Saturday, January 15, 2005

Who gets to play God, doctors, bureaucrats, or the market?

The fight over healthcare and how it’s paid for in the near future will make Social Security reform look like a girl scout meeting. There are very tough questions and tradeoffs that every country will have to face, how do we help people while still not having economically stifling taxes or halting medical advances?

Tennessee has just pulled the plug on TennCare after 10 years; TennCare replaced Medicaid as the state's health insurance program for poor and uninsured Tennesseans. When the decision was made to scale down the program it was consuming 25% of the states budget.

For the U.S. as a whole healthcare costs have already reached 15 percent of annual national income and could exceed 30 percent by the middle of this century and other industrialized nations are not far behind. An aging population is part of the story but as healthcare technology continues to improve holding down costs will only get more difficult. Enactment of Medicare and Medicaid provided a direct subsidy for medical care. The cost grew much more rapidly than originally estimated as the cost of all handouts invariably do (sorry to call it handout but...). In all bureaucratic systems an increase in expenditure will be matched by fall in production. Spending data for 29 Organization for Economic Cooperation and Development (OECD) countries show medical spending has gone up both in inflation-adjusted dollars per person and as a fraction of national income. From 1960 to 1997 in 13 OECD countries spending more than doubled as a fraction of gross domestic product. The smallest increase was 67 percent, the largest, 378 percent. In 1997, 16 of the 29 OECD countries spent between 7 percent and 9 percent of gross domestic product on medical care. The United States spent 14 percent, the highest, Germany was second at 11 percent, and Turkey was the lowest at 4 percent. But if health costs creep up to 25 percent of national income, as they did in Tennessee, things get ugly. Americans would see their tax bills more than double, while European taxes could reach 75%.

To hold down costs, one-payer government systems, such as the Canadian and British systems have an advantage over our mixed 3rd party pay plans. As the direct purchaser of all or nearly all medical services, they are in a monopoly position in hiring physicians and can hold down their costs, so that physicians earn much less in those countries than in the United States. They can ration care at the cost of long waiting lists and much dissatisfaction. I do have some personal experience here; I spent 4 years living on the Canadian border and noticed lots of Canadians coming to the U.S. for procedures that put them on LONG waiting lists in Canada. A study recently released by the Fraser Institute in Vancouver, B.C., compared industrialized countries in the Organization for Economic Cooperation and Development (OECD) that strive to provide universal health-care access. Among those countries, Canada spends most on its system while ranking among the lowest in such indicators as access to physicians, quality of medical equipment and key health outcomes. One of the major reasons for this discrepancy is that, unlike other countries in the study that outperformed Canada such as Sweden, Japan, Australia and France Canada outlaws most private health care. If the government says it provides a medical service, it's illegal for a Canadian citizen to pay for and get the service privately. Is it any wonder why the American left loves the Canadian system? Part of the problem in the U.S. is healthcare costs rise from the lack of checks and balances that more centralized systems provide. For example, Americans are several times more likely to receive heart bypass surgery than Canadians, where the procedure is rationed for extreme cases. To try to keep spending down, the government continues to limit the number and variety of covered services. According to another Fraser Institute survey, “on average a patient must wait in line 17.7 weeks for hospital treatment". In 1999, Dr. Richard F. Davies described how delays affected Ontario heart patients scheduled for coronary artery bypass graft (CABG) surgery. In a single year, just for this one operation, 71 Ontario patients died before surgery, "121 were removed from the list permanently because they had become medically unfit for surgery" and 44 left the province to have their CABG surgery elsewhere, often in the U.S. In other words, 192 people either died or were too sick to have surgery before they worked their way to the front of the waiting line. Ontario has a population of about 12 million that’s only 4 percent of the U. S. population. Imagine the lawsuits if this happened in the U.S.

You can tell I’m no fan of socialized medicine but it’s not just me. The AMA has had a long-standing policy opposing a single-payer system. AMA President Donald Palmisano said that while a solution is "desperately needed" to cover the nation's more than 40 million uninsured; a single-payer system is not the way to go. "A single payer system would result in rationing of care, increased bureaucracy and stifling of innovation," says Dr. Palmisano. "It would demoralize doctors and patients."

If all countries squeezed profits in the health sector the way Europe and Canada do, there would be much less global innovation in medical technology. Today, the whole world benefits from advances in health technology that are driven largely by the allure of the profitable U.S. market. If the United States joins other nations in having more socialized medicine, the current pace of technology improvements might grind to a halt. Even as the status quo persists, I wonder how content Europeans and Canadians will remain as their healthcare needs become more expensive and diverse. There are already signs of growing dissatisfaction with the quality of all but the most basic services. With public healthcare systems fraying at the edges, many countries outside the United States increasingly face the need to allow a greater play of market forces.

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