Innovation/Global Risk

America: Failed Welfare State #2

By Shlomo Maital  

 

 

 

   Pay for this…

  

 

 

 …and get this!

Would you say that a nation that spent $8,000 per person on health care (double that of Canada, or France) would qualify for the title “welfare state”?

   That state is America.  And according to Ezra Klein, writing in The Washington Post, the reason is simple.  Prices.   Health care costs in America are double those elsewhere.

   Spending (on anything) is defined as price times quantity, P Q .  When spending is high, there are only two reasons. Either Q (quantity of health care) is very high, or P (price of a unit of health care) is very high.  For America, it is clearly the latter, P.  Klein cites a study showing that for the prices of 23 medical services and products, Americans pay a higher price than elsewhere.  America, in health care, is paying Maserati prices for VW returns. 

   Why?

   In Canada and Britain, health care prices are set by the government.  In Germany and Japan, they’re set by providers and insurers, with government mediation. In America?  It’s a free-for-all. Providers can charge what they can get away with. 

    Klein notes that two of the five most profitable industries in America are pharmaceuticals and medical devices, with margins of about 20 per cent.  They beat out even the financial services sector for profitability. 

   So, yes, America is a welfare state, because it spends fortunes on the health of its citizens. But it is also a FAILED welfare state, because it gets so little for all that money. Why? Because it privatized (for-profit) what is basically a public good – health.  According to health care expert Uwe Reinhardt, of Princeton University,  “the money we (Americans) spend on health care is money we don’t spend educating our children, or investing in infrastructure, scientific reseach and defense spending.  So  what this means is we ultimately have overmedicalized, poorly educated Americans competing with China, that’s not a very good investment.”

   President Obama blew all his political capital on a health care bill.  Problem is, it does not at all address this P’s and Q’s issue, of slashing health care prices.  And that is the core issue. If there was smaller “P”, then more people could get more “Q”.  It’s not a bad bill.  It simply misses the key point.