The Council on Foreign Relations has published a much discussed backgrounder titled Healthcare costs and U.S. competitiveness. The main point of the article is that employer-funded healthcare (that covers around 175 million American workers), coupled with skyrocketting healthcare costs in the U.S. is becoming a significant competitive drag for American businesses, threatening millions and millions of workers with losing their jobs to offshore competitors (made competitive by their more efficient healthcare systems).
American healthcare is, I agree, poorly efficient and has a distorted incentive structure that tends to push up costs (and care consumption). But all that can be stated without the fearmongering about millions of American workers about to lose their jobs because of health costs.
Let's get into a few details. The article provides several figures showing just how incredibly expensive American healthcare is. Yes, it is. I miss, though, a solid figure about what percentage of total worker compensation goes to pay for healthcare costs. This is the relevant figure in an article that argues that such cost makes American business uncompetitive and workers about to fall prey to outsourcing dynamics.
In fact, such a number could come in handy to make comparisons, now that we're talking about business environment and competitiveness. If we check for more general business costs, we get some interesting results. Let's look at some data from the OECD. For example, this just released report about total wage taxation that provides this useful and informative table of total tax wedge as a percentage of labour costs:
If, and it's a big if, healthcare costs amount to something like 20% of labour costs in American firms, then they're as labour competitive as France. France's healthcare system is reasonably efficient and, in a general sense, probably the best national healthcare system in the world. I say it's a big if because the aforementioned OECD report provides ppp-adjusted figures for unit-labour costs. For the American firms, that includes the cost of employer-provided health coverage. Let's see:
You may be wondering why the American figure for total tax wedge as a percentage of labour is so low compared to many other developed nations. Their (somewhat lower) level of public spending as a share of GDP surely doesn't justify such a big diference. Well, it may seem paradoxical to some, but the American tax system is much more weighted towards corporate taxes than most European ones. Once state taxes are taken into account, the U.S., at 39.27%, has the second highest corporate tax in the world after Japan (that not surprisingly has a similar labour tax wedge). Spain's figure, for the sake of comparison, is 32.5%. Sweden's is 28%. The corporate tax rate in Ireland is 12.5%. How competitive is that for American businesses? Is no one at the CFR worried about it?
The CFR article quotes Michael Porter, who knows a thing or two about competitiveness, regarding the (sorry) state of competition in the American healthcare sector. I concur with that diagnosis, but that's an altogether different statement from affirming that healthcare costs make American employers (and workers) uncompetitive. Do not miss Porter's latest book addressing healthcare competition, it's excellent: Redefining Health Care.
The article is interesting but I find the argument blatantly disingenuous. Just a way of selling a national healthcare system to the enterprise-minded. National public healthcare systems should (and can) be argued for on their own merits, without this kind of spin.
American healthcare is, I agree, poorly efficient and has a distorted incentive structure that tends to push up costs (and care consumption). But all that can be stated without the fearmongering about millions of American workers about to lose their jobs because of health costs.
Let's get into a few details. The article provides several figures showing just how incredibly expensive American healthcare is. Yes, it is. I miss, though, a solid figure about what percentage of total worker compensation goes to pay for healthcare costs. This is the relevant figure in an article that argues that such cost makes American business uncompetitive and workers about to fall prey to outsourcing dynamics.
In fact, such a number could come in handy to make comparisons, now that we're talking about business environment and competitiveness. If we check for more general business costs, we get some interesting results. Let's look at some data from the OECD. For example, this just released report about total wage taxation that provides this useful and informative table of total tax wedge as a percentage of labour costs:
- Belgium, 55%
- Germany, 52.2%
- France, 49.2%
- Sweden, 45.4%
- Spain, 38.9%
- UK, 34.1%
- USA, 30.0%
- Japan, 29.3%
If, and it's a big if, healthcare costs amount to something like 20% of labour costs in American firms, then they're as labour competitive as France. France's healthcare system is reasonably efficient and, in a general sense, probably the best national healthcare system in the world. I say it's a big if because the aforementioned OECD report provides ppp-adjusted figures for unit-labour costs. For the American firms, that includes the cost of employer-provided health coverage. Let's see:
- Germany: $59,526
- UK: $56,612
- France: $50,260
- U.S.: $44,347
You may be wondering why the American figure for total tax wedge as a percentage of labour is so low compared to many other developed nations. Their (somewhat lower) level of public spending as a share of GDP surely doesn't justify such a big diference. Well, it may seem paradoxical to some, but the American tax system is much more weighted towards corporate taxes than most European ones. Once state taxes are taken into account, the U.S., at 39.27%, has the second highest corporate tax in the world after Japan (that not surprisingly has a similar labour tax wedge). Spain's figure, for the sake of comparison, is 32.5%. Sweden's is 28%. The corporate tax rate in Ireland is 12.5%. How competitive is that for American businesses? Is no one at the CFR worried about it?
The CFR article quotes Michael Porter, who knows a thing or two about competitiveness, regarding the (sorry) state of competition in the American healthcare sector. I concur with that diagnosis, but that's an altogether different statement from affirming that healthcare costs make American employers (and workers) uncompetitive. Do not miss Porter's latest book addressing healthcare competition, it's excellent: Redefining Health Care.
The article is interesting but I find the argument blatantly disingenuous. Just a way of selling a national healthcare system to the enterprise-minded. National public healthcare systems should (and can) be argued for on their own merits, without this kind of spin.
