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April 20, 2014

Healthtopia: a tale of two countries

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Max Borders looks at the healthcare systems in Singapore and in France and wonders if there really is an ideal system that protects the vulnerable, while also allowing people to make their own choices.
If you could design a healthcare system from the ground up, what would you do? You’d want to solve a number of problems for it to work out right. Of course, you’d want to balance concern for the most vulnerable in society against the sovereignty of individuals to make their own healthcare choices – all while designing a system that is affordable, sustainable and solvent for everyone. Wash it all down with a dose of economic realism and you might have something close to healthtopia.

Hopefully, I’ve set you thinking. But before you finish your thought experiment, allow me to offer some best practices. No system is perfect. Different systems around the world have positive aspects from which we might be able to borrow (and negative aspects that we’ll want to eschew). So, we’ll go abroad using a little economics, common sense and political realism.
h4. First stop? Singapore
They might be banned from chewing gum, but they’re doing something right in healthcare. Certain aspects stand out:
1. Medical Savings Accounts (MSA) – Every citizen of Singapore is required to put a portion of each paycheque into a healthcare savings account, from which they pay for out-of-pocket health expenses. This goes very far in controlling costs.
2. Private healthcare providers are required to publish price lists to encourage comparison shopping. These appear virtually nowhere in countries like the US and the UK, dominated as these systems are by third-party payer models for primary care (public and private).
3. The private and public healthcare systems compete, which helps contain prices all around.
4. Private providers are required to publish prices, which increases transparency and comparison shopping.
5. Government focuses on basic healthcare services – narrowly defined – offering mostly catastrophic insurance. Parties are subject to stringent means testing and co-pays – which means Singaporean society doesn’t subsidise the rich in the name of ‘equality’.
Let’s linger on #1. Some may have concerns about Singapore’s requiring people to pay a portion of their incomes into an MSA. It’s a valid concern. But when one considers that in every developed country, society ends up bearing the costs of those unable to pay for their healthcare anyway, the ‘mandatory’ part of the Singapore MSA has merit. (It’s certainly less an affront to liberty than a fully State-run system.)
h4. The real value of the MSA
So let’s focus on the real value of the MSA. Recall that Singaporeans spend less than two per cent of GDP on healthcare. Now, we can’t make value judgments on how much or how little people spend on healthcare, as there is hardly an objective standard for the right amount.
(For the same type of condition, I may want drug therapy and you may want a surgical procedure. Neither of us would be wrong – though one approach might be more expensive.) In any case, what percent-of-GDP numbers can indicate evidence of overconsumption?
In other words, when systems focus too heavily on the use of third-party payer models for non-catastrophic care, people will invariably use what they don’t need. And that’s a terrible cost driver.
Think about the last time you went to a restaurant with a large party – all charged to the company expense account. Did you order the chicken or the filet mignon? Assuming you like steak, you’d be a fool not to get the filet. After all, someone else is paying. But that’s exactly how people behave when they only have to pay a small co-pay for a visit. They go to the GP when they get the sniffles. They opt for the brand-name prescriptions over generics. Or they ask for recreational Viagra. When you add up all these little instances of overconsumption, it adds up fast.
h4. The beauty of the MSA
And that’s the beauty of the MSA in Singapore: Singaporeans are much more careful about their healthcare decisions because they have incentives to be cost-conscious. The aggregate effect is a whole lot of savings (on goods, services and less bureaucracy in handling claims).
When you couple the savings of the MSA with a graduated system of co-pays, means testing and a generally greater share of healthcare responsibility by the patient, you get some very interesting results. As economist Bryan Caplan concludes:
“I’ve heard a lot of smart people warn that co-payments are penny-wise but pound-foolish, because people cut back on high-benefit preventive care. Unless someone is willing to dispute Singapore’s budgetary and health data, it looks like we’ve got strong counter-evidence to this view: either Singaporeans don’t skimp on preventive care when you raise the price, or preventive care isn’t all it’s cracked up to be.”
So, the law of supply and demand hasn’t gone anywhere – even in healthcare – and perhaps people know their bodies better than bureaucrats.
h4. Now off to France
France is ranked number one by the World Health Organization (WHO) and the ranking is consistently cited by an adoring press. So, perhaps France deserves our adoration, too. But we should take care. France’s system may be moderately successful as national health schemes go, but it is nowhere near ideal.
Indeed, the WHO ranking is determined by a number of questionable factors, among them: a) irrelevant or merely correlative health outcomes (such as longevity and infant mortality), b) political ideology and c) percentage of GDP going to healthcare. As economist Glen Whitman writes:
“The most obvious bias is that 62.5 per cent of their weighting concerns not quality of service but equality. In other words, the rankings are less concerned with the ability of a health system to make sick people better than they are with the political consideration of achieving equal access and implementing State-controlled funding systems.”
Yikes. Shouldn’t the purpose of any study be, at a minimum, to determine whether a system helps the ill get well (rather than begging the question about the type of system)?
And is it reasonable to consider, for example, longevity at all? Controlling for just a couple of non-healthcare factors in longevity, such as murder and accident rates, the US rockets to #1 in the world for average length of life.
In other words, the fact that people live, on average, shorter lives in the US than France has more to do with violent crime, lifestyle choices and car crashes than the nature of the US healthcare system. (I’ll pass over the issue of variation in how infant mortality is counted in different countries, which also seriously damages the WHO’s conclusions.) But let us return to France.
An inefficient delivery system is taking its toll. According to health economist Michael Tanner, it appears nearly 12 per cent of France’s GDP goes to healthcare, which – again – is neither good nor bad until you consider the French budget:
“In 2006, the healthcare system ran a €10.3 billion deficit. This actually shows improvement over 2005, when the system ran an €11.6 billion deficit. The healthcare system is the largest single factor driving France’s overall budget deficit, which has grown to €49.6 billion, or 2.5 per cent of GDP, threatening France’s ability to meet the Maastricht criteria for participation in the Eurozone.
“This may be just the tip of the iceberg. Some government projections suggest the deficit in the healthcare system alone could top €29 billion by 2010 and €66 billion by 2020.”
France’s unfunded liabilities track very closely to other countries with heavy public-sector spending on healthcare. So, while most of the press may gush about France due to WHO rankings, they’d be wise to consider whether such an apparently wonderful healthcare system is economically sustainable.
One might consider a couple of additional points:
France doesn’t conduct official measures of waiting times (problems that beleaguer most other less expensive single-payer systems like Canada and the UK, due to rationing), but polling suggests the ‘French and Germans who were dissatisfied with their healthcare system’s waiting times outnumbered those who were satisfied (50 per cent and 55 per cent dissatisfied, respectively)’, according to health economist Michael Cannon.
There may be waiting list problems in France, therefore, even if the authorities don’t measure it.
h4. Weaker capital investments
While waiting times and rationing problems for French care is still an open question, there is strong evidence that French patients lack access to advanced technologies, diagnostic tools and treatments, as strained budgets have resulted in hospitals making weaker capital investments.
“For example,” says Tanner, “the United States has eight times as many MRI units per million people and four times as many CT scanners as France. This partially reflects the more technology-reliant way of practicing medicine in the United States, but it has also meant delays in treatment for some French patients.”
Lest we end on a sour note, a couple of positive features of the French system bear mentioning. Private health insurance complements public health insurance in France, and co-pays in France (ranging from 10-40 per cent of the cost, depending on the service) help rein in costs.
In many respects, private insurance is less regulated than in other countries, which is to say premiums are largely ‘experience rated’, or tied to an individual’s lifestyle choices and history of illness. And French people, for reasons that may or may not have to do with the quality of care, are among the healthiest in the world.
In any case, let’s suppose there are credible health outcome measures that can be measured against calculations like percentage of GDP. France and Singapore may have comparable health outcomes, but France outspends Singapore by nearly an order of magnitude.
Singapore’s model leaves far more decisions in the hands of patients and doctors, not bureaucrats. So if we’re looking for something closer to healthtopia, we may want to consider looking east.
* Max Borders is an adjunct scholar for the National Center for Policy Analysis in the United States.