What government spends the most on health care?
- Is it Canada or the United Kingdom, which are famous (or, if these stories are any indication, infamous would be a better description) for single-payer healthcare systems?
- Is it Sweden, the home of the cradle-to-grave welfare state?
- Or France, the land of the world’s most statist people?
- How about Italy or Greece, nations that have spent themselves into fiscal crisis?
Nope, nope, nope, and nope.
The United States spends more money, on a per-capita basis, than any of those countries. Here’s a chart from a Forbes analysis prepared by Doug Holtz-Eakin and Avik Roy.
There are three big reasons why there’s more government-financed healthcare spending in the United States.
1. Richer nations tend to spend more, regardless of how they structure their healthcare systems.
2. As you can see at the 1:18 mark of this video, the United States is halfway down the road to a single-payer system thanks to programs such as Medicare and Medicaid.
3. America’s pervasive government-created third-party payer system leads to high prices and costly inefficiency.
So what’s the moral of the story? Simple, notwithstanding the shallow rhetoric that dominates much of the debate, the United States does not have anything close to a free-market healthcare system.
That was true before Obamacare and it’s even more true now that Obamacare has been enacted.
Indeed, it’s quite likely that many nations with “guaranteed” health care actually have more market-oriented systems than the United States.
Avik Roy argues, for instance, that Switzerland’s system is the best in the world. And the chart above certainly shows less direct government spending.
And there’s also the example of Singapore, which also is a very rich nation that has far less government spending on healthcare than the United States.
If you read the Avik Roy articles linked above, and also this study by my Cato colleague Mike Tanner, you’ll see that there’s no perfect system.
Our challenge is that it’s very difficult to put toothpaste back in a tube. Thanks to government programs and backdoor intervention through the tax code, the United States healthcare system is nowhere close to a free market (with a few minor exceptions such as cosmetic surgery and – regardless of what you think of the procedure – abortion).
Yes, I think entitlement reform can make things better, though fixing Medicare and Medicaid should be seen as a necessary but not sufficient condition. As I show in this post, we would simply move a little bit in the right direction on the spectrum between markets and statism.
Tax reform could solve another part of the problem by removing the bias for over-insurance, which presumably would lead people to pay out of pocket and use insurance for large, unexpected costs.
Fundamental tax reform is also the best way to improve the healthcare system. Under current law, compensation in the form of fringe benefits such as health insurance is tax free. Not only is it deductible to employers and non-taxable to employees, it also isn’t hit by the payroll tax. This creates a huge incentive for gold-plated health insurance policies that cover routine costs and have very low deductibles. …Shifting to a flat tax means that all forms of employee compensation are taxed at the same low rate, a reform that presumably over time will encourage both employers and employees to migrate away from the inefficient over-use of insurance that characterizes the current system. For all intents and purposes, the health insurance market presumably would begin to resemble the vastly more efficient and consumer-friendly auto insurance and homeowner’s insurance markets.
In other words, as this poster suggests, government is the problem and less government is the solution.