Healthcare: Life, Liberty, and the Pursuit of Happiness

There are many things that can be said about how to provide healthcare.  And how without provision of healthcare your right to life is dubious, your liberty is massively circumscribed every time you get ill, and following from Maslow’s Ladder, the pursuit of happiness requires physical needs to be met before you care about self-actualisation.  Or I could make the moral arguments about under most moral systems responsibility is differentiated, mutual and complementary, not exclusive, binary and competitive.

But I won’t.

Many pixels have been wasted on moral codes from people who do not see eye to eye – and I don’t think that anyone is open to convincing from a single blog post.  What I intend to show is that public provision of healthcare with tight governmental controls is the most efficient model – and the free market is one of the least.  There are healthcare services more financially efficient than the NHS – but not many of them (Japan is the only one that springs to mind and I don’t know enough about their health care system to talk about it).

Financially the NHS has problems – expenditure as a proportion of GDP on healthcare has increased by 25% in 10 years (2001-2010) and as such measures do need to be taken to keep spending under control.  But they need to be ones that work, not ones that simply open us to the problems of the largest and most inefficient healthcare system in the world.  (Figures from the World Bank; the latest iteration of the WHO website is almost impossible to find things in)

  • 9.6% of GDP is spent on healthcare in Britain in 2010, and 17.9% in the United States
  • The US Government spends more on healthcare per head than the British one
  • Life expectancy in Britain is a year longer than the US
  • The NHS was comfortably the most popular system surveyed by the Commonwealth Fund by its users, the US system the most likely to be thought “Fundamentally Broken”

I could go on with figures – and I could compare the UK model with the other big two European models (France and Germany – both of which spend more than 11.6% of their GDP on healthcare, making a difference in outcomes).  But the outcomes from the NHS are good despite the low funding.  So why this difference.

To put things simply, the US Healthcare model is a turducken of bad design, whereas at a strategic level the NHS gets most things right at present.  And the current British government seem to be trying to copy the American model.

Doctor Costs are much much higher under the American model

Lack of free healthcare does horrible things to the insurance rate

When something goes wrong medically then in a public system the damages paid would cover the direct damages inflicted. Future operations would be covered by the state – and many people don’t bother to sue.

In the US, there is no safety net to treat patients, therefore patients need to sue as otherwise they have no future healthcare – and the damages they are suing to cover aren’t just for direct damages, but for all future healthcare to cover those damages. There’s therefore a very good reason Americans are more likely to sue. What this does to doctors’ malpractice insurance rates I leave to your imagination, but last time I checked (a few years ago now – so these numbers will be low), the overheads to just insure the doctor against being sued ranged from $30,000/year to $160,000/year (this latter value for an obstetrician who hasn’t even been sued).

So to employ one single doctor takes that much extra in overheads before lighting, salary, support staff, etc. As European malpractice insurance rates are comparatively trivial, that’s several hundred dollars income every single American doctor must make every single day above and beyond European ones.

As a compounding factor, the insurance rates mean that it’s much, much harder in America to be a nurse practitioner than it is in Britain – you take many of the same risks, so the insurance is as absurdly high. Meaning a lot of minor procedures that don’t actually need a doctor so can be done more cheaply without aren’t.

The very high American education costs are passed on to the patients

The average American med student graduates around $162,000 in debt – and Sally Mae is aggressive (and won’t accept bankruptcies). British ones may have debts of about a third of that amount – but it doesn’t honestly matter because they only have to pay back 9% above £15,000 for standard student loans.  And if you’re earning £15,000 before healthcare you’re already starting to get somewhere.

Say about 6% annual interest (going by the fixed rate amount) or about $10,000 per year after tax the doctor needs to go straight to just paying the interest on the loan. Throw in taxes, payroll and a need to do more than pay off the interest and the cost for the cheapest doctors in America has just risen by another $20,000 – or about $100 per working day. Plus with that much debt there’s a much bigger incentive for greed. And once the loan is paid off the doctors don’t go to lower rates.

So the cost of an American doctor is therefore around $500/day above that of a European equivalent for no appreciable benefit.  Of course by first introducing then raising tuition fees, the last two British governments have been stepping down that path (especially as in London £15,000 doesn’t go that far).

The treatment method is the most financially inefficient possible

In America if you are uninsured you more or less wait until you can go to A&E/the Emergency Room. That’s about the most cost-inefficient method of treatment possible. It means that the condition is worse than it needs to be and makes planning harder and so overheads higher.  Or people don’t go and die.

In Britain there are few people who can’t afford to go to the doctor because the treatment itself is free (other than for dental care – of the British dental system the less said, the better).  But if you think you can’t afford to go to the doctor until an emergency you take the risk.

A “Competitive” model is incredibly bureaucratic

The doctors have separate rules for different patients

In Britain the list of authorised procedures is put out by NICE. A consultant only occasionally needs to look to see what’s changed in what they are allowed to do or they need to see what they want to do as part of their research work. Given that it’s fairly big news when things change, this takes a negligible amount of time.  There is also an agreement that when a hospital negotiates with its local PCTs, that is binding on all PCTs.

In America, you need to know what insurance scheme your patient is on. You need to be up to date with dealing with a dozen separate possible insurance schemes, some of which have … odd exemptions. And for each patient you need to know what treatment you can provide. This is a double overhead – first it means you need to spend some extra time per patient and second the hospital needs to be able to brief the doctors.

Note that this can be mitigated by a NICE-like system controlling what is authorised as they do in e.g. Germany.  Or by private provision under tight control with mandated non-profit healthcare as in Germany or Japan.

Also as no one currently knows how the GP Consortia the government is introducing will work, we have the same risk in Britain of multiple procedure models.

Line by line accounting takes people to produce the lines of ink

In Britain, the cost of your stay is based on very few factors – and it’s assumed that other than some very expensive drugs and a few parts patients average out (if anyone is interested in the exact costs paid by the PCTs for hospital stays, you can find them here (although they will take some unpicking); the quick version is that you take the highest tariff for any one single procedure in the hospital stay, add a modifier based on the admission method, and then possibly something for unusually long staying patients).

In America they can charge $18 for a nurse delivering a baby aspirin. What they do not explicitly charge for is the time taken to write and bill all that crap rather than just put it in the medical notes – but this is another huge overhead.

Legal defensive measures

In addition to malpractice insurance, the legal costs are higher – a further overhead. And this also encourages the doctors to do more diagnostic procedures, protecting themselves from any possible charges of negligance. This costs a significant amount of money – which due to the insurance model is cost-shared to consultations (partly to make consultations cost-effective for the money-hungry junior doctors with their $150,000 debts). Otherwise they’d do fewer of them. So due to the legal system not only is the malpractice insurance rate much higher, but so are other costs. Including administration fees.

Pharmaceutical Companies and advertising

In America, pharmaceutical companies can (and do) advertise directly to patients.  Patients who have no understanding of risk and are likely to be extremely worried – a very receptive audience and not one that normally understands the outcomes.  And they put the doctors under pressure to prescribe drugs which might not be the best treatment available.

In Britain, the drug companies can’t do this.  So there is less unwanted pressure on doctors – the drug companies do still advertise to them.  Also the NHS practices collective bargaining to keep the drug prices down (the NHS, as the world’s fifth largest employer being simply too big a market to ignore).  Also the pharmacists are allowed a system of parallel imports so, for example, if a drug costs a certain amount in France (or anywhere else in the EU) and more in the UK, the pharmacists are allowed to import the French version and keep a small cut – competition and arbitrage in action.  (Needless to say the pharmaceutical companies hate this – and they also hate that NICE makes sure drugs work and are cost-effective before approving them for use).

Of course even these provisions aren’t enough.  Dr. Ben Goldacre has recently written Bad Pharma about how the drug testing system is gamed by pharmaceutical companies.

The insurance companies are almost pure bureaucratic overhead – probably the biggest single issue

One of the things an insurance company does is checks through all the claims to find out reasons to not pay out. They do this to both patients, and to hospitals – on a line item basis. This means that the hospital needs to charge for everything – and it needs an entire team of specialised people whose job is nothing more nor less than wrestling with the various insurance companies. Medical benefits from this team: Nil.  And the costs American doctors charge needs to be inflated because the insurance companies are going to try to avoid paying out whatever they can. (The discounts if you offer American hospitals cash rather than go through the insurance companies can be up to 89% as they don’t have an arm-wrestling match to see any money – and even the linked cash prices are a lot higher than the price for the same procedures in Britain).

People, of course question bills under the British system on behalf of the PCTs.  And I know two people that between them, answer these queries from the PCT for two of the bigger hospitals in the country – as a minor but annoying part of what they do.

So what of the future?  Obamacare and the ConDem Government?

Obamacare first.  Obamacare is definitely a good thing as far as health is concerned.  It cuts down the number of different rules and makes it much easier to get non-emergency treatment.  Further it prevents recission – which means that the insurance companies could accept money then deny the healthcare based on any trivial mistakes.  Of course the really expensive group to treat in America is covered by the government anyway – the over 65s are covered by Medicare (healthcare for over 65s making up 40% of NHS spending) and that at least has a single model.  So it helps, but doesn’t deal with all the points.

Then the ConDems.  Fortunately we start in a much better position.  But GP Consortia are throwing everything into the air and meaning that the rules are changing and the hospitals don’t even know how.  Tuition fees give the new doctors more debt, and the government is intentionally opening up private care, which gives the doctors more direct financial incentive to overuse diagnostic tests and overtreat.  Plus they’ve almost crippled NICE which has given the pharmaceutical companies far more power.


5 thoughts on “Healthcare: Life, Liberty, and the Pursuit of Happiness

  1. Pingback: This month in the Slacktiverse « The Slacktiverse

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  3. Hi, I’ve been enjoying your well-researched articles on healthcare financing and some of the perverse incentives affecting pricing esp. in the American system. I’m glad to see that you work for the NHS from your About page – do you have articles written for publication on this subject? I would like to be able to reference actual articles if you have written them rather than cite your blogposts. Even if you haven’t written for peer-reviewed publications yourself yet, do you know of good authors whose work on this topic you would recommend? Many thanks. (btw I only stumbled upon your blog from the HelpDaxandHisFamily donation page! Heartening to see there are good people who decided to help in spite of trollish arguments that the parents should have known better than going to for-profit USA for their holiday! As if we can all just decide not to get injured when Stateside…the idea that we don’t deserve access to care if we’re not 100% vigilant at all times is really depressing in the year 2015… sigh… Anyway, glad to see you are throwing some sensible light on the topic and keep up the good work!)

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