All Commentary
Thursday, October 1, 1992

Why We Spend Too Much on Health Care and Twenty Myths About National Health Insurance

National health insurance has destroyed quality health care and freedom of choice in countries throughout the world.

The political voices in America calling for mandatory, universal, government-financed national health insurance are growing ever louder. We are told that health care costs too much, provides too little, and cares for too few. More and more Americans have no health insurance or inadequate coverage, and despite health insurance, long-term medical care can still be ruinously expensive.

Our free market in health care, we are told, has clearly failed. Don’t the American people deserve a humane and economical system, like that of Canada or Britain, where everyone who needs it gets health care, and administrative costs are a fraction of what they are in the United States?

Why We Spend Too Much on Health Care and Twenty Myths About National Health Insurance have been published just in time to help put an end to such myths. They are devastating critiques of the claimed failures of the free market and the “benefits” of socialized medicine. Why We Spend Too Much on Health Care focuses on refuting the myth that high health care costs in the U.S. prove that a free market in health care has failed. Twenty Myths about National Health Insurance debunks the claimed superior humanity and efficiency of socialized medicine. Together they provide overwhelming intellectual ammunition for advocates of liberty and the free market.

The thoroughly documented thesis of Why We Spend Too Much on Health Care is that claims that health care costs are too high in the U.S. because of the failure of the free market are, depending upon context, either arbitrary or just plain wrong.

The authors don’t deny that Americans spend much more per capita on health care than the citizens of other industrialized nations: 11.9 percent of gross domestic product (GDP) in the United States versus 8.7 percent of GDP in Canada in 1987. But, the authors argue, this in no way means that Americans bear higher costs for health care than the citizens of other countries.

First there is a tremendous difference between spending and costs. In addition to dollars spent on national health insurance in other countries, there are also the social costs of “pain, lost productivity, and sometimes . . . premature death of . . . people in waiting lines to receive medical treatment each year. Nine thousand Britons, for example, die each year because they are denied access to kidney dialysis” (p. 6).

A host of federal and state government policies also compound health care costs in the United States, including some 700 state government mandates which “have been estimated to increase the cost of health insurance by 30 percent”; “Certificate of Need” requirements for new hospital construction; occupational licensing laws that prevent nurses and other health practitioners from performing many routine health functions; and restrictions on managed care agreements (p. 14).

The authors also show the fallacy of international comparisons based upon spending. After all, the United States has far more injuries and deaths from violent crime and far more teen pregnancies than do Canada or England. In addition we have a rapidly aging population, a growing AIDS epidemic, and many other social forces pushing health care demand above what it is in other countries. Without taking such factors into consideration, international cost comparisons become meaningless. Thus the authors argue, “using their own numbers, we can show critics of the U.S. health care system that the U.S. has a better record of controlling spending than several developed countries that have adopted the nationalization model” (p. 19).

In addition to considering costs in judging health care systems, we also have to consider services and benefits. Americans are much more affluent than Canadians or Britons, and throughout the world as people become richer, they spend a lower percentage of their incomes on necessities (like food and clothing) and a higher proportion of their incomes on discretionary goods and services, like health care. If Americans are spending more but getting more they are not necessarily spending “too much” on health care. That is precisely what the authors argue: “Compared to Americans, British patients are half as likely to have surgery of any kind and one-sixth as likely to undergo coronary bypass surgery. British doctors prescribe fewer drugs, perform half the number of X-rays as U.S. doctors, and use half as much film per X-ray. Pap smears and blood tests are recommended only once every five years. Do the critics of U.S. health care believe we should adopt five-year intervals for Pap smears and blood tests? Of course not. But they compare U.S. spending to that of nations that have adopted such policies” (p. 31). After this devastating critique of the idea that international comparisons “prove” that Americans spend too much on health care, the authors go on to expose the real culprits in high health care costs: government spending, tax policies, and regulations. Far from having a free market in health care, we already have a semi-socialized market, increasingly dominated by government.

Government spending on health care has increased from $25 billion a year in 1970 to $280 billion in 1990. The authors report: “The health care industry expanded dramatically in the 1970s and 1980s to accommodate the influx of government spending. The number of doctors rose from 151 per 100,000 of population in 1970 to 246 by 1986. The number of other hospital personnel increased from 2.53 million in 1970 to 3.46 million in 1986” (p. 52).

This huge increase in government spending has bid up the cost of medical services for everyone: “With its huge market share, changes in the federal government’s reimbursement policy are immediately felt by other players in the health care field. The cost-plus payment system under Medicare forced other health care buyers, who bid against Medicare for health services, to pay higher prices. The heavy traffic of consumers for whom health care was nearly or entirely free made it more difficult for those consumers who were still cost-conscious to have any effect on price” (pp. 52- 53).

Government tax policies have encouraged payment of health care benefits by parties other than the consumer—particularly employers and insurance companies. If your employer pays for your health care through insurance premiums, costs are generally 100 percent deductible from pre-tax income. But if you pay directly for visiting a doctor or buying medication, your costs are at best partially tax-deductible. The net effect is to encourage third-party payments for health care. Thus, “The share of health care spending paid by business increased from 17 percent in 1965 to 28 percent in 1987, while the share paid directly by individuals fell from almost 90 percent in 1930 to just 26 percent in 1987” (pp. 55-56).

Third-party payment for health care has the effect of destroying consumer accountability and pushing up prices: “Each individual with insurance, consequently, has an incentive to overuse medical services and no incentive to comparison shop” (p. 66).

The authors also briefly discuss how government regulations push up the cost of health care through medical regulation, insurance mandates, price controls, and occupational licensing.

The authors point out that national health insurance would destroy jobs, quality, and freedom of health care choice. For example, “The Partnership on Health Care and Employment estimates that between 630,000 and 3.5 million workers would lose their jobs under a mandatory insurance plan” (p. 81). And “In Britain, the waiting list for surgery is near 800,000 out of a population of 55 million.”

Why We Spend Too Much on Health Care concludes with a summary of two plans to lower cost and improve health care in America, without socializing medicine. One plan was developed by a Health Care Task Force of the National Center for Policy Analysis (NCPA) in Dallas. A second, generally complementary plan, comes from the American Legislative Exchange Council (ALEC)—America’s largest voluntary membership organization for state legislators.

Interesting features of the NCPA plan include “allow[ing] insurers to issue no-frills, catastrophic health insurance not subject to state mandated benefits, premium taxes, risk pool assessments, and other costly regulations” (p. 95); “allow[ing] individuals a tax credit for a portion of their health insurance premiums” (p. 95); and “creat[ing] tax credits for deposits to individual Medisave accounts, from which people would use their own money to pay small medical expenses” (p. 97).

Some of the suggestions included in the ALEC plan are “repeal laws that limit the right of insurers to select providers” (p. 101); “make small group health insurance collectively renewable” (p. 101); “cap non-economic medical malpractice damages at $250,000 or five times actual damages” (p. 103); and “forbid wealthy, elderly individuals from sheltering assets in order to qualify for Medicare benefits” (p. 105).

There is little to criticize in Why We Spend Too Much on Health Care. The authors are addressing themselves to sophisticated laymen and some of their policy analyses could benefit from less technical language and expanded discussion. All in all, Why We Spend Too Much on Health Care does a fine job of refuting one of the most recent rationalizations for expanding government regulation of our economy and our lives.

Anyone who thinks that national health insurance would improve health care in America should also read Twenty Myths About National Health Insurance.

Goodman and Musgrave demolish virtually every conceivable justification for socialized medicine including:

MYTH NO. 1: Countries with national health insurance have been more successful than the U.S. in controlling health care cost.

MYTH NO. 2: Although the United States spends more on health care per capita than countries with national health insurance, Americans do not get better health care.

MYTH NO. 4: Countries with national health insurance hold down costs by operating more efficient health care systems.

MYTH NO. 5: In countries with national health insurance, all people have equal access to health care.

MYTH NO. 6: Countries with national health insurance make health care available on the basis of need rather than the ability to pay.

MYTH NO. 7: Countries with national health insurance maintain a high quality of health care.

The format of Twenty Myths makes it both easy to read and particularly valuable as a research tool. Key points are bulleted, there are 27 charts and graphs, and scores of major studies are cited.

Some of the facts you will find in Twenty Myths are:

“During the 1980s, the real growth rate for health care spending was higher in 11 of 15 countries than in the U.S.” (p. 8).

“General population mortality rates tell us almost nothing about the efficacy of health care systems because, throughout the developed world, there is almost no relationship between health care and general mortality” (p. 9).

In every country with socialized medicine, there are long waiting periods for health care and acute shortages of equipment. For example:

“The United States has seven times as many radiation therapy units [to treat cancer] per person” as Canada (p. 11).

“Because of a shortage of laboratory testing equipment in 1988, women in Newfoundland wait up to five months for a Pap smear and two months for an ‘urgent’ Pap smear” (p. 11).

“Each year, about 9,000 British kidney patients fail to receive renal dialysis or a kidney transplant—and presumably die as a result” (p. 12)

“In Canada, with a population of about 26 million, the waiting list [for surgery] is more than 250,000″ (p. 17).

Goodman and Musgrave also debunk the myth that fully socialized medicine is more efficient than the U.S.’s semi-socialized system:

“While one million people wait for surgery, in Britain, at any point in time about one in four hospital beds is empty” (p. 20).

“The average hospital stay is 39 percent longer in New Zealand, 42 percent longer in Canada and 61 percent longer in Britain” than in the U.S. (p. 21).

Forget about the poor and elderly being better off under national health insurance. As Goodman and Musgrave state, “There is substantial evidence that when health care is rationed the poor are pushed to the rear of the waiting line. In general, low income people in almost every country see physicians less often, spend less time with them, enter the hospital less often and spend less time there” (p. 25). “Across Europe, 22 percent of the dialysis centers report that they refused to treat patients over 66 years of age in the late 1970s” (p. 40).

You can also forget about national health insurance making health care more equal:

“Among Canadian provinces, the number of people per physician varies from a low of 471 in British Columbia to a high of 1,273 in the Northwest Territories—a difference of almost three to one” (p. 47).

“Although more than half of Brazil’s population lives in rural areas, residents of urban areas experience nine times more medical visits, 15 times more related services, 2.7 times more dental visits and 4.5 times more hospitalizations.”

Twenty Myths also discusses the ruinous economic costs were national health insurance to be enacted in the United States. Goodman and Musgrave estimate that NHI in the U.S. would initially require at least $339 billion in new taxes. This would mean that payroll taxes would have to be doubled or a new 10 percent across-the-board “consumption tax” would have to be enacted. Many industries would be devastated. For example “the cost of health care for auto workers would more than double” (p. 55).

The worldwide failure of national health insurance has led to health care consumers developing a variety of strategies to avoid long waiting periods and to obtain scarce drugs. Thus in Hungary doctors are “tipped” 40 percent of their salaries by customers who want to make sure they get decent care. “In New Zealand, one-third of the population is covered by private health insurance, and private hospitals now perform 26 percent of all surgical procedures” (p. 28). In Ontario, Canada, “A volunteer organization, ‘Heartbeat Windsor,’ arranges for Ontario heart patients to get treatment in Detroit hospitals” (p. 28).

Goodman and Musgrave also discuss the worldwide movement away from socialized medicine, including re-legalization of private hospitals in Britain in 1989, introduction of a health care voucher system in the Netherlands in 1987, and new financial incentives in Chile for citizens to opt out of national health care.

Despite its worldwide failure, national health insurance continues to be very popular. Thus “the most recent surveys show that only 3 percent of Canadians and only 12 percent of the British public would trade the U.S. system for their own” (p. 76). Why does national health insurance continue to be popular in countries where objective evidence shows it has failed miserably?

To find an answer, Goodman and Musgrave turned to one of the granddaddys of socialized medicine, Britain’s National Health Service, established in 1948. They discovered two major reasons: “(1) the typical British patient has far lower expectations and much less knowledge about medicine than the typical American patient; and (2) most British patients apparently believe that they are ‘getting something for nothing’” (p. 76). In particular, “most people in Britain believe that the total tax they pay to finance NHS is about 1/20th of what it actually is!” (p. 77). In addition, politically motivated and pervasive propaganda has deluded the British people into believing that NHS is “free” and the “envy of the world!”

The final lesson we can learn from the experience of national health insurance in other countries is that socialism advances not because it is right or efficient, but because its advocates are vocal and well-organized. National health insurance has destroyed quality health care and freedom of choice in countries throughout the world. To avoid that disaster in America, it is urgent that all lovers of liberty marshal their facts and raise their voices. We need to counter the relentless, socialist propaganda for government takeover of medicine now filling our schools, media, and public forums.

Twenty Myths about National Health Insurance and Why We Spend Too Much on Health Care are major weapons in the battle for health care freedom.

Jarret Wollstein is a director of the International Society for Individual Liberty and the founder of the national Liberty Speakers Agency.