July 25, 2005
45 Million Myths
In the debate over Canada's health care system, the United States provides a convenient scarecrow. We hear constantly that 45 million Americans have no health insurance, that public health care spending is inadequate and that the U.S. system is characterized by unbridled capitalism. These perceptions, however, are urban myths. While the U.S. health care system is far from perfect, the causes of its problems are not what most people believe.
The U.S. health care system is primarily criticized for its lack of universality and the presence of large numbers of uninsured people. To put this problem into perspective, the uninsured represent just 15.6% of the population. More than two-thirds of Americans hold private health insurance, most through their employers. Most without private insurance depend on public health insurance systems, namely Medicare for those aged 65 or over and Medicaid for low-income people. These two systems also cover handicapped persons.
Furthermore, being without insurance is often a temporary situation. About a quarter of the uninsured lack coverage for less than one year. As the Census Bureau confirms, "Health insurance coverage is likely to be underreported." A large number of people declared as uninsured - about 14 million - were eligible for Medicaid or for programs covering children but had either not taken advantage of this or were unaware of it.
The non-insurance problem is largely a job problem: 57% of those under 65 who were without health insurance throughout 1998 (the latest year for which figures are available) had no full-time jobs or lived in families where nobody did. Tax treatment of medical insurance in the U.S. creates a tight link with employment.
Many uninsured persons have the means to pay for private insurance but choose not to:17% of the uninsured lived in households with incomes of at least US$75,000.
The uninsured have at their disposal a safety net, namely the public hospital network: This in fact constitutes a sort of informal hospital insurance. Even the uninsured can obtain health care. The Congressional Budget Office writes that "many people without insurance have access to at least some sources of health care, either through public hospitals, community health centres, local health departments, or Department of Veterans Affairs facilities." OECD researchers have made a similar observation: "Local governments, in conjunction with states, play an important role in financing the so-called safety net providers (e.g., county hospitals) that serve the indigent."
These facts are illustrated by a letter last year from Susan W. Weathers, a doctor in Texas, to the Wall Street Journal. The Canadian system, she explained, "resembles the county hospital where I work. Our patients pay little or nothing. They wait three months for an elective MRI scan and a couple of months to get into a subspecialty clinic. Our cancer patients fare better than the Canadians, getting radiotherapy within one to three weeks. The difference is that our patients are said to have no insurance (a term used interchangeably with no health care) whereas Canadians have 'universal coverage.'"
A final point to take into account is that private charity exists, from hospitals and doctors as well as from individuals who support charitable organizations. Some two-thirds of the health care received by the uninsured costs them nothing.
Another big myth presents the U.S. health care system as totally private, or almost. While most health care establishments are private - either for profit or non-profit - and private health insurance systems generally run on a for-profit basis (apart from Blue Cross and Blue Shield), public health care spending and public health insurance play dominant roles.
Apart from Medicare and Medicaid, heavy public spending funds public hospitals and Department of Veterans Affairs facilities. All told, the U.S. spends more on public health care than most large western countries. Public health care spending as a proportion of GDP is 6.6% in the U.S., ninth among the 30 OECD countries, and just after Canada's 6.7% of GDP. Moreover, per capita government spending is higher in the U.S. than in Canada - $2,364 compared to $2,048 at purchasing power parity, based on OECD data.
Although United States public spending as a proportion of total health care spending is low - 44.9% compared to the OECD average of 72.6% and Canada's 69.9% -- U.S. total spending is much higher than elsewhere: 14.7% of GDP vs. an OECD average of 8.4%. These huge sums explain why Americans have the latest medical technologies, the most effective treatments, and short waiting times.
As for the myth of unbridled capitalism, the U.S. health care market is highly regulated, leading to distortions in the use and supply of care. This explains in part many Americans' difficulty in obtaining private insurance. Onerous standards set by governments rule out cheaper, more accessible policies.
Insurance seldom contains co-payments or co-insurance. Policyholders thus have little incentive to seek the best prices, which goes some way toward explaining escalating health care costs. The bloated insurance premiums that result are beyond the reach of many. Exaggerated court-imposed penalties in professional malpractice cases also boost U.S. health care prices.
One final myth: personal bankruptcies in the U.S. caused by medical bills. The authors of a recent U.S. study allege, for example, that medical bills account for half of U.S. personal bankruptcies. However, the authors include factors such as the loss of at least two weeks' work income due to illness or accident, the death of a family member, the birth of a child, and alcohol or drug habits.
The problems of the U.S. health care system largely result not from its private character but rather from the heavy regulation to which it is subjected. The debate over U.S. health care would be healthier without unfounded myths.
Norma Kozhaya is an economist at the Montreal Economic Institute. www.iedm.org
This originally appeared in the Financial Post, June 16, 2005
The Frontier Centre for Public Policy
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