Universal Health Care: Cheaper and Better

Ezra Klein has an editorial in the LA Times about the eventuality of Universal Health Care. Below are my thoughts on the issue from a purely financial and economic perspective.

First, public health is cheaper. The Organization of Economic Cooperation and Development studied the health expenses of all member countries – 29 in all including the United States. The median amount of GDP spent on health care of 29 countries has fluctuated between 7.9 and 8.4 for 2000-2003. For 2000-2003, US health expense as a percentage of GDP was 13.1%, 13.8%, 14.6% and 15% respectively – by far the highest total of all countries. Germany was the next most expensive country and their totals for the same years (2000-2003) were 10.6%, 10.8%, 10.9%, 11.1%, respectively. So, as a percentage of GDP basis, the US spends between 34% and 75% more as a percentage of GDP than countries that rely primarily on public funds to provide health service.

The OECD also breaks health expenses down into amount spent per capita. For the last four years (2000-2003), the median per capital expense for 29 OECD countries ranged from $2010 to 2248. Over the same years, the US once again spent more than any other OECD country, with figures for 2000-2003 of $4539, $4888, $5287 and $5635. Over the same time, Switzerland ranked second in per capita expenditures and Germany third. It’s important to notice that the US’s private health care system routinely spends at least twice as much per person than other countries with public health systems.

So, the US spends the most on health care. Our system must provide some incredible benefits! Actually, the US benefits are below median for all OECD countries. In 1990, the median life expectancy of males and females for all OECD countries 75.5 years, while the US’ number was 75.3. In 2000, the OECD median life expectancy was 78 and the US’s was 76.8. In 2003, the OECD’s number was 78.5 and the US’ was n77.2. For the years 2000-2003, the OECD’s infant mortality rate as expressed as number of deaths per 1000 decreased from 5.1 in 2000 to 4.3 in 2003. In contrast, the US’ numbers increased from 6.9 in 2000 to 7 in 2003.

Countries with public health insurance spend less per GDP and per capita on health expenses, they live longer, and fewer infants die. That sounds damn good to me, but then again I like facts instead of faith.

The second reason why single-payer is better is it cuts down on overall administrative costs. Kash at Angry Bear offers this analysis:

We have a couple of estimates of how high administrative costs are – i.e., expenses incurred by the health care system to do things other than to provide health care services. One prominent study that appeared in the New England Journal of Medicine in 2003 estimated that the cost of administering the US’s health care system was about $300bn in 1999. A more recent study in the International Journal of Health Services found that in 2003, administration costs in the US health care system ate up about $400bn, or about 25% of total health care spending.

By comparison, national health care systems incur administrative costs of a few percent of total health expenditures: according to the NEJM study Canada’s national health insurance system spends just 1.3% on overhead, and the US’s Medicare and Medicaid programs have administrative costs of between 2-5%.

Currently, the US health system is a hodge-podge of numerous insurance companies with differing layers of paperwork that work against efficiency. The US public system spends 80% less on administration costs.

The third reason single-payer health is better is economic competitiveness. As the OECD study points out, the US is only 1 of three member countries that does not have public health care. Because of the high cost of US health care, US companies are at an extreme competitive disadvantage caused by these high costs. Because single-payer removes this cost from the companies balance sheet, cash is freed to invest in other more productive applications. Companies clearly approve of single-payer, as evidenced by this letter from General Motors about the Canadian health system:

“The Canadian plan has been a significant advantage for investing in Canada,” says GM Canada spokesman David Patterson, noting that in the United States, GM spends $1,400 per car on health benefits. Indeed, with the provinces sharing 75 percent of the cost of Canadian healthcare, it’s no surprise that GM, Ford and Chrysler have all been shifting car production across the border at such a rate that the name “Motor City” should belong to Windsor, not Detroit.

Just two years ago, GM Canada’s CEO Michael Grimaldi sent a letter co-signed by Canadian Autoworkers Union president Buzz Hargrave to a Crown Commission considering reforms of Canada’s 35-year-old national health program that said, “The public healthcare system significantly reduces total labour costs for automobile manufacturing firms, compared to their cost of equivalent private insurance services purchased by U.S.-based automakers.” That letter also said it was “vitally important that the publicly funded healthcare system be preserved and renewed, on the existing principles of universality, accessibility, portability, comprehensiveness and public administration,” and went on to call not just for preservation but for an “updated range of services.” CEOs of the Canadian units of Ford and DaimlerChrysler wrote similar encomiums endorsing the national health system.

These business leaders see the clear advantage of a single-payer health system. When US leaders see the same advantages, they will slowly come on board.

A system that is cheaper, better and increases national competitiveness is a winning situation for all involved. It’s time the Democrats started to make the case along these lines to the American people.

Links for sources are available here.

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