Healthcare systems comparison

Over at healthcare-economist.com Jason Shafrin is doing a series of posts describing the healthcare systems of several developed nations. You can always learn about the different national approaches on your own, but it's useful to have these summaries all in one place.

The main lesson that the reader will pick up is that actually there are a lot of different models, contradicting the settled notion that the Americans do it one way and the rest of the developed nations do it the other way (namely, the good one).

So far, Jason has published the profiles for the healthcare systems of France, Italy, Spain and Japan. Of these, I think the French and Japanese ones make the most sense. The Japanese model is somewhat cheaper than the French one, but we have to take into account that many external factors also contribute to define a nation's healthcare expense (lifestyle and culture, legal frameworks...). I'm looking forward for the Switzerland installment.

If you are interested in this topic, I recommend this paper by Michael Tanner at the Cato Institute. After that, you can help yourself with the hundreds of posts about healthcare economics at Econlib. There you'll find, for example, this sound critic of the WHO health rankings by Arnold Kling:

Almost two-thirds of the weight in the WHO index goes to these distributional factors. They focus more on inequality than on the absolute level of care received by the poor. In fact, if you dig deeply, what WHO is really measuring is not even inequality in terms of health services but just plain income inequality. Just having very rich people per se is enough to lower the quality of our health care system, according to WHO's methodology.

Healthcare costs as a competitive (dis)advantage?

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:

• Belgium, 55%
• Germany, 52.2%
• France, 49.2%
• Sweden, 45.4%
• Spain, 38.9%
• UK, 34.1%
• USA, 30.0%
• Japan, 29.3%
  

So, labour-related tax costs are around fifteen points lower in the U.S. than the average European country. It sure doesn't seem like a very labor-uncompetitive arrangement to me!

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
  

Really, how can a serious institution, in the face of such figures, contend that the argument for establishing a national health system in the U.S. is the uncompetitive labour costs that American firms face if it's not done? Factoring-in productivity figures makes the difference even starker.

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.