Why we pay so much for health care

Washington Post reporter Thomas R. Reid wrote his book, The Healing of America: A Global Quest for Better, Cheaper and Fairer Health Care, to find out how other advanced countries can provide health care for all their citizens, and yet do it for less money than we Americans spend.

In 2005, we Americans spent 15.3 percent of our national output (gross domestic product) to provide health care for a fraction of our citizens. The French spent 11.1 percent; the Germans, 10.7 percent; the Canadians, 9.8 percent; the British, 8.3 percent; and the Japanese, 8 percent, to provide health care for all their citizens.

Reid’s gimmick was to ask doctors in various countries what they’d do for his bad shoulder, which he injured in the Navy decades before. His American doctor, paid by his company health plan, recommended the most expensive option – surgery to replace his bad shoulder with an artificial shoulder made of titanium. Doctors in France, Germany and Japan recommended physical therapy, not surgery, because of the risk of disease, paralysis and death, but they said he could have surgery if he insisted. A Canadian doctor said that he could get on a waiting list for an examination and a recommendation, which probably would take a year. And his British doctor (he worked in the Post’s London bureau) told him, “Learn to live with it, mate.”

The British doctor’s comment may seem harsh, but when Reid’s little daughter broke her arm, he was able to get her treated in an emergency room in London with no wait and no fee. When the same thing happened in Rochester to the daughter of the Rev. George Tyger (then my minister, now a U.S. Army chaplain), he had to wait for hours before her arm was treated, while the overburdened hospital emergency room staff dealt with life-threatening injuries.

And in the end “learn to live with it” was the option Reid chose.

Reid pointed out that the United States does not have so much a different system from other countries as a hodge-podge of systems, each with its foreign parallel.

Americans with employer-provided health insurance are under a system similar to the French, Germans and Japanese, except that their health insurance providers are non-profit and that everybody is covered. Nobody in those countries loses health insurance when they change jobs or are laid off from their jobs.

Veterans, military personnel and Indians on reservations go to hospitals and see doctors who are paid directly by the government, as in the British National Health system.

Retired people such as myself and poor people get Medicare and Medicaid. Our Medicare system was copied from the Canadian Medicare system, except that theirs covers the whole population.

And then there are tens of millions of Americans who are on their own, like people in Third World countries. I don’t think there are reliable estimates of how many Americans die for lack of medical care due to lack health insurance, but the number is not zero and I don’t believe it is small.

T.R. Reid

Why is it that we Americans pay so much more for health care?

All the costs of our system are higher. Here is a comparison and here is another comparison of physicians’ incomes in other countries in comparison to the United States. Admittedly, this information is not up to date, but it is in line with T.R. Reid’s experience. Incomes in other health care professions also are higher in the United States than elsewhere.

On the other hand, medical school is free to those who qualify in France and Germany, and free or cheap in most other advanced industrial countries. Nobody in those countries graduates from medical school with $100,000 or more in student loans to pay off, as is common in the United States. Malpractice suits are rare elsewhere, and malpractice insurance premiums are tiny. Reimbursement systems are simpler than in our hodgepodge of systems; doctors don’t have to hire staff just to deal with insurance.

Drug prices are lower outside the United States because government and public agencies negotiate prices down. This was specifically forbidden under the new drug benefit legislation that was passed during the Bush administration.

The main difference is that U.S. health insurance is a for-profit system in which there is an economic incentive to restrict benefits. Wall Street stock analysts rank health insurance companies according to how much they can lower their “loss ratio”; the loss ratio is what they pay out in benefits. A U.S. health insurance company is considered to be doing a good job for its clients if its loss ratio is no lower than 80 percent. In contrast, administrative costs are less than 5 percent for Medicare.

Taking out an insurance policy is like placing a bet. You bet that you are going to die, or that your house will burn down, or that your automobile will be totaled; your insurance company bets that it won’t. Insurance companies make money by calculating the odds correctly, and basing their premiums (or denying coverage) accordingly. If you have a universal system, in which everybody gets the same coverage at the same cost, the for-profit insurance company serves no useful function.

T.R. Reid dedicated his book to President Eisenhower, who was inspired to create the U.S. interstate system after seeing the German autobahn. We Americans, whose ancestors come from all over the world, should draw on the best ideas from all over the world. We should be the last people in the world to be prisoners of the “not invented here” syndrome.

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