Understand U.S. system for meaningful debate – Highly regulated nature of market, not private care, explains many of the problems behind access to care

When discussing Canada’s health-care system, the United States provides a convenient scarecrow. We hear constantly that 45 million Americans have no health insurance, that public health-care spending is inadequate and that the U.S. system is characterized by unbridled capitalism. If we are to have a rational public debate following the Supreme Court ruling in the Chaoulli case, it would be important to keep in mind some fundamental facts about our neighbour’s system.

The U.S. system is primarily criticized for its lack of universality. To put this problem in perspective, the uninsured represent just 15.6% of the population. Furthermore, being without insurance is often a temporary situation. About one-quarter of the uninsured lack coverage for less than one year. A large number of people declared as uninsured—about 14 million—were eligible for Medicaid or for programs covering children but had either not taken advantage of this or were unaware of it.

The non-insurance problem is largely a job problem: 57% of those under 65 who were without health insurance throughout 1998 had no full-time jobs or lived in families where nobody did. Tax treatment of medical insurance in the U.S. creates a tight link with employment. Many uninsured persons also have the means to pay for private insurance but choose not to: 17% of the uninsured lived in households with incomes of at least $75,000 US.

Moreover, the uninsured have at their disposal a safety net, namely the public hospital network. This, in fact, constitutes a sort of informal hospital insurance. Private charity, from hospitals and doctors as well as from individuals who support charitable organizations, is also part of this safety net. It is estimated that two-thirds of the health care received by the uninsured costs them nothing.

Another big myth presents the U.S. health-care system as totally private, or almost. In fact, public health-care spending and public health insurance play dominant roles. Apart from Medicare and Medicaid, heavy public spending funds public hospitals and Department of Veterans Affairs facilities. All told, the U.S. spends more on public health care than most large Western countries: 6.6% of GDP, which puts the U.S. ninth among the 30 Organization for Economic Co-operation and Development (OECD) countries, just after Canada’s 6.7%. Moreover, per capita government spending is higher in the U.S. than in Canada—$2,364 US compared with $2,048 US at purchasing power parity.

Although public spending as a proportion of total health-care spending is low—44.9% compared with the OECD average of 72.6% and Canada’s 69.9%—this is because Americans add far more private spending to their spending mix, with total spending much higher than elsewhere at 14.7% of GDP vs. an OECD average of 8.4%. These huge sums explain why Americans have the latest medical technologies, the most effective treatments and short waiting times.

As for the myth of unbridled capitalism, the U.S. health-care market is highly regulated, leading to distortions in the use and supply of care. This explains in part many Americans’ difficulty in obtaining private insurance. Onerous standards set by governments rule out cheaper, more accessible policies. Insurance seldom contains co-payments or co-insurance. Policyholders thus have little incentive to seek the best prices, which goes some way toward explaining escalating health-care costs. Exaggerated court-imposed penalties in professional malpractice cases also boost U.S. health-care prices.

While the U.S. health-care system suffers from a number of problems and is far from perfect, it is not the inhumane horror that some describe. The causes of these problems are also not what most people believe. They result not from its private character but rather from the heavy regulation to which it is subjected.

Norma Kozhaya is an economist at the Montreal Economic Institute.

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