My latest Forbes column is up:
The fact of the matter is that America’s health care system is like a free market in the same way that Madonna is like a virgin–i.e. in fiction only. If anything, the U.S. system has many more similarities than differences with France and Germany. The only big outlier among European nations is England, which, even in a post-communist world, has managed the impressive feat of hanging on to a socialized, single-payer model. This means that the U.K. government doesn’t just pay for medical services but actually owns and operates the hospitals that provide them. English doctors are government employees!
But apart from England, most European countries have a public-private blend, not unlike what we have in the U.S.
The major difference between America and Europe of course is that America does not guarantee universal health insurance whereas Europe does. But this is not as big a deal as it might seem. Uncle Sam, along with state governments, still picks up nearly half of the country’s $2.5 trillion annual health care tab.
More importantly, contrary to popular mythology, America does offer public care of sorts. It directly covers about a third of all Americans through Medicare (the public program for the elderly) and Medicaid (the public program for the poor). But it also indirectly covers the uninsured by–at least in part–paying for their emergency care. In effect, anyone in America who does not have private insurance is on the government dole in one way or another.
This is not radically different from France, where the government offers everyone basic public coverage, of course–but a whopping 90% of the French also buy supplemental private insurance to help pay for the 20% to 40% of their tab that the public plan doesn’t cover.
Meanwhile, in Germany, about 12.5% of Germans who are civil employees or above a certain income opt out of the public system altogether and rely solely on private coverage–even though they know it is well nigh impossible to return to the public system once they switch. And more Germans likely would go private if they were not legally banned from doing so.
The most striking similarity between America, France and Germany, however, is the model of “insurance” upon which their health care systems are based. In other insurance markets, the more coverage you want, the more you have to pay for it. Consider auto insurance, for instance. If you want everything–from oil changes to collision protection–you’d have to pay more than someone who wants just basic collision protection. That’s not how it works in health care.
For the same flat fee–regardless of whether it is paid for primarily through taxes as in France in Germany or through lost wages as in America–patients in all three countries effectively get an ATM card on which they can expense everything (barring co-pays) regardless of what the final tab adds up to. (Catastrophic coverage plans are available in America, but the market is extremely limited for a number of reasons, including the fact that most states have issued Patients Bill of Rights mandating all kinds of fancy benefits even in basic plans.)
Thus, in neither country do patients have much incentive to restrain consumption or shop for cheaper providers. In America and Germany, patients don’t even know how much most medical services cost. In France, patients know the prices because they have to pay up front and get reimbursed by their insurer later–a lame attempt to ensure some price consciousness. But since there is no cap on the reimbursed amount, the French sometimes shop for doctors based on such things as office decor rather than prices, according to a study by David Green and Benedict Irvine, researchers at Civitas, a London-based think tank. (Green and Irvine reported this as a good thing.)
So what are the consequences?