facts are we ignoring?

First, we spend far more of our nation’s economic output for health care than any other country in the world.  The U.S. dedicates over 17% of Gross Domestic Product to health care.   The difference between us and the next highest, Sweden, is huge.  Sweden spends 11.9% of its GDP on health; while most of the rich nations spend between 10% and 11% of their economies’ output.

Health Care Costs

But you might argue that by spending a lot we get the best health care in the world.  That could make it worthwhile to divert economic output that could otherwise go to housing, nutrition, infrastructure, etc.  I might agree if we got the best health care in the world.  Clearly we do not, the second important fact.

The most basic measure of the health of a population is life expectancy at birth.  There are other ways to measure population health, but this is the most straightforward.  With better health care systems people live longer.  Better health translates into longevity.  U.S. mean life expectancy at birth is just under 80 years.  Forty seven countries (yes, that is 47) have longer life expectancy at birth and all of them spend a much smaller portion of their economic activity on health care than we do.

So the obvious question we are not even talking about is, why do other countries get so much better health care with so many fewer resources?  It is not about the competitiveness of insurance markets.  The issue is much more fundamental.

While the ACA did slow and then halt the increase in GDP going to health care the basic system continues:

  • Millions of Americans remain uninsured, even though millions of previously uninsured were helped by the ACA. The health care system remains one of the clearest examples of inequality we have in our economy.
  • Payment for health care is provided by a dizzying array of institutions – private insurance through employers, private insurance through ACA markets, the V.A., Medicare (with or without private insurance supplements), Medicaid (to varying degrees from state to state), and charity care. Each system has its own rules for what it pays and how it processes payments.  This is another sign of inequality in our system and a source of considerable waste.
  • Pharmaceutical companies continue to price drugs for Americans at higher prices than they charge in the rest of the world and continue to spend billions advertising drugs to patients who need to get providers to prescribe those drugs. Market power exercised by drug companies is one reason why market competition cannot work in health care.
  • Primary care providers are in short supply due to relatively low pay and specialists are paid more here than in any other rich country of the world.

The system is fundamentally flawed.  Until we address the fundamental problems we will continue to pay much more and get much less from our health care system.  We deserve better.  Let’s acknowledge the facts and ask the big question.  Why do so many countries get more for less?  How can we make our system more like their’s so that we too can benefit?

Mark W. Anderson

About Mark W. Anderson

I am proud to be a Mainer, born in Caribou and schooled at Brewer High School, Bowdoin College, and the University of Maine. I am grateful for a 35 year career at UMaine, the last decade in the School of Economics.