View From Down Under

Watched an interesting segment on CNN the other day with two economists – one supposedly left wing (Justin Wolfers) and one supposedly right wing (Reihan Salam) – discussing the stimulus package with Lou Dobbs.  Meant to be a debate, but they ended up agreeing on most things.  Worth watching.

 The thing that struck me was when Mr Dobbs challenged them both to “Name an economic stimulus package that has ever worked?” with the clear implication that they could not.  Mr Salam responded with “I think that there actually are some stimulus plans that have worked pretty effectively”, and started to give an example of a stimulus plan in Singapore.   Lou Dobbs cut him off with a quick “No, no, no .. Thank you very much for the global tour, but I’m talking about the American economy.”  Mr Salam then praised the WPA in the 30’s and 40’s.

Surely Mr Dobbs is smart enough to know that economic principles work in other countries in the same way they work in the US?  It’s a bit like discounting experiments on gravity because they occurred in Europe!

But at least he had the grace to let Mr Salam discuss American stimulus plans that had worked.

Just goes to show what Rupert Murdoch learned many years ago – it’s not about news, it’s about entertainment.

With quite a bit of heat and very little light, the United States is involved in an amazing and sometimes amusing debate over health care reform.  At least, it would be amusing if the stakes weren’t so high. 

Before we get to the rhetoric, seems to me that the first question to ask is:  Does the US need major health care reform?  To answer that, I think we need to look at the current system in a few different ways.

Since my training is in economics, the first question I’ll ask is:  Are Americans getting value from their health care system?

From a macro perspective, the value is quite poor.  Health care spending as a percentage of GDP is extremely high in the US.  According to the OECD factbook, the US spent 15.3% of GDP on health care, while the rest of the OECD averaged 8.7%.  But cost is only one part of value.  The higher spend might be justified if the outcomes are substantially better in the US than elsewhere.  So what does the US get for all this spending?

On the one hand, individual outcomes in the US do seem to be quite good.  Outstanding health care is common,  though not universal, and if you have a serious health issue and good insurance (or deep pockets) the chances of getting some of the world’s best treatment are quite good.  But individual outcomes are not the same as value, and even that argument has embedded within it some of the problems within the system.

Trying to answer the question with data suggests the outcomes are pretty ordinary.  Life expectancy at birth in the US (2005) is 77.8 years, which is coincidentally the average of all other OECD countries.  The US ranks 26^th out of 37 OECD countries, behind Portugal but ahead of Slovenia.  So if we measure outcomes in terms of life expectancy, the US pays twice as much for the same result as other countries.  I have seen a couple of other ways of measuring outcomes, all of which suggest it is not good value.

Another question worth asking is:  Is the current system fair?  The quest for fairness seems to be innate in humans, and there are very few people who legitimately believe an unfair system is better than a fair one.  On this measure, the US system would have to get very low marks.  The cost and quality of care varies dramatically depending upon what insurance you have, a substantial percentage of the population has no insurance, and the self employed or contract workers often can only afford minimal coverage. 

The ultimate cost to Americans is high.  The majority of individual bankruptcies involve unpaid medical bills.  The cost to self insure is greater than the average mortgage.  The cost of medical care continues to grow.

Is there anyone who genuinely believes the US health care system does not need reform?