Health insurance costs hit a horrifying benchmark in the US as the average cost of an employer-based scheme covering a family of four topped $20,000 (R300,000) a year. This puts into perspective the R1,500 average monthly cost of a South African plan, doesn’t it? It should also serve as a warning to all who believe that private health insurance is the most cost-efficient way to go.
Let’s put this into perspective. The average spending per person on healthcare in the US – which is dominated by a private health insurance system for those under 65, with two government programs, Medicare and Medicaid, providing coverage for older and low-income folks respectively – is $10,200. US life expectancy is 78.8 years (it has fallen recently), its maternal mortality rate (deaths of women per 100,000 live births) is 14, and its infant mortality rate (deaths of children under 5 per 100,000 live births) is 5.97.
The UK, with a comprehensive public system, spends $4,250 per person. Life expectancy is 80.8, maternal mortality is 9, and infant mortality is 4.19. Canada, another place with a comprehensive public system, spends $4,830 per person. Life expectancy is 81.8, maternal mortality is 7, and infant mortality is 4.73. Germany, which has a universal healthcare system that is mostly (about 80%) government-funded, spends $5,730 per person (note how the introduction of a private element is associated with higher costs). Life expectancy is 80.7, maternal mortality is 6, and infant mortality is 3.1.
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I could keep going here, but the point is that there is a pretty clear pattern if you look at all the world’s rich countries. Public healthcare systems are cheaper and they tend to produce better outcomes. That’s even true in cases like the UK vs the US, where lifestyles are similar, obesity rates are high, and smoking prevalence is the same (19% in the UK, 15% in the US).
This is not rocket science. A single public system means that the state can negotiate favourable rates on medicines and equipment. Salaries can be managed at a national level. The focus can be on the quality of care, not the amount of revenue generated or “customer experience” (fancy hospital food does not, unfortunately, cure cancer). Those who truly need medical care can get it, and those who don’t really need it but have a lot of money can spend it on something else. Universal care standards can reduce the incidence of over-servicing – no more unnecessary procedures or scans.
Obviously, the system must be well-managed. Medical staff should be adequately compensated and trained (many places pay for medical school, for example). Resources should be properly allocated, bidding for contracts should be clean and transparent, and the system should stand outside of political influence. If you can achieve all this, a public system is objectively better.
The reasons why private healthcare markets are so inefficient are very simple. Customers (patients) have no way of assessing the quality of the care or advice they are receiving and no way of telling when they are being taken for a ride. You and I both know you don’t need the sexy sports package on your new car. But neither of us can really tell if you need to have an ultrasound on your sprained ankle. We don’t know if you should have knee surgery or if physiotherapy would be safer, better, and cheaper.
Private systems also pour resources into the rich, not the sick. In fact, most private systems try very hard to keep the sick out of the system, because they are expensive. Hence the fact that, before Obama’s healthcare reform, people who were already sick could be denied coverage by health insurance companies.
Private healthcare systems tend to experience very high inflation. Again, not rocket science. Rich people are scared of getting sick and willing to pay whatever is necessary to get covered. Thus, administrative costs tend to rise every year and hospital bills get larded with extras. This happens in SA and the USA – you pay thousands for, say, a paracetamol tablet in a US hospital because why not? What are you going to do? Cancel your heart surgery and check out?
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The US experience should be sobering for pro-private South Africans. The US experience shows costs rising by double digits year after year in a private system, especially one that is supported by employers and the tax system. SA’s historical experience shows the same pattern. Your R20,000 a year medical aid may look cheap in five years.
Look, let’s ignore the issue of morality for a second (although I do believe all humans deserve to be free from preventable and treatable illness). From an economic perspective, health spending is, ultimately, an investment in human resources. People who are sick are less economically active and productive than the healthy. People who die too young spend less time contributing to the labour force and the tax pool. Children who die in their first few months never make an economic contribution. Mothers who die in childbirth don’t work or have more children.
If you were going to invest in a health system, considering the objectives above, which would you invest in? The US private system, where $10k buys you 14 dead women per 100,000 births, or the Canadian system, where less than $5k buys you just 7. Less than half the money, 50% fewer deaths. As an economic proposition, it’s pretty clear which is the better bet.
