The Dangerous Myth of American Health Care Supremacy

Every nation, state, town or village in the world believes in a set of propositions that distinguishes them from their counterparts in other parts of the globe. Humorist Garrison Keller, host of radio’s A Prairie Home Companion, and creator of the mythical Minnesota town of Lake Wobegon, signs off each week’s segment with the modest pronouncement, “And that’s the news from Lake Wobegon, where all the women are strong, all the men are good-looking, and all the children are above average.” Surely there’s not a town or incorporated village in the country that feels any differently, and what’s the harm in a little civic pride? Probably nothing, but as Americans we are taught to accept a long list of propositions as articles of faith – propositions that may, in the long run, be damaging to our freedom, our economic well-being, and even our health.

For example, from the time we are toddlers we are taught that America s the richest country in the world. The fact is, the richest country in the world measured by GDP is Luxembourg at $55,100, followed by Norway and the United States tied at $37,800 GDP per capita. What about quality of life? Surely, we must be number one there, you say. Unfortunately, we’re only number 6, tucked in between Australia and Iceland. Norway is number one.

Let’s look closer at quality of life. One of the key elements in quality of life is health care, where once again, there are a number of questionable beliefs we subscribe to. We invite you to see how many of these propositions you subscribe to, and whether they are fact or fiction.

American Health Care: A Pop Quiz

1. The United States has the best health care system in the world.
True False

2. The United States spends more on health care per capita than any other country.
True False

3. Private, for profit companies, are the most efficient, and therefore the best means of controlling health care costs.
True False

4. American life expectancy is the highest in the world.
True False

5. How many Americans don’t have health insurance?
Ten million Forty million Sixty million

6. Some Americans have been going to Canada to fill their prescriptions in order to save money. How much more do Americans pay for drugs than citizens of other countries?
5-15% 15-30% 30-60%

7. How much does the United States spend on health care overall?
$525 billion $758 billion $1 trillion $1.7 trillion

8. How many of the 28 industrialized nations do not have a universal health care plan to protect its citizens?
One Three Five Seven

9. In 1980, health care outlays for the average American household were 12.1 percent of disposable income. What are they today?
10% 11 % 12 % 15% 20%

10. The health care industry is a big political donor and lobbyist.
(For answers, scroll to end of article)

If you’ve already checked your answers, you’re probably unpleasantly surprised at the poor condition of our health care system. We’re paying nearly 40% more per capita for health care than Switzerland, which is our nearest competitor among industrialized nations, but we’re leaving out approximately 44 million people, and underinsuring another 40 million. Another way of looking at it is that we’re already paying for universal health care in America, but we’re getting something far less efficient and effective. Instead of the “world-class health system” the politicians trumpet, we have something decidedly second-class.

So, why does it matter? Questions of costs aside, doesn’t everyone who needs medical attention in America get it? Conservatives have noted that even the down and out can walk into a hospital emergency room and see a doctor. This is true as far as it goes, but it overlooks some critical facts. Those who must depend on emergency room care, are getting little to nothing in the way of preventative medicine such as annual checkups and immunization. The lack of this basic care translates into higher rates of absenteeism at work and school, and higher mortality rates because serious diseases such as cancer and heart disease are diagnosed too late to be treated effectively.

And when the uninsured, or the underinsured, are thrust into the hospital for emergencies or critical care, that’s when the real complications set in. The uninsured may be treated, but if they are, the costs are usually staggering. American hospitals charge the uninsured five to six times what they charge those who have insurance. The reasons are simple: the insured who are members of large blocks of medical consumers have negotiating clout, whereas an individual without insurance has no clout whatsoever. So, those who can’t afford insurance, are charged the highest rates. And when they can’t afford to ante up – and very few ordinary people can afford such luxuries as the infamous $700 Tylenol – hospitals routinely haul them into court, and then once they’ve secured a judgment, garnish the wages of their former patients or repossess their homes. It’s no wonder that fully half of those filing for personal bankruptcy in this country are seeking protection from medical bills, and now, with the passage of Congress’ shameful new bankruptcy legislation, not even the courts will protect Americans crushed by medical expenses. They will be forced to choose between medical care and financial ruin.

Health Care’s Impact on American Manufacturing and the Economy

“The stark reality for our economy is that by 2012, health care costs will account for 17.7% of our GDP and, expenditures will total $3.1 trillion. This is an incredible burden on our country - it amounts to a tax our competitors aren't paying….Toyota recently put a major new plant in Canada, instead of the U.S because of healthcare costs.”
-- Senator John Kerry (D) Mass.

Many American corporations are grappling with the same choices as consumers. According to the Employment Policy Foundation, the cost of health care for employers jumped 12.4% between 2002 and 2003, a jump that was five times higher than the inflation rate. This is one of the primary reasons why American companies have resorted to offshoring in order to stay competitive in the global marketplace. General Motors claims that their health care burden adds $1,500 to the cost of each of their vehicles, making it increasingly difficult to compete with overseas rivals.

Our $1,500-per-unit health care expense represents a significant disadvantage versus our foreign-based competitors," says Rick Wagoner, CEO of General Motors. "Left unaddressed, this will make a big difference in our ability to compete in investment, technology and other key contributors to our future success."

Princeton economist Uwe Reinhardt has referred to American automobile companies as “a social insurance system that sells cars to finance itself.’’ Indeed, General Motors is the largest private purchaser of health insurance in the United States, spending rough $4.5 billion annually to provide for current employees as well as retirees.

GM chief executive Wagoner says that their health care burden is one of the primary factors in the closing of domestic plants and the loss of some 25,000 American manufacturing jobs, some 8% of the GM workforce. Unfortunately, that number doesn’t take in the “ripple effect.” It has been calculated that those 25,000 lost jobs will cause the loss of an additional 175,000 jobs in related companies that supply parts to GM.
In this context, health care benefits fall under the category of “structural costs” along with costs such as environmental, worker safety (OSHA), and corporate taxes. Compared to other industrial nations, America has higher structural costs, placing our companies at a disadvantage in the global marketplace. (see graph) Since Congress seems loath to attack such complicated issues as our Byzantine tax system, which, if replaced by a value added tax (VAT) would place our companies on equal footing with our trading partners (see Machining TK TK), the best thing we could do to save our manufacturing base is to replace our health care system with something that provides all our citizens with access to quality health care without burdening their employers: universal health care.

Universal Health Care

"Health care is an essential safeguard of human life and dignity and there is an obligation for society to ensure that every person be able to realize this right."

- Cardinal Joseph Bernardin, Chicago Archdiocese

As we pointed out in our health care pop quiz, America is the only industrialized nation in the world that does not offer universal health care to its citizens as a basic right. From an economic perspective that means less absenteeism due to illness, a smaller benefit burden on employers, and ultimately a more competitive manufacturing base. Without the financial burden of health care, American companies would be able to send goods into the global marketplace at lower costs.

At this point you’re probably entertaining one or more of the following objections. 1. It’s bound to be incredibly expensive, and it would only drive up taxes even further. 2. Government health care? That’s all we need; some government bureaucrat deciding what doctor we go to, or which procedure we can have. 3. Universal Health Care is socialized medicine, isn’t it? That means long waits and substandard care.

The facts are that none of these things are true, but a surprising number of people, who know next to nothing about public policy or medical care beyond their personal experience, believe them to be true. Why? Because we have had such ideas pounded into our heads by interest groups lobbying to keep their piece of the $1.7 trillion health care pie.

Why Does American Health Care Cost So Much?

Let’s look at the question of expense. The average American’s health care cost $5,440 annually, more than double the cost of what it costs to fully ensure the average citizen of Germany, France, or Switzerland, and those countries cover all their citizens, not just 80% as we do.

Why are they able to do so much more for so much less than we spend? There are several contributing factors, but the biggest is our system of so-called managed care. America’s health maintenance organizations were conceived of as a way to allow consumers to save money on health care by joining networks of physicians and hospitals, but unfortunately they have degenerated into bureaucracies whose primary purpose seems to be to either deny care or cut reimbursement. Not only has quality of care been compromised, but costs have skyrocketed 410% since the 1980s, twice the rate of disposable income. Most of this money goes to paper pushing, high executive salaries, dividends to investors ( these are publicly traded companies after all) and other administrative costs, which in some cases run as high as 25% of total costs.

Rampant fraud and overcharging are other factors, which drive up medical costs. Turning service-oriented organizations into profit seeking public companies has led to corruption and greed. For example, the giant Hospital Corporation of America (HCA), founded by Senator Majority Leader Bill Frist’s father and brother, has been fined $1.7 billion dollars for various misdeeds over the years.

The pharmaceutical industry has as much, if not more, to answer for when it comes to overcharging. As we mentioned in our pop quiz, the mark-up for many name brand medications runs as a high as 10,000 percent over the cost of raw materials, and generics, with markups around 3,000 percent are no bargain either. Typically the pharmaceutical industry points to the costs of research when questioned about the costs of today’s drugs. According to Marcia Angell, former editor of the New England Journal of Medicine and author of The Truth About Drug Companies: How They Deceive Us and What to Do About It, drug companies spend roughly 2.5 percent more on marketing than they do on research, and at least a third of the research in question is not actually done by the drug companies, but by governmental agencies such as National Institute of Health, universities and biotech companies, which then licenses drug companies to develop medicines based on that research. Angell cites the example of the cancer drug Taxol which was discovered by the NIH and licensed to Bristol Meyers Squib. In turn, they charge the consumer $20,000 annually, some 20 times their costs. While admittedly Taxol is a more expensive drug to produce than most, Bristol Meyers Squib is only paying NIH 0.5 percent royalty, and has no real development costs to recoup.

If there were any justice, Americans would be paying less, not 30-60 percent more than other nations pay for the drugs developed here.

Why We Don’t Have Universal Health Care

Surveys indicate that Americans have wanted a system of universal health care for years, and research by the General Accounting Office and the Congressional Budget Office has shown that such a system would not only extend coverage to another 45 million people, but it would actually save $100 to $200 billion dollars a year over what we’re spending now. Seems like a slam dunk, doesn’t it? So, why don’t we have universal health care?
You could probably hang it on a number of words, such as greed, ideology, or politics, and not be far off.

There have been four different attempts to institute a national program of health care since the beginning of the 20th century, most recently Hilary Clinton’s plan when she was first lady, and before that, Harry Truman’s in the late 1940s, but there was always a powerful interest group standing in the way. The American Medical Association has fought national health care at different times, as has big labor, and more recently insurance companies and right wing conservatives.

The right wing worries about increasingly the size of government, when the truth is we’d actually reduce the size of bureaucracy if we’d create a national health plan to replace the massive bureaucracy created by HMOs and other insurance companies. Remember, Medicare only requires 2% of costs to administer the program, while most insurance companies spend 20 to 30 percent of costs to do the same thing.

The AMA used to worry about government telling them what to do and how to do it, as well as cutting into their fee structure, but the HMOs and other managed care corporations have done a far more efficient job of limiting doctors’ ability to practice good medicine, to say nothing of slashing their fees. Now most doctors would love to see a system of national health care, if for no other reason than it would allow them to spend their time practicing medicine rather than negotiating with insurance companies for payment (many doctors now spend 50% of their time dealing with insurance companies in one way or another).

To summarize, the people are for national health care, the federal government concedes it would save a great deal of money, and the doctors seem to be for it too, so who’s standing in the way? As usual, it’s whoever stands to lose money: the insurance companies, the pharmaceutical companies, and manufacturers of health care equipment. – what public policy experts call a “concentrated interest” group. They’re able to hold sway over Congress because they represent the largest lobby on capital hill. From 1997 to 2000, they spent $734 million dollars in their lobbying efforts with Congress and the White House, and that kind of money buys a lot of influence in town like Washington.

Most thinking people are aghast at what has transpired, and find it difficult to imagine how and why things have degenerated so rapidly. While greed has made a big contribution to the mess we’re in today, the underlying reason appears to be the adoption of a political ideology that doesn’t hold up in the real world – the notion that the free market could dramatically improve health care.

The idea that somehow the marketplace is mystically immune from all the foibles of man is relatively new, capturing the imagination of conservative Republicans during the Reagan era. It is based on a fundamental distrust of government, especially federal government. According to this line of thinking, everything that is good in society comes from the actions of free individuals acting according to their self-interest in an unfettered, competitive marketplace. It’s an incredibly romantic idea in some ways, and it does capture how we feel about ourselves as a people, but the marketplace can be just plain stupid when it comes to something as important as health care. Since the United States embraced managed care, the emphasis in the health care sector has gone from service to profits, and with that change the quality of service has plummeted, while costs have increased dramatically. Despite the expectations of conservative ideologues, consumers have gotten the worst of both worlds.

What You Can Do to Improve Health Care and Unburden Our Economy

“It is shameful that the United States, the wealthiest country in the world, will not provide health care for every American…. With sky-high health care costs continuing to rise and insurers and pharmaceutical companies gouge the American public, we can no longer afford to wait.”
-- Congressman Dennis Kucinich (D Ohio)

Chances are that you don’t have a spare $700 million to spend on lobbying Congress to do the right thing over the next few years, but you do have a vote. Not only do you have a vote, like all of us, you have only one Congressman. You owe it to yourself and your fellow citizens to find out where your representative stands on health care and if you don’t like what you hear, work to change it.

Answers:

1. False. By all traditional measures: costs, percentage of the population with access to the system, infant mortality, and adult life expectancy, the U.S. health care system has become a second rate rather than a world class system. We still develop jaw-dropping medical technology which draws wealthy patients from around the world to our finest institutions, such as New York’s renowned cancer hospital Memorial Sloan Kettering, but hospitals such as these – many of which do not accept insurance – are increasingly out of reach for American citizens.

2. True. America spends something over $5,000 per capita on health care. In 2002, the number was $5, 440, while many comparable western nations such as Canada, Great Britain, and Germany were spending just over $2000 per capita while achieving better outcomes including longer life expectancy.

3. False. Since America adopted managed care, health costs have risen dramatically while the quality of health care has degenerated. Ironically, the most efficient health care organization in the country is run by the United States government. While many HMOs have high administrative costs (20 to 30 percent), Medicare’s administrative costs are only 2% of total expenditures.

4. False. In 1945 we ranked number one in life expectancy for both men and women, but now we rank 20th for women, and 21st for men.

5. Actually, the number is 45 million, but if you add the number who are underinsured, that is, those who would be devastated financially by a serious illness, the number soars to roughly 90 million people.

6. Americans pay 30 to 60 percent more than citizens from other countries, largely because the federal government has given pharmaceutical companies free reign on pricing. In many cases, drugs are marked up 10,000 percent over the costs of raw materials.

7. $1.7 trillion

8. One. The United States of America is the only industrialized nation that does not have a universal health care plan.

9. Today Americans spend 20 percent of their disposable income on health care.