Private-Sector Socialism: What the Right and Left Don’t Understand about Healthcare in Other Countries
By John C. Goodman • Wednesday August 8, 2012 9:23 PM PDT • 9 Comments
There is no topic in healthcare that is more misunderstood than what other countries are doing. At both ends of the political spectrum, the mistake is the same: the belief that other healthcare systems are radically different from our own. They aren’t.
Take the United States and Canada. I would say that the healthcare systems of these two countries are 80 percent the same. In both countries, third-party payers pay the vast majority of medical expenses. In both countries, the third parties pay by task. In Canada, when patients see a physician, it’s free. In the United States, it’s almost free. In both countries, normal market forces have been completely suppressed. Healthcare in both places, therefore, is bureaucratic, cumbersome, wasteful, inefficient, and unresponsive to consumer needs.
As I examine in my new book, Priceless: Curing the Healthcare Crisis, one reason so many people get misled is that in Canada, government is the third-party payer, whereas in the United States, about half of all spending is private. The mistake is assuming that there is a substantial difference between public and private insurance in the United States. There isn’t. As we have seen, Medicare in the United States is managed almost everywhere by private contractors, and much of Medicaid is privately managed as well. Furthermore, one out of every four Medicare enrollees and a substantial majority of Medicaid enrollees are enrolled in private health plans, even though government is paying the bill. Most of the time, private insurers pay providers the same way that the government pays. They use the same billing codes and pay for essentially the same services the same way.
Moreover, private insurance in the United States is so heavily regulated that there is no important difference between the public and the private sector. Our public insurance looks just like the socialized insurance we find in Canada. But so does our private insurance. Indeed, what we call private insurance in this country is little more than private-sector socialism.
One more thing to keep in mind: in the United States, we do not have one health system. We have many. In addition to Medicare and Medicaid, there is the VA health system, CHAMPUS (for military families), the Indian Health Service (which is apparently even worse than Medicaid),[1] all the employer plans (running the gamut from “mini-med” plans[2] to cradle-to-the-grave coverage), a whole host of special labor union plans, and, of course, garden-variety health insurance. There is far more difference within US healthcare than there is difference between the US and other countries.
The pluralism of US healthcare is important to keep in mind in thinking about health reform. Suppose you are dissatisfied with the way the healthcare system is working in your city or your locality, and you are curious about whether somewhere in the world people have found a better way of doing things. Odds are that you are going to find better answers somewhere within the United States than outside of it.
People on the left and right who are prone to stress the differences between US healthcare and the healthcare of other countries invariably ignore the 80 percent commonality and focus on the remaining 20 percent. On the left, the focus is usually on the ways we appear to be worse; on the right, the focus is usually on the ways we appear to be better. But even here the differences are narrowing, and I expect that trend will continue.
Doctors who object to managed-care interference with the practice of medicine in this country will not be pleased to learn that everything that is happening here is finding its ways to other countries as well. Indeed, US insurance companies are contracting with governments in other countries to export what they do here to other places.[3] People who are concerned about rationing by waiting time in other countries had better brace themselves. Waiting times are growing in the United States as well.
As for global budgets, a lot of state Medicaid programs already have them, and they may go system-wide in Massachusetts in the near future.[4]
Another way in which people get misled is in assuming that differences in health outcomes are mainly due to how the medical bills are paid. Yet, differences in health outcomes are far more related to lifestyle, culture, and personal behavior. The United States is an incredibly heterogeneous country—especially in contrast to the homogeneous populations of most Europeans countries. Transplant the US population to France and replace the indigenous population there, and I suspect that in a short period of time, the French healthcare system would come to resemble the system we have in America today. Conversely, transplant the French population to this country to replace all the Americans, and in short order, I suspect that our healthcare system would come to resemble what you see in France today.
Differences in outcomes are very often due to differences in the people involved. Too often, these differences are wrongly ascribed to differences in the payment systems.
[1] “Broken Promises: Reservations Lack Basic Care,” Associated Press, June 14, 2009.
[2] David R. Henderson, “Mini-Med Plans,” National Center for Policy Analysis, Brief Analysis No. 727, October 21, 2010.
[3] Karen Stocker, Howard Waitzkin, and Celia Iriart, “The Exportation of Managed Care to Latin America,” New England Journal of Medicine 340 (1999): 1131–1136.
[4] Abby Goodnough and Kevin Sack, “Massachusetts Tries to Rein in Its Health Costs,” New York Times, October 17, 2011.
Note: Cross-posted at Psychology Today blog, “Curing the Healthcare Crisis.”
Tags: Budget and Tax Policy, Business, Economics, Government subsidies, Healthcare, Insurance, Medicaid, Medicare, Nationalization, Price control, Regulation, Social Security, Socialism, Taxation, The State, Welfare 
In Canada, I can go to the doctor today and I don’t need cash. In the states, if I go to the doctor today, I need cash. I don’t have health insurance. That’s the difference.
karen | Aug 9, 2012 | Reply
In this issue is never mentioned about alternate healthcare practices like simply addressing nutritional deficiencies, or reflexology, and other remedies that really work and have been in practice for 100s of years. It is because these practices don’t make the most profits and are harder to regulate by bureaucrats who must justify their gov. pay checks.
Terry | Aug 13, 2012 | Reply
Once you make health care into a government protected monopoly, in order to control costs, the government has to limit what providers may charge. This is why other countries have lower health care costs than the USA. Additionally, our system has a lot more “overhead” than do the health care systems found in Canada, France, England, Germany, or any other developed country. Also the rest of the developed world negotiates drug prices with the suppliers, something generally not done here. There is nothing “magic” about how it is done elsewhere, except to note that while their primary care is superior to ours, their specialist care is inferior because they put the emphasis upon primary care instead of specialist care. So there is no “waiting” for primary care (as there often is here), but to see a specialist or have medical “work” done that specialists do will result in having to “wait” for a generally longer period of time than what most Americans expect here in the US.
Jerome Bigge | Aug 13, 2012 | Reply
We could reduce the cost of health care here in the USA, but any way we do it will reduce the income of providers. Who will object strongly to such a thing. The average primary care provider earns a fair portion of their income through the benefit of possessing a legal monopoly over access to medical drugs. Without this legal monopoly (prescription laws), the incomes of primary care providers would drop an estimated 25% or even more. Mainly because their patients would no longer be willing to make the frequent office visits and have the frequent lab tests that doctors today are able to force their patients to have. There is presently a proposal before the FDA to change the classification of many medical drugs from “prescription only” to a lower classification of “behind the counter, adult signature required” much as certain cold medications today are classified at. This of course would reduce health care costs for many people as much as 50% (going by my own experience), but of course would mean doctor’s incomes would drop accordingly. Which is why the medical profession is utterly opposed to the idea!
Jerome Bigge | Aug 13, 2012 | Reply
I am totally in favor of giving patients access to most if not all the medications that are now prescription only. I am a practicing Emergency room health care provider and I find it tedious and a little embarrassing to tell perfectly competent adults what they may and may not invest without my permission. When I graduated from medical school they handed me the keys to the medicine cabinet without asking whether or not I wanted them. Health care providers should be like engineers of the human body. If you want to change something or produce a certain result you should consult with a specialist like me. Currently it is as if we control building by locking up all the hammers in the country to keep anyone from building a shelter to meet their unique needs. That’s just stupid...
Howard | Aug 14, 2012 | Reply
@Terry: No, it is because they don’t work.
Regarding the costs, health care has virtually no competition and many prices are set by the government. Empowering the patient with the money ( subsidies) and the choice of where to spend that money, i.e., which doctor, which X-Ray facility, and whether to pay for tests or not, would bring costs down as they have for medicare Part D (the only government entitlement that has cost less than expected) where patients do have such choices. Furthermore, it would encourage people to be far more knowledgeable about their health care needs, just as people inform themselves about e.g. cellphone plans, compare costs, and the big companies compete for clients by offering better services and/or cheaper products.
Solo | Aug 14, 2012 | Reply
@Solo:
It is easy to make claims about the salutary effects market competition might have on medical costs. But those claims fly in the face of the reality that medical diagnosis and treatment is, in many, many cases, an experience good, not easily commoditized. The usual remedy is to compete on reputation, but the medical industry actively opposes the sharing of outcomes information for practitioners. Hence, reputations for providers are mostly about things that have no proven relationship with outcomes, such as likability, gender, race and age.
Without meaningful, readily available and interpretable data on provider performance, consumer choice can’t drive providers to compete on price and performance.
brianS | Aug 16, 2012 | Reply
Brian, You have it backwards. Government price controls, mandates, regulations, subsidies, etc., prevent price and performance competition and virtually no one in healthcare has a clue to what the real prices are. Cost shifting, enormous waste, higher costs, poor access, and less innovation are the results.
We recommend the following authoritative book that examines all of this and far more in detail:
Priceless: Curing the Healthcare Crisis, by John C. Goodman
David J. Theroux | Aug 16, 2012 | Reply
David, while I agree that government regulations don’t exactly help to expose “real” prices in healthcare, to say that I have it “backwards” is, well, odd.
An experience good is an experience good. Adding government regulation on top of a market for an experience good doesn’t change that fact.
Even in the abstract, I can’t easily comparison shop for a price-and-performance package of surgical services (diagnosis, pre-op, surgery, post-op) because I don’t know what I’m going to get until I experience it, and the medical industry has actively deterred sharing of systematic outcomes information.
There are rare exceptions, such as coronary artery bypass graft (CABG) surgery, where there is now a registry of data. But interpretation of that data is non-trivial, even for experts, because patient circumstances vary so much. These facts significantly deter commoditization of services.
There isn’t much better transparency in relatively similar yet arguably much less regulated markets, such as massage therapy, acupuncture, homeopathy, naturopathy, chiropractic, or, for that matter, dentistry.
If you have to rely on interpersonal utility comparisons for measuring outcomes, it is really difficult to construct meaningful measures of performance on which to base market reputations. Service providers tend to have pretty localized reputations — word-of-mouth endorsements by consumers who have little or no basis of comparison with other providers of the same services.
To be sure, there are reasons that physicians aided and abetted the creation (and capture) of professional licensing boards in their profession (and other information-obscuring policies). It’s a lot easier to maintain a cartel with the active support of the state than without it.
But there just aren’t very good reasons to believe that real price competition is very achievable in general in medical service markets, given the underlying nature of the services being provided.
brianS | Aug 21, 2012 | Reply