Why Employer-Provided Health Care Sucks

Bruce Godfrey at Crablaw summarizes why single-payer health care works better than the current US system so that you don’t have to.

The US spends a greater portion of its GNP on health services than almost any other country in the world. Part of this may be the results of inefficiencies introduced by competition, in contradiction to the traditional economic model of competition as a reducer of prices and costs. Part of this inefficiency may come from the different, non-standardized coding systems used by various practitioners and insurers for different treatments and maladies, increasing administrative burdens and the likelihood of physician (and other) errors and delays.

Read the whole post. The first commenter links to a paper by Milton Friedman explaining how health care costs have skyrocketed in the entire developed world, and how what he describes as the “mixed system” in the US (since a little less than half of its health spending is governmental, as opposed to near-zero) contributes to gross inefficiency.

Unfortunately, even though he freely admits that the fully government systems of France, Britain, Sweden, and Canada do better than the US system, he advocates the complete deregulation of health care, blighting an otherwise good analysis. When it’s been demonstrated that the government can deliver health care far more efficiently than the free market, it’s generally a good idea to make the system more centralized and governmental.

In addition, Friedman cites two different myths about why the US spends more on health care than the rest of the first world. The first is that Britain and Canada have very long waits; in fact waits for vital procedures are shorter in Canada than in the US, and even waits for elective procedures are fairly short in Canada.

The second myth is that doctors make less money outside the US; although it’s true, it’s a fairly small part of the cost differential: there are about 1.5 million doctors in the US, making on average something like $200,000 per year, whereas doctors in the UK seem to make on average between half and two thirds of that. If American physician salaries dropped to British levels, US health spending would go down $100-150 billion a year; if American health expenditure dropped to British levels, spending would go down about $1 trillion a year.


6 Responses to Why Employer-Provided Health Care Sucks

  1. Hello. I was surprised (but pleased, I am an egotist) to see the reference to my little old blog. Arguing against myself, or at least in mitigation, here’s my $.02:

    1) The income tax hurdle is a major one. Only the employer-employee relationship is favored by the U.S. Internal Revenue Code. If you are an independent person, an artist or novelist living off 1099 royalties, or simply want to buy your own policy, the IRC will not let you reduce your social security and medicare taxes (FICA) at all for your premiums, and will only let you deduct from your income taxes what exceeds 7.5 percent of your adjusted gross income. What this means is that market forces cannot reach a lot of non-employee customers for health insurance, because the employer-employee relationship give three tax benefits to health insurance: FICA reduction for employee, FICA reduction for the required employer match and income tax exemption for the premiums paid (not even a deduction – the money never even enters gross income.) So a non-employer based pooling system cannot get off the ground, since tax policies make them completely non-competitive. Friedman makes the point – gently – but he makes it and it is a valid one. It is part of Why Employer-Provided Health Care Sucks – the taxes skew in favor of high premiums due to “tax-expenditure subsidy” driving up prices for all buyers.

    2. One recalls the complexity of the map drawn by the Republican opponents to Hillary Clinton’s ill-fated task force on health care. While that map was a piece of propaganda designed to intimidate rather than to enlighten, one wonders whether one would trust the administrative competence of the federal government to administer such a plan. Consider our chief executive. Do you trust him to make smart policy or to engage in the sort of competent public adminstration so vital to any national health care plan?

    Anyway, thanks very much.

  2. inaeth says:

    I was interested in this article until I saw Friedman’s name. Ugh. This guy has done enough damage in our lifetimes…

    It’s late, but I’ll post links detailing exactly what I mean by that on the morrow.

  3. Alon Levy says:

    I know what you mean, Inaeth… though honestly, the most pernicious right-wing economic policies come from supply-side cranks rather than serious libertarian or even neo-liberal economists, who tend to oppose things like corporate welfare and corporate protectionism.

    Bruce, sorry for not getting back to you earlier, but I distrust the government and the free market to the same degree here. To wit, the US doesn’t have a significantly more corrupt or less efficient government than Britain or France or Italy or Japan; and the highly competent and non-corrupt governments of Scandinavia get the same results as the governments of Continental Europe.

  4. inaeth says:

    To paraphrase as popular saying about art, I may not know much about economics, but I do know what works. Whenever I read articles by these far right wingers about the economy and the state of the markets, I get chills down my spine because of the amount of faith that they place in the “Invisible Hand of the Free Market”. It almost borders on religious mania. No other elements, variables, or policies are defines that may affect the market…

    For instance, the push to privatize water is a great example. Friedman and Co. insist that privatization is the best option to go for in almost all circumstances. However, when you look at the UK, Argentina, Peru, Chile, Bolivia, and others who actually HAVE privatized their water supplies, you see that service goes down, while prices go through the roof! Of course, the “Lexus and the Olive Tree” people don’t bother to point out their many failures throughout the world that their pet hypothesis has engendered.

    Oh…. It just came to me! I should do an article on these yahoos….

  5. You might want to tighten your spam filter, Alon.

  6. Alon Levy says:

    I think most of the spam that passes through is from the same IP – I keep forgetting to copy-and-paste it before deleting – so hopefully banning an IP address or three will get rid of the problem.

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