Healthcare and Bureaucracy in the USA

The average American spends 50% more on healthcare, and 3 times as much on healthcare administration, than the average Canadian. How bad must these figures get before Americans agree that political ideology is a bad reason for choosing a healthcare system?

US Healthcare an Economic Burden
A few days ago, the Organisation for Economic Cooperation and Development (an international economic thinktank based in Paris) released a report painting a bleak picture of the health of the US Economy. (The BBC also issued a summary of the findings, which is what drew it to my attention.) Notably, the report didn't just cite the obvious current problems of government deficits, poor credit availability, and the depressed housing market — it also includes a whole section on the detrimental effect the current US healthcare system has on the economy.

This is interesting. We're used to being told that the socialized health services of Canada and Western Europe are economically a burden — if you're into subsidizing the weak and poor then go ahead, but it won't help your nation to compete with the muscular economic might of the USA. So why would the healthcare system in the USA be an economic liability?

Reduced Job Mobility
One reason given in the report is that the system in the USA reduces job mobility. Health insurance is (for the lucky ones) a benefit paid by employers, so moving jobs puts your family's health insurance at risk. This is particularly discouraging to entrepreneurs. Within our own family, we consider the pros and cons of running our own company one day, and for healthcare alone, we think that Europe would be a better place to start.

Regressive Taxation
Another reason given is that government tax relief for healthcare expenses in the USA is effectively a regressive tax — that is, a tax levied on the poor, or conversely, a tax relief dedicated to the rich. If your employer takes your health insurance premium out of your paycheck, this is tax free, the government's way of encouraging employers to do this. One problem is that there is no cap on this spending — so the more expensive your health insurance, the more the government subsidizes it. So in many cases, the government is spending more on healthcare for people who already have it.

Expensive Bureaucracy
However, the single main charge levelled at US healthcare is that it's expensive. Some 15% of GDP in the USA is spent on healthcare, compared with an average of around 10% in other developed countries, according to research by the National Coalition on Health Care. At the same time, the US lags behind these countries in important healthcare benchmarks, including life expectancy. So why are Americans spending more and getting less?

One answer to this quesion appears in an article by Woolhandler et al (2003), published in the New England Medical Journal. According to their research, the percentage of healthcare expenditure devoted to administration was some 31% in the USA, compared with only 16% in Canada. This figure is probably controversial and has no doubt changed — though the "corrective information" published along with this article contests its recommendations, not its findings, and even in disagreeing concedes that "There is little doubt that per capita health care administrative costs are lower in Canada than in the United States."

Comparing personal experience in the USA and the UK, I can say that I am not surprised. Even with good health insurance, to get something paid for in the USA you have to go through a Byzantine labyrinth of forms, phone calls, letters from administrators contesting your claim, time spent on call-waiting only to have someone tell you they can't pay for your treatment because they don't know the billing code. In my personal worst case, I had no fewer than three rounds of collectors on the part of Stanford University Hospital, demanding some $300 from me for a medical exam that was actually covered. The first time this happened, I got a verbal confirmation that my insurance information had been received and confirmed, and foolishly I contented myself with that. When another collector resurrected the same demand some months later, I demanded written confirmation that the claim was settled — so when the same issue came up a third time over a year after that, I could fortunately send in a copy of the letter from the second round, at which point they finally ceased hounding me. But again, I'm one of the lucky ones — the same NCHC study claims that figures demonstrate that over 50% of personal bankruptcies in the USA are partly the result of healthcare bills. But even though this is a tragedy, it's not the point I'm trying to draw your attention to right now.

The point is that every single one of those failed attempts to make me pay money I didn't owe was a costly labor-intensive waste of time, and it was paid for by health insurance premiums. If you have health insurance in the USA, then I'm prepared to bet that, like me and my family, you have a large folder, or pile, or several stray envelopes, containing bills, notices of bills paid, amendments saying how much you still owe after insurance chips in, duplicates, mistakes, queries, and all the other trappings of one wretched mass of paperwork.

Arguments Against Change are Ideological
Now, here is the nub of the problem in the USA. Many Americans have been told, and fervently believe, that this bureaucracy goes hand in hand with socialism. If the government gets involved in your healthcare, you'll get worse healthcare and more bureuacracy. Why? Because that's always what happens when the government gets involved. And America won the Cold War, so we know that socialism of any sort is completely discredited by now. It's not about what works best for organizing healthcare — it's about an ideology, the perception of a way of life that can't be challenged except by the un-American.

For many industries (particularly manufacturing), nationalization programs have been shown many times to be ineffective compared with competition between privately held companies. But, if Americans are spending 50% more on healthcare and three times as much on bureaucracy, then it follows that this model just isn't working for healthcare. The question this leaves is whether Americans can put the economic facts ahead of their economic ideology in making decisions. As we have seen with many other systems of belief including Communism, this is asking a lot of someone — but perhaps with 15% of the world's proudest economy at stake, political ideology may finally give way to the good old American desire to get value for money.

Dominic Widdows, December 12th, 2008.