The case for European health care By Scott Sumner

It might seem surprising to find a defense of Euro-style health care in a market friendly blog. In fact, I actually prefer the small government approach of Singapore to either the European or the US system. Nonetheless, I’m going to argue that the European system (or systems) is probably better than the US system.

But I won’t stop there. I also argue that (despite their claims) American progressives do not favor anything even close to the European system, and indeed that I am just about the only America pundit who actually advocates that we adopt the European system.

Under my “Medicare for all” system, the Medicare program would be provided with funds equal to 8% of GDP, and then instructed to provide as much health care as possible to all 325 million Americans. If the funds were not sufficient, they’d be rationed on the basis of need, with broken legs being treated before things like hip replacements. (Sorry mom!)

Those who are not satisfied with the healthcare provided by “Medicare for all” would be free to buy additional care in the private market. To better understand this system, consider this graph of health care spending as a share of GDP:

As you can see, the US spends nearly 17% of GDP on health care, of which 8% is spend by the government. The 8% figure is above average for OECD countries, and indeed is higher than public spending on health care in places like Sweden, Canada, UK, and even oil rich Norway. But it gets even better. Not only would my program have the US government spend an above average share of GDP on health care, but US per capita GDP is also well above the OECD average. Thus under my plan, total per capita public spending on health care would be 30% to 40% above the OECD average, which is far more than enough extra money to cover the higher drug prices in America, and continue to spur new drug innovation (if that’s your concern.)

Under my plan, the government would no longer subsidize private health care spending, and since everyone would be covered by “Medicare for all”, I’d anticipate that private spending would fall sharply as a share of GDP, perhaps from 9% to 2% or 3% (as in Europe). That would provide a huge boost to American living standards.

You might wonder whether there is a downside to my plan. No, there is not.

If we tried to cover all Americans with spending that now covers the old, poor, veterans and government employees, would quality suffer? I believe it would suffer, but only a tiny bit. And I’ll argue that the reduction in quality is probably trivial relative to the cost saving. In other words, the 8% of GDP that we now spend providing health care for a modest fraction of Americans involves massive waste (as does the heavily subsidized “private” insurance system.) My plan is better on both equity and efficiency grounds.

Is there evidence that American health care is better than European health care? I know of two arguments for that claim, neither of which seem very important to me:

1. American health care is certainly more luxurious. I immediately noticed this when I went to the doctor in London in 1986. But I’ve also read that other European countries like France have higher quality than the UK (which itself has improved since 1986), so I don’t know how big the difference is today.

2. Cancer survival rates are modestly longer in the US. Assuming this is not just earlier diagnosis of cancer, you have to ask whether extremely expensive treatments that produce a few extra months of suffering with painful cancer passes the cost/benefit test.

Most importantly, under my plan even those with a stronger desire than me to “hang on for dear life” with terminal cancer, would have the option to spend extra private money on treatment. So I am still providing a sort of market safety valve. If you think I’m wrong about heroic treatments, feel free to spend the extra money yourself.

There are other arguments that make me convinced that the US system is highly wasteful:

1. There are no market controls on excess spending. All the incentives in the system are in the direction of providing excessive services, at excessive costs.

2. Whenever people I know interact with our health care system, I see enormous waste. I won’t bore you with the details, but I firmly believe that more than 50% of the funds I’ve seen spent on me or people I know have been completely wasted. Without any market test in the other direction, I’m going to assume the system is very wasteful. When you are spending 8% of GDP, the burden of proof is on those who claim effectiveness, not those who are skeptical. And if the European system really were greatly deficient, and the extra spending here was worth the cost, surely the proponents of our system would be able to come up with anecdotes more persuasive than modestly longer cancer survival rates.

Another question is how we get from here to there. There is only one realistic answer—gradually. But that’s going to be true of any alternative reform, as Congress is reluctant to take dramatic steps. I’d tell the Democrats that if they want the European system, then implement the European system. Gradually squeeze costs, and use the cost savings to gradually expand coverage of Medicaid. The European system does not have the government spend 17% of GDP on health care. I get angry when progressives say that Europe shows “Medicare for all” can work. It shows that a program spending 8% of GDP on health care can work; no one has ever been able to show a government program spending 17% of GDP on health care can work, indeed no one has ever tried. I doubt whether a European country could implement such a program without going bankrupt. Indeed Greece has already gone bankrupt and Italy is teetering on the edge, despite their government’s spending only 6% to 7% of GDP on health care—even less than the US.

The progressive call for the US to adopt a European style health care system is profoundly dishonest. If they really believed in such a system, they would extend existing government health care to all 325 million Americans, without spending additional money. That’s the European system. But that’s not what they are proposing.

The GOP position on health care is equally dishonest. Recall when people started showing up at Tea Party rallies with signs for the “government” to keep their hands off the Medicare program.

Our current GOP president has promised to protect this wonderful program. Well if Medicare is indeed a wonderful program, then why shouldn’t all 325 million American benefit from the program? Why do only the old, poor, military and public employees get government health insurance?

Even worse, not only did the GOP renege on its promise to repeal Obamacare, but voters in deep red states now seem supportive of expanding Obamacare to even more people:

Gooding is a small town in Idaho, one of America’s most conservative states. It is the sort of place where a campaigner may encounter a man butchering an elk on the dining-room table. It is not a place where you would expect to find much support for a ballot initiative that would expand Medicaid, the government health-insurance programme for the poor. Medicaid expansion, after all, is a pillar of the Affordable Care Act, as Obamacare is formally known. Yet Molly Page, an organiser, gets a surprisingly kind hearing from local people. One woman turns out to be a fervent supporter of President Donald Trump who fears a deep-state conspiracy to remove him from office. She nonetheless supports the ballot measure. Her two adult sons are uninsured, including one with alcoholism and epilepsy who skipped treatment because “it’s too damned expensive”. Even the elk-butcherer, a few doors away, hears Ms Page out. Polls suggest that a comfortable majority of Idaho’s voters will approve Medicaid expansion on November 6th. Voters in Utah, Nebraska and Montana will probably do the same.

If you listened to the GOP small government rhetoric, you’d think they’d support my plan to cap public spending on health care at 8% of GDP. Instead everyone from red state voters to the President are pushing to expand the footprint of the government. “Protecting Medicare” is a code word for expanding Medicare. Medicaid is also likely to grow, pushing government health care spending well above 8% of GDP, while leaving millions uninsured.

The sad truth is that neither party is committed to the European system, and hence my proposal will fail. But here’s what else will fail. The dreams of both progressive and libertarian pundits are every bit as politically infeasible as my proposal, at least in the short run. We are not getting Medicare for all (as progressives prefer), and we are not about to get the (small government) Singapore health care system, where public spending on health care is only 2% of GDP.

Sad.

PS. At MoneyIllusion I have a new post discussing my new economics principles textbook. If you are a principles instructor, please check it out.