Tuesday, February 13, 2007

Health care

The economist Paul Krugman has co-written an informative essay about the American health-care system: what's wrong with it, what's right with it, what needs to be done to fix it, and why no American government yet has been willing to do what needs to be done.

The bottom line is: the American system of private insurers has become a wasteful, bureaucratic jungle of paperwork, giving it virtually the least bang-for-your-buck of any industrialised nation: more costs for less treatment. It's allowed the pharmaceutical companies to rort the system blind, while both insurers and doctors burn money in unproductive paperwork.

In summary, then, the obvious way to make the US health care system more efficient is to make it more like the systems of other advanced countries, and more like the most efficient parts of our own system. That means a shift from private insurance to public insurance, and greater government involvement in the provision of health care—if not publicly run hospitals and clinics, at least a much larger government role in creating integrated record-keeping and quality control.

Krugman points out:

  • Private insurers spend a lot of money trying to screen out costly customers. Systems with universal coverage avoids that cost. In 2003 the American "Medicare" system spent less than 2% of its resources on administration, compared to more than 13% for private insurers. (So much for the article of faith amongst free-market groupies that private companies are always more efficient.)

  • The American system leads to a zero-sum battle between all the parties involved (insurers, patients, doctors), with "each trying to stick others with the bill." The complex administration needed to navigate this maze of policies and insurers carries both direct and opportunity costs.

  • The insurers aren't the only ones to be weighed down with paperwork. Insurers impose paperwork on the health-care providers, and there is a lot of it: many estimates suggest that the total cost to the providers of meeting the insurers' demands for paperwork is several times the cost to the insurers themselves.

  • Fragmenting the health system into dozens or hundreds of competing insurers means that the government loses the ability to bargain with health-care providers (especially the drug companies) for discounted prices. Most Americans pay significantly higher prices for prescription drugs than people in countries with universal coverage.

  • When Taiwan swapped from a private insurance system to a public system, they ended up almost doubling the insurance coverage while still spending less overall.

Here in Australia, our Liberal government tries very hard to encourage people to have private health insurance. Given the counter-productive results of the American system, I have to question the wisdom of trying to emulate them.

The sad thing is that Krugman wrote this essay almost a year ago. Since then, little has changed: there is still no political will to fix the broken health-care system.

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