With the US Supreme Court considering the Affordable Care Act (the historic healthcare reform derided by opponents as “Obamacare”), it is worth noting that the number of people in the US without health insurance reached an all-time high in 2010, the year the law was enacted. About 50 million US residents (one in six) pay out-of-pocket for medical expenses.
The 2008 recession is not the only reason for this staggering figure; long-term political and policy choices are also to blame. Globally, but especially for rapidly growing economies, the lesson is simple: Avoid the US’ private healthcare model.
The US is one of the few high-income countries that does not finance healthcare through a publicly funded prepaid system. On average, wealthier countries spend about 11 percent of their GDP on health, with more than 80 percent publicly financed and only 14 percent of spending taking place on a fee-for-service basis. Public finance (or, in some cases, government-regulated cooperative insurance funds that amount to public financing) pays for most discretionary medical services, with private insurance supplementing only minimal extra services.
Most rich countries choose to finance their healthcare publicly for several reasons. First, free-market healthcare is usually inequitable and inefficient. Individual needs vary significantly and private companies are often unwilling to insure the very people who need the most care (such as those who are already ill, or who have conditions like diabetes, which predispose them to other health problems). Moreover, those who buy care — insurers and patients — are unlikely to have the information necessary to choose the safest and most effective treatments.
At the same time, public spending acts as a brake on overall spending and prevents the rapid cost escalation to which the US’ private insurance companies contribute. The US spends 1 percent of its GDP annually simply to administer its complex, unwieldy insurance system. Without reform of the type now before the Supreme Court, total US health expenditures will rise from 16 percent of GDP today to 25 percent by 2025.
The economic impact of the current system already is severe. The last US census showed a marked increase in the number of Americans living below the poverty line, a fact closely related to lack of health insurance, which in turn reflects over-reliance on employer-based insurance coverage.
In emerging-market economies, governments should bear in mind five considerations when devising healthcare systems. First, investments in health provide an important safety net against poverty traps, especially in times of economic upheaval. For example, each year, 37 million uninsured Indians fall below the poverty line because of catastrophic health expenditures (generally defined as costs exceeding 10 percent of a household’s total expenditures).
Second, public financing of healthcare frees the poor to use their money to satisfy other needs. In low-income countries, half of all healthcare spending (about 2.5 percent of GDP) is out-of-pocket (compared with 2 percent in middle-income countries). This spending consumes a large proportion of poorer households’ income, precludes more productive household investments, creates few jobs and often remains untaxed, as doctors and hospitals are frequently paid under the counter.