View From Down Under

In reading a recent article in Time magazine about the rise of the ethical consumer, I came across the results of a recent poll commissioned by the magazine which asked:  “Are you willing to pay more in federal taxes to provide universal health-care coverage for all Americans?”

The result: 50% said yes, 46% said no, 5% don’t know/no answer (yes, it adds to 101%, but presumably that is a rounding error).  In my mind, this really illustrates the polarisation of opinion on this topic. 

So I thought I’d see if I could find some data on whether people are better off paying taxes for universal health care or not.

Health care is an extraordinarily complicated subject, which may be one of the things that makes it interesting.  There is no real ability to do controlled studies on health care systems.  Things like culture, climate, genetics, diet, and so forth, can make a big impact in health care outcomes regardless of the system of health care delivery, and these things can also change over time.

However, I did come across a fascinating bit of research by Adam Wagstaff at the World Bank.  He looked at a number of OECD countries that had moved from tax-funded to insurance funded systems, or vice versa, from 1960 to 2006.  The conclusions were quite clear.  “…(social health insurance) systems, on balance, have certain characteristics that make them more expensive than tax financed systems, do no better in terms of most health outcomes … may do worse in respect of outcomes that require strong population-level public health programs (such as breast cancer), and do worse in terms of encouraging informal labor markets and discouraging employment.”

I don’t believe most Americans truly understand the cost of their health care system.  The cost they pay in terms of higher unemployment and lower wages (since employers are required to pay higher health insurance premiums) as well as the direct cost of health insurance, out of pocket expenses, and of course, the taxes to pay for Medicare and Medicaid (estimated at 18% of the total federal budget in 2009).

It’s now springtime in the southern hemisphere and the flu season is winding down.  As the northern hemisphere flu season starts to kick into gear, a look at the experience down under may provide some visibility into what the US can expect this winter.  A fact not lost on the US government, who produced their own report on the topic. 

When the southern hemisphere flu season was starting up back in May, the forecasts were grim – including expectations of 6,000 to 10,000 swine flu deaths in Australia alone, football games and other large gatherings cancelled, even Parliament could be shut down (which might have had its own appeal).  

Now the season is nearly over, and swine flu has just not lived up to its billing.

South America seemed to have been particularly hard hit, and Brazil currently has the highest number of deaths from swine flu in the world.   This is likely to be a reflection of its relatively large population, rather than a particular statement about the virulence of the flu in Brazil or the quality of its health care system.  Other South American countries were also hit quite hard.

In Australia, 165 people have died of the swine flu so far, and there are about 300 still in hospital.  Virtually all of these deaths were people with chronic health conditions.  Pregnant women were also hit hard by the flu, and some of the most tragic stories from the season involve these otherwise healthy young women.  But for the most part, the symptoms of swine flu were quite mild.  We are told that many of us would have had it and not known.

Two things make this flu a bit different to most:  the rate it spreads, and the people it targets.  At one point, over 90% of flu cases presented in Melbourne were swine flu.  In Sydney, the number was over 80% at its peak.  The pressure on the hospitals was enormous, with some hospitals cancelling all elective surgeries in order to free up beds for swine flu victims.  And unlike other flu strains, most of the victims of swine flu were young.

However, to keep it in perspective, there are typically about 2500 deaths in Australia each year from influenza.  Ten years from now if you look at a graph of deaths per year from flu in Australia, the swine flu epidemic is unlikely to be noticed.

There is every reason to believe the swine flu experience in the northern hemisphere this winter will be similar – lots of infections, not many deaths.

The northerners are quite lucky in one respect.  An effective swine flu vaccine is expected to be ready in time for the season – a luxury us in the south did not have.

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?