The US healthcare system and the Myth of “Laissez-faire”

The US healthcare system and the Myth of “Laissez-faire”

Central to understanding both US healthcare and the debates around it is the central reality that it is not a  ‘laissez-faire’ system where  government just enforces  contracts and does not intervene otherwise in the market . This is despite the fact it is so often described as such in the United Kingdom.  On the contrary the US System  is one where supply is heavily regulated by government at every point of the supply chain and where state subsides per person are higher than in the United Kingdom. This was true even before the health reforms achieved by the Obama administration much of which is either not yet in effect or may be overturned by legislation or legal challenge. Pre “Obamacare”  American was no free market nirvana.

Most stereotypes exist for a reason and so there are certainly aspects of the US system which are ‘free market’ compared to the UK or even other western states The US does not have a general  entitlement to free healthcare at the point of use (save in certain critical cases)  unlike the UK. Unlike just about any other western nation, it also has long lacked system which either provides   healthcare insurance for all citizens without it or forces people to buy such.

Moreover the majority of providers are either for profit companies or charities. This is a sharp contrast to theUKwhere the large majority of hospitals are government owned. It’s however closer to many other western countries-for exampleGermanywhere only about half are government owned.

But there are a huge number of important ways in which the US government does intervene in the US healthcare market.

The most obvious way is by providing a great deal of money for patients to buy medical services. The most expensive programme that does this is Medicare. This is targeted at the elderly (over 65) and disabled. It covers a great deal of the costs of hospital stays and other health services (though not ‘catastrophic’ healthcare) and was expanded to cover Prescription Drugs during the Bush presidency.  Deductibles and copayments do exist but are limited in scope-it often covers 80% of the cost and often even more. Overall this gives the American elderly more expensive government healthcare benefits (judged by the amount spent per enrolee) than is currently the case in theUK-or indeed most western countries-and the elderly and disabled are the leading consumers of expensive healthcare.  The result is an elderly American has greater entitlement to support for a hip operation, at least to getting one quickly than an elderly Brit. Medicare has tended to have very steep growth in costs since it started-currently over 6% a year.

Medicaid is the other very large healthcare programme. It is designed for those with low assets and generally incomes .This provides a similar but much lower system of support for purchases. It’s also financed differently. In particular states can expand the benefits beyond the ‘bare minimum-and the federal government will pay at least half the costs of such increases (often much more). This of course means that when the states cut back their spending on the programme by one dollar, the programme loses at least two. The states also have much more power to shape the programme and who is covered varies massively from state to state-in theory states can even opt out of Medicaid!  There are also some other programmes including the State’s children health insurance programme (SCHIP), basically an expansion of Medicaid and a very generous healthcare programme for veterans.

The result of all these expenditures is that the proportion of US GDP spent on government healthcare in 2008 was actually higher than the United Kingdom. Since America is a vastly richer country this comes to a much higher amount of money spent per taxpayer.  It also comes to close to half the total expenditure on healthcare in theUnited States.

Even the private expenditure is massively shaped by government intervention. In particular the health insurance market is shaped by the tax code.  Most importantly there is full tax relief for employers paying for health insurance but not for individual purchases (a measure originally passed in World War 2 to help with controlling wages and prices). Consequently the great majority of American employees (and an enormous number of the retired) obtain insurance through their employer. This also means there’s a strong tendency for people to lose their health insurance when they lose their jobs-such as in the recent recession!  In combination with the government programmes this also means that when obtaining healthcare a majority of Americans do not pay most of the cost themselves- it’s either provided through a government programme or by their employer. It

There is also whole panoply of regulations that regulate all this by the ‘federal’ government (that is the national government). This includes some of the tightest safety regulation in the world.  Another noteworthy regulation is that hospitals are legally required to treat the critically ill even if they can’t pay.

Regulations at the state level also matter enormously –in a way completely alien to the UK experience. In particular states have been the power to regulate healthcare insurance. There are even some state systems that represent somewhat similar efforts to ‘Obamacare’ including a ‘mandate’ to compel everyone to have some kind of health insurance. This is the case in Massachusetts- where the law was signed by Mitt Romney the leading candidate for the Republican nomination. Even more common are various forms of ‘Community Rating’ where insurance companies are forced to charge equal prices to the already sick and the well.  Many more states have various mandated benefit packages that is requirements that certain expenditures have to be covered by all health insurance packages. For example frequently contraceptive coverage has to be included. This of course pushes up the price of health insurance.

The US healthcare system undoubtedly has its advantages- those covered tend to have access to a larger range of treatments than in most other western states and the US healthcare system is unmatched for technical innovation

However at least among policy experts and politicians there is a fairly wide consensus that fairly radical reform is necessary   some of the problems include the sharp increases in healthcare  costs which are among the highest per operation in the world .  Consequently  Medicare and Medicaid is the biggest driver of long term fiscal pressure on the US government. This rise in costs has also  kept real wages stagnant- or at best slightly rising- the increased cost of medical insurance have swallowed up employer’s contributions.  Millions lack any form of health insurance coverage for non emergencies. Some of the programmes also seem to have real problems in efficiency –for example Medicaid users seem to have very similar health outcomes to otherwise identical patients without coverage!

However this does not mean that there is a consensus on what should be done to deal with these problems. On the contrary what to do is something that is enormously and deeply contested whether by right or left, policy wonks or politicians. Moreover voters are at best very wary of virtually all ideas for radical reform. This wariness has probably been the strongest single obstacle to the reform plans of presidents of both parties.  In any case it is clear that ‘Obamacare’ American healthcare was not laissez-faire but the focus of massive government intervention.

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2 Responses to The US healthcare system and the Myth of “Laissez-faire”

  1. Pingback: Obamacare and the Supreme Court | 2020health's Blog

  2. Pingback: Presidential Campaigns and Medicare – What’s the Truth? | 2020health's Blog

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