RALEIGH – The left-wing case for ObamaCare contains a number of myths – e.g. that uninsured people in emergency rooms are major drivers of medical inflation or that forcing taxpayers to fund more preventive care would save them money – which are repeated ad nause(ate)um. When challenged, advocates just repeat them again, only louder. It’s charming.
One of the most pernicious of the myths is that America’s free-market health care system costs more to administer than Europe’s government-run systems do, while achieving worse medical outcomes. Strictly speaking, this is actually a mash-up of four separate myths: that American health care occurs in a free market, that European health care is entirely socialized, that the former has higher administrative costs than the latter, and that the latter delivers better medical care than the former.
Let’s break down each of these mini-myths.
First, American health care is not delivered by or within a free market. It hasn’t been for decades. While Medicare and Medicaid didn’t finance a significant share of total health care spending at their instigation in the late 1960s, their role expanded over time. If you add Medicare, Medicaid, VA hospitals, and other government-financed programs together, they currently account for about half of all health care spending in the United States. As for the “private” health insurance purchased by employers and then resold to their workers in exchange for labor, the system benefits from one of the largest tax distortions in history – the exclusion of premiums from income and payroll taxes – and is already subject to significant federal and state regulation.
And that’s just the financing side of the ledger. The provision of health care services is highly regulated, usually at the state level. Through certificates of need, government prohibits hospitals and physician practices from making their own investment decisions. Through occupational licensing, government prohibits consumers from buying medical services from whomever they wish.
Second, while it is true that America’s health care system is under less government control than that of most European countries, it is not the case that European health care is fully socialized. While Britain has socialized medicine, most countries have retained private markets for the delivery of services and in some cases even for the delivery of health insurance. When it comes to medical providers, some European countries impose less-stringent regulation than America does. When it comes to finance, as I have written before, some countries have about 70 percent of medical bills paid for by government transfer programs, vs. America’s 50 percent. I don’t favor raising America’s share to 70 percent, but let’s not exaggerate the discrepancy.
Third, facile comparisons between the administrative costs of American and European health care have tripped up many a well-meaning politician or policy wonk. As the Cato Institute’s Michael Cannon explains in an excellent new paper, researchers have to be extremely careful when defining “administrative costs” and comparing expenditures across countries with very different systems of accounting. “Medicare keeps its measured administrative-cost ratio relatively low by avoiding important administrative activities (which shrinks the numerator) and tolerating vast amounts of wasteful and fraudulent claims (which inflates the denominator),” Cannon writes. “That is a vice, yet advocates of a new government program praise it as a virtue.”
American health care is certainly far too bureaucratic, and our fixation on “insuring” small-dollar health claims does indeed generate unnecessary administrative expense. But when all costs are properly accounted for – including the collection and deadweight costs associated with high taxes levied to finance it – government-run health insurance is no bargain. The Pacific Research Institute’s Ben Zycher concluded that the true cost of delivering Medicare benefits is about four to five times the net cost of private health insurance.
Fourth, differences in life expectancy and other measures of health status between America and Europe do not prove anything about the quality of medical services rendered. There are many other variables that affect those measures, including heredity, diet, exercise, and personal behavior. Careful studies adjusting for these variables, such as a new one published by the National Bureau for Economic Research, typically conclude that differences in health outcomes are not the result of differences in the financing system for health care.
ObamaCare advocates are entitled to stammer or shout in rage. They are not entitled to misstate the facts or make stuff up.
Hood is president of the John Locke Foundation