• Daniel Kang

Is Universal Healthcare Economically Viable?

As an international student, I had to make sure before coming on campus whether the school-provided health insurance will cover the COVID-19 treatment cost or not, if I ever get infected. The whole treatment cost is completely free in South Korea, while in the US, it averages at around $40,000 for each impatient care. Healthcare has been and will continue to be a major topic of national discussion for years after the presidential election. What is the most economically efficient form of healthcare for the US?

The US healthcare system definitely has much room for improvement. In 2018, the US spent 16.9% of its GDP on healthcare, around double that of an average OECD nation. Still, in 2017, 112 deaths per 100,000 people in the US could have been avoided with proper access to healthcare, compared to between 60 and 90 deaths in most developed countries. Much of the discrepancy still holds after controlling for race and poverty. Even the average life expectancy is lower and child mortality rate is much higher in the US. Moreover, with its spending per capita on public healthcare—Medicaid, Medicare, etc.—other countries cover all of its citizens for most of their healthcare needs. According to the American Hospital Association, even with such an enormous budget, two thirds of community hospitals lost money in 2017 treating Medicare and Medicaid patients. American healthcare is not a matter of sacrificing either equity or better-quality healthcare. It is a structural problem, where a good solution can benefit every party, from those in poverty to hospitals and the whole economy.

Of course, simply adopting a universal healthcare system is not a magic wand that can solve all these problems. In 2016, for example, 30% of Canadians had to wait two months or longer to see a specialist, compared to 6% in the US. Even with universal healthcare, an average Canadian spent 70% of an American on retail prescription drugs. Moreover, universal healthcare might be costly after all: in 2018, France spent 11.2% of its GDP on healthcare and, without a suitable system, America might have to spend more than 16.9% of its GDP on healthcare, its current spending.

Some might advocate for a more market-controlled healthcare industry because they believe the market is the most efficient way to organize a distribution of services. Unfortunately, there are several reasons why Adam Smith’s invisible hand might not function at its best here. First of all, it is not an equal playing field for a patient and an insurance company. The market power of these companies and the lack of transparency allows them to raise the price over the equilibrium price. Moreover, the patient in desperate need of the medical treatment has no leverage on the negotiation of price. Second, the market does not account for positive spillover effects of healthy individuals—increase of workers, labor productivity, and consumption—and thus tends to underpay for healthcare. Third, many economic inefficiencies arise because those who receive the service—the patients—are not those who directly pay for the service—the private insurance company. With the insurance company trying to get as much from the patient and pay as little as possible to the hospital, the administration cost becomes abnormally large, the doctors charge higher prices, the bills get longer and more complicated, and both the hospitals and the insurance companies profit without proper accountability. The American Hospital Association wrote, “In addition to the high number of uninsured people in America, the hospital payment system itself is broken.” As a result, the healthcare industry functions better with at least some government intervention.

To discuss the best solution for the US, we need to consider America’s socioeconomic circumstances. First, healthcare is a large, profitable industry for the US, employing 13% of the total workforce and its pharmaceutical market dominating the world market. When the government controls the healthcare industry, not only does it pay for the price on behalf of the patients, it also decreases the price overall—through higher negotiating power and decreasing market inefficiencies—decreasing the profit of doctors, hospitals, insurance companies, and the pharmaceutical industry. Therefore, to reform the current system while minimizing the harm, I argue that the US should adopt a system somewhat similar to that of Germany, which provides affordable healthcare to all citizens while keeping a competitive insurance market. It does so by heavily regulating non-profit insurance companies and guaranteeing them customers through a mandatory health insurance policy, while keeping private firms that have to stay competitive through better services.

Second, the US population is less healthy overall than many other developed nations. Japan, for example, spends only about 40% of the US on healthcare per capita and still shows much better health outcomes. This, in large part, can be attributed to its citizens’ healthy lifestyle. In fact, contrary to the popular belief that implementing universal health care will decrease the incentive to sustain a healthy lifestyle, universal health care tends to make the citizens healthier and decrease the healthcare cost over time: when embracing universal healthcare, we should expect the government to fund fitness and sports initiatives, fast food industries to be regulated, coke to get less sweet, and sugar and tobacco to be taxed to fund public healthcare. Alongside universal healthcare, these initiatives and legislatures should be adopted, which will be especially costly for the US.

Third, the US population is very diverse. It was relatively easy for other developed nations, whose population is relatively homogeneous, to adopt universal health care system because the health conditions of the citizens are quite uniform. By contrast, health conditions in the US vary greatly by the individual, race, and region. For example, in 2019, obesity rate in Alabama was 36.1%, compared to 23.8% in Colorado. Not only is this hindering the adoption of universal healthcare— “why should I pay my money for Bob next door, who only eats fast food and never works out?”—it will be a logistical challenge. In fact, if there will be a federal universal healthcare agency in the US, the bureaucracy will be much larger and costly than that of other countries, the adverse effect of which can be seen in the British system. Therefore, I advocate for a gradual federal adoption following state initiatives. Many reforms, such as women’s suffrage and legalization of marijuana, started in a few states and spread throughout the nation. State reforms will be valuable experimentations on various models and the US might ultimately adopt a system similar to that of Germany, where each state chooses the best system for themselves, with the federal government mandating and regulating statewide healthcare systems.

In 2019, eight in ten Americans rated the quality of healthcare as excellent or good. At the same time, according to KFF, 74% of Americans support the Federal Government doing more to help provide health insurance. It is time to stop simply praising or denouncing universal healthcare and start considering various types of reforms and their social and economic consequences.

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