US health care is an ongoing miserable failure

The state of U.S. health care is catastrophic. In no other area is the U.S. lagging so far behind the European Union. Average U.S. life expectancy is 78.7 years to compare with 81 in the 28 countries of the European Union.

U.S. life expectancy has fallen for the last three years, while it rises all around the world. U.S. infant mortality is 5.6 per 1,000 life births, but only 3.6 on average in the EU. American maternal mortality is 14 per 100,000 births and rising. Compare that with a mere 3 deaths per 100,000 births each in Finland, Greece and Poland.

{mosads}As if to add insult to injury, U.S. health-care costs 18 percent of GDP while the cost is limited to barely 9 percent of GDP in Europe.

This astounding U.S. underperformance raises two questions: How is it possible to perform so poorly; and why has the U.S. failed to do anything about it?

President Bill Clinton failed with his attempted health-care reforms. President George W. Bush’s Medicare reform sharply increased the cost of drugs for no good reason. President Barack Obama brought about significant improvements in insurance coverage, which the Republicans want to abolish to great damage to the nation.

For the last two decades, free marketers have expressed hopes that the market would resolve these problems with new technology and charity. Alas, no progress has been recorded. The markets do not work because they have been captured by vested interests, reflecting a wider problem of current American crony capitalism.

New technologies and charity are no match for these vested interests. As even the great libertarian Friedrich Hayek taught us in his monumental book, “The Constitution of Liberty,” basic education and health care are government responsibilities.

The U.S. public expenditures on health care are about as large as a share of GDP as European countries, but the government funding is so much more inefficient.

There are five main reasons for the failure of U.S. health care. They have been well analyzed and all of them benefit major lobbies:

• expensive, dysfunctional health insurance,
• a non-transparent and discriminatory pricing system,
• a monopolistic pharmaceutical complex,
• a highly-profitable tort industry, and
• high incomes of physicians.

The late Princeton professor Uwe Reinhardt produced arguably the best academic research on the U.S. health-care system, while the best journalistic book is T. R. Reid’s, “The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care.” Sadly, their many insights remain fresh, because the vested interests against reform have so far been overwhelming.

Everything is wrong with U.S. health-care financing. It is completely fragmented with at least four major public systems, of which only Medicare for retirees is general and a plethora of private insurance schemes. All European countries have either universal private insurance or direct state financing, which are much better administered.

While European insurance companies are usually mutually-owned by the insurance takers, U.S. insurance companies work for profit and find it cheaper to harass their customers with innumerable administrative queries than to deliver services.

Until ObamaCare, many insured Americans were deprived from insurance benefits because insurance companies blamed “pre-existing conditions.” ObamaCare also reduced the share of uninsured Americans. Yet, little is likely to improve in U.S. health care until the U.S. opts for a uniform system of its financing, be it public or private.

Few markets in the U.S. are more protected than the market for patented medicines. Their prices are typically three times higher than anywhere else, and a major U.S. government concern is to block cheap imports from Canada.

Incredibly, President George W. Bush’s Medicare Modernization Act of 2003 prohibited the large public Medicare from negotiating drug prices, having to accept high monopolistic prices, while ObamaCare did nothing to reduce this generous corporate welfare.

When leaving hospitals, patients in the U.S. are often contacted by law firms that suggest that they sue their physicians for the treatment they have received. This practice is so prevalent that every physician needs an insurance of at least $100,000 a year as protection against lawsuits, according to Reid.

Naturally, many lawsuits are justified, but many are not, and they employ a vast army of attorneys. The American Bar Association is a major donor to the Democratic Party, according to Reid, and it fights any reform of the U.S. tort system tooth and nail. The Republicans call for tort reform but have not done anything to rein in legal malpractices.

Finally, U.S. physicians earn twice as much as their colleagues in other wealthy nations. Physicians are kept in short supply by regulating the number of physicians being trained and by prohibiting most foreign-educated physicians to practice in the U.S.

{mossecondads}The quickly rising health-care costs are a major reason that most Americans’ real incomes have stagnated for the last four decades. Can Americans really continue to accept this wasteful harm? The Republicans have tried to abolish ObamaCare and the limited improvements it brought about but failed to find an alternative.

Currently, the Democrats have made improved health care one of their main issues, calling for “Medicare for All.” That makes a lot of sense. Medicare is the best functioning public health insurance system. It is universal for all pensioners.

While it provides minimum support, it can be supplemented with private insurance. It leaves the supply of medical services and medicine to the private sector, though the legal prohibition to negotiate drug prices must be abolished. With such a system, the U.S. should be able to reduce health-care costs, while raising its performance to a European level.

Anders Åslund is a Swedish economist and a senior fellow at the Atlantic Council.