JoJo, Marcus and the Genie: Part II

A natural question some readers of the last blog post might have is: why are healthcare costs so much lower in Spain than they are in the United States?  This will be particularly true if, like Marcus, you think anything that can be done by the private sector should be done by the private sector.

Since all of this analysis has been done before, I’ll be quoting liberally.

Factors contributing to a Spanish healthcare system that is cheaper than the American healthcare system that are intrinsic to the system being government run:

  1. Lower administrative costs: As explained by Physicians for a National Health Program, “The United States has the most bureaucratic health care system in the world. Over 31% of every health care dollar goes to paperwork, overhead, CEO salaries, profits, etc. Because the U.S. does not have a unified system that serves everyone, and instead has thousands of different insurance plans, each with its own marketing, paperwork, enrollment, premiums, and rules and regulations, our insurance system is both extremely complex and fragmented. […] It is not necessary to have a huge bureaucracy to decide who gets care and who doesn’t when everyone is covered and has the same comprehensive benefits.”  How big of a difference does this make?  Well, in 1999, the United States  health administrative costs  per capita were $1,059, compared to $307 per capita in Canada (where each province has a single, government-run health insurance program; a different system than Spain’s, but still “single-payer”).
  2. No incentive to over treat or under treat: In Spain, doctors are payed a salary by the government, instead of being paid per service (this is different from Medicare and from insurance programs in the United States, but is similar to Veteran’s Affairs healthcare).  Because most doctors in the United States are paid per service, they make more the more surgeries they perform and the more tests they run; perversely, the sicker you are, the more money they stand to make!   From the NY Times: “’We spend between one fifth and one third of our health care dollars,’writes Ms. Brownlee, a senior fellow at the New America Foundation and former writer for U.S. News & World Report, on care that does nothing to improve our health.’Worst of all, overtreatment often causes harm, because even the safest procedures bring some risk. One study found that a group of Medicare patients admitted to high-spending hospitals were 2 to 6 percent more likely to die than a group admitted to more conservative hospitals.”   A system like in the United Kingdom or in Spain where doctors don’t make more money for providing more treatments results in healthier patients and lower costs.  There is also no incentive to under treat–in the United States, because uninsured patients are guaranteed treatment only when in labor or in the emergency room, chronic diseases go untreated until the situation becomes dire–resulting in treatments that are much more expensive, and these costs are shared throughout the system.  Similarly, because uninsured Americans become covered by Medicare when they turn 65, important preventative care that should have been occurring all along gets passed on in higher costs to the system once these individuals enter Medicare.
A factor contributing to a Spanish healthcare system that is cheaper than the American healthcare system extrinsic to the system to being government run:
  • Healthier people: This is the one factor that I think is most likely to convolute the budget figures I threw around in the last blog post.  The generally healthier lifestyle of Spaniards makes it cheaper to provide them healthcare.  Admittedly though, once you have a system where everyone shares healthcare costs, it becomes a better investment to protect public health outside of the healthcare system (for example, using urban planning to encourage pedestrian access, making sure that everyone has access to affordable, healthy food).   Most of this can be summarized in the difference in obesity rates between Spain and the United States.  Research indicates that obesity costs the Spanish healthcare system about$20.70 per capita per year, while obesity costs the American healthcare system about $228.98 per capita per year.
A factor that you might think make a big difference, but is surprisingly unimportant:
  • Medical malpractice: Medical malpractice costs in the United States are tiny relative to other expenses.  How tiny?  They amount to just .46% of healthcare expenses in the United States.  Spanish doctors still make use of medical malpractice insurance.  No matter how much you streamline the medical malpractice system (hopefully, without giving up patient protections), it will only have so big of an impact on how much Americans pay for healthcare.
Wrapping up the series:

The point of yesterday’s article was to illustrate how the unwillingness of some individuals to pay more taxes, even if it will result in them spending less money, represents a type of thinking that economists would consider irrational.  At their simplest, governments help provide coordination mechanisms.

Sharing a single police force saves money, relative to every individual having to hire their own bodyguard or train in street fighting.   Sharing a court system “saves money” relative to trying to business in countries where you don’t know whether or not contracts will be enforced.  Sharing buses and trains is cheaper than every individual buying their own car and paying for gas (not to mention driving on shared roads is cheaper than any company coming in and building their own non-interconnected set of roads!).

Important things to think about that I didn’t include:

Because my intention was more to think about people’s hesitancy to allow the government to expand, using healthcare as an example, I didn’t really think about two incredible important parts of healthcare.

(1) How successful is it at keeping people healthy?  Focusing on just difference between costs in the Spanish and the American healthcare systems (or the French, Japanese, Spanish, etc.), obscures that the systems aren’t all doing an equally good job of keeping people healthy

(2) How just is the system?  We looked mostly at how JoJo and how Marcus would fare under the two systems–employed people who already had health insurance.  That the Spanish/British/Canadian systems do a better job of taking care of JoJos and Marcuses is debatable.  That they do a better job of taking care of those priced out of the American system is indisputable.

Published by Elena Botella

Elena Botella is a Duke Undergraduate in the Class of 2013, majoring in Economics and Math.

2 thoughts on “JoJo, Marcus and the Genie: Part II

  1. This is a well-written mini-series. Even though cost is not the only consideration for a sound healthcare system, the dramatic differences motivate a more careful comparative analysis of healthcare delivery systems.

    One of the perennial questions in the healthcare debate is whether or not, under a different structure, the U.S. would be able to continue attracting top-flight human capital (as physicians, researchers, etc.) and therefore create state-of-the-art treatments and drugs. This series puts hard numbers against conjecture and really raises the question of whether healthcare expenses in the U.S. can be redirected from bureaucratic costs to funding R&D, physician reimbursement, drug costs (to support private sector R&D) and so forth.


    1. Japan is a really good case study for this; they have one of the most innovative medical R&D systems in the world, but their R&D seems somewhat more focused on making healthcare more affordable (can we make an MRI scan that costs $100?) instead of coming up with expensive new treatments for novel diseases; there will still be incentive for innovation, but what precisely is incentivized could change


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