The Body Economic (19 page)

So, the rich got richer, and the sick got sicker. That in a nutshell was the perennial problem of the US healthcare market.

It has long been well known that markets don't work well in healthcare. The Nobel Prize–winning economist, Kenneth Arrow, had found in a seminal 1963 paper that markets often fail to deliver affordable, high-quality healthcare. That's because healthcare is different from other market goods like cans of tuna. One major reason is that healthcare needs are difficult to predict and extremely expensive. People do not know when they might have
a heart attack and need a coronary bypass surgery, for example. So they can't anticipate when to save money and, even if they could, a major operation would break the bank for most people. That means people have to buy insurance—and in turn that means having someone else make decisions about what care is available and what is not.
¹¹

But private insurance companies are in the business of making profit. There are only two ways to increase profit: take in more revenue, or cut costs. Revenue comes from people's monthly premiums, while costs come from paying for people's healthcare. So insurance companies have perverse incentives to sign up the healthiest people who need the least amount of care, and purge from their ranks the sickest people who need the most care.

This creates a situation that public health researchers commonly refer to as the Inverse Care Law. First identified in 1971, the law can be summed up succinctly as: those who need care the most get the least, while those who need care the least get the most. The Inverse Care Law was found to operate most strongly in healthcare systems where people's ability to access care depended on their ability to pay—the market principle that underpinned the US healthcare system.
¹²

And despite common misperceptions, the market-based system isn't more efficient. Although the US healthcare system excludes large swaths of the population, the US spends more on healthcare than any country in the world—totaling 19 percent of its GDP during the recession. Other advanced industrialized nations spend anywhere from 7 to 11 percent. It is a situation that continues to get worse and worse. In 1970, total healthcare spending in the United States was $75 billion, or just $356 per person. In 2010, those numbers reached $2.6 trillion and $8,402 respectively. That increase was over four times the rate of the inflation. If the price of a dozen eggs had risen at the same rate, they would cost $15 today; a gallon of milk would fetch $27.

All this excessive healthcare spending is not because the United States has an older or sicker population. Rates of smoking, for example, are higher in Europe and there are more elderly people per capita in Japan. Obesity, technology, or higher utilization didn't explain the historically high costs either, nor did prescription drug research and development.

Rather, the US simply gets less bang for its buck. Instead of spending wisely on preventive care, it runs a more expensive “sick care” system. Those able to afford it can get high-quality care—but their doctors don't necessarily
use the most cost-effective treatments. Instead, they often prescribe expensive tests and procedures, like CT scans and knee replacements, that are not always medically necessary but are highly profitable. The prime beneficiaries of the US healthcare system may not be, as it turns out, the patients, but the providers—insurance companies, hospital corporations, and drug companies.
¹³

Despite ranking first in the world on healthcare spending, the US healthcare system is underperforming on nearly all measures of quality. Compared with Europe, Americans tend to have higher rates of in-hospital infections, deaths from medical mistakes, and avoidable hospital visits. US avoidable mortality death rates are 40 percent higher than the European average—amounting to almost 40,000 extra deaths per year because of poor healthcare quality for Americans. Overall, the World Health Organization ranked the US healthcare system among the worst in developed countries in terms of death rates and reducing suffering.
¹⁴

That was the healthcare system in America before the Patient Protection and Affordable Care Act, Obamacare, passed in 2010. And it was woefully inadequate in the face of an economic crisis.

Other countries' approaches to healthcare made them more resilient to economic shocks like the Great Recession. Canada, Japan, Australia, and most European countries rejected market-based approaches to healthcare, providing state-sponsored care for all. They recognized the trappings of the Inverse Care Law, and the evidence that markets don't work well in healthcare.

While millions of Americans were losing access to healthcare during the Great Recession, there were fewer signs of people skipping doctor's visits or preventive care in the UK, Canada, France, and Germany. That's because these countries did not treat healthcare as a market good but as a human right—so losing a job or income had no effect on a person's access to healthcare. When the Great Recession struck their economies, people were not forced into choosing between bankruptcy and their health.
¹⁵

The evidence can be found in the data on healthcare access across countries. One survey compared people's access to healthcare during the recession in the US, UK, Canada, France, and Germany. Using representative samples of people from each country, the survey asked more than 5,000 people whether they had increased, decreased, or had no change in their use of routine health care since the crisis. Sadly, but unsurprisingly, about one in five Americans
reported neglecting routine medical care during the recession. The figures were rosier in Europe. Healthcare systems that were funded by taxpayers rather than employers were better able to protect their populations from losing access to medical care during the recession. In Canada, for instance, there was no change in people's access to healthcare during the recession, and in the UK there was even a slight (0.3 percent) increase in access to medical care.

Countries whose healthcare systems had patients pay more out-of-pocket for their healthcare were more exposed to the shocks of the Great Recession. France and Germany were two examples. While everyone had state-provided health insurance, people were responsible for co-payments of 10 euros per doctor visit in Germany and 16–18 euros per hospital visit in France. Meanwhile, in the UK people could visit the doctor or hospital free of charge. Even this modest amount made a difference. Germany and France saw a 4 percent and 7 percent drop in access, respectively—worse than the UK, but still better than the United States, because no one was left uncovered.

During the Great Recession, the British health system performed the best at preventing people from losing access to care. This is exactly what the founding fathers of the UK National Health Service had designed it to do: provide healthcare not based on people's ability to pay, but according to their healthcare needs.

At the time of the NHS's establishment, UK public debt stood at over 400 percent of its GDP, a level far higher than any country in Europe today (apart from Iceland). Britain was rebuilding its economy after World War II had devastated its infrastructure. It had set up an emergency war time national healthcare service, in part because private insurance was unable to meet the health needs of the British troops. The service became highly popular. After the War, the Labour party expanded the emergency service to the entirety of Britain, and so the NHS was born on July 5, 1948. As the pamphlet explaining it to the general public put it, “It will provide with you all medical, dental, and nursing care. Everyone—rich or poor, man, woman or child—can use it or any part of it. There are no charges, except for a few special items. There are no insurance qualifications. But it is not a charity. You are all paying for it, mainly as taxpayers, and it will relieve your money worries in time of illness.”
¹⁶

From its very foundation, critics of the NHS said it would bankrupt the country. Yet it did not—instead it helped to boost the UK's economic recovery, just as the New Deal had done in the Great Depression.

For over half a century, the NHS has been the world's strongest model of a universal health care system. The National Health Service provided care for everyone, free at the point of service. To keep costs down, everyone paid in a little, spreading the costs over entire society, not placing the burden just on those who were ill. The NHS also negotiated directly with pharmaceutical companies on behalf of the UK's citizens, often purchasing medicines in bulk to negotiate better prices. The UK National Institute of Clinical Excellence ensured that doctors prescribed the most cost-effective medications, rather than overcharging patients for pills that were being promoted by drug companies through fancy trips and gifts to physicians. Doctors earned high but fixed annual salaries, instead of being paid per patient or on commission, so that they didn't rush appointments or have perverse incentives to conduct batteries of unnecessary tests and procedures.
¹⁷

There is a lot more to say about why the NHS worked, but the bottom line is the data: the UK system saved more lives with less money during the Great Recession.
¹⁸

Today the NHS's founding principles are being forgotten, as the conservative Tory government seeks to make the NHS more like the American profit-driven, market-based system. When the Tory government came to power, they revisited a pamphlet developed under the previous Tory government of John Major that called the NHS a “bureaucratic monster that cannot be tamed” and in need of “radical reform.” In 2004, Oliver Letwin, the pamphlet's lead author, said the “NHS will not exist” within five years of a Tory election victory. Indeed, after the Tories came to power they proposed the Health and Social Care Act, which embodied the free-market principles of the radical pamphlet.
¹⁹

It was difficult for us to understand this decision. Overall in 2010, before the Tory government began dismantling the NHS, the UK spent less of its GDP on health (8 percent) than Germany (10.5 percent), France (11.2 percent), or the United States (19 percent). Ultimately, the Tories' position was not based on evidence but ideology—the idea that markets, competition, and profits would always be better than government intervention.
²⁰

A highly divisive public debate over the Health and Social Care Act ensued. Over staunch opposition from the Royal College of Nursing and almost all of the medical Royal Colleges (the UK equivalents of the American Medical Association), Parliament approved the Act in 2012. Thus began what many regard as a major move toward privatization of the NHS. Repeatedly, David Cameron promised the British public that the Act was not “privatizing the NHS” and that he would “cut the deficit not the NHS.” The Liberal-Democratic leader Nick Clegg said, “There will be no privatization.” The Department of Health website even stated that “Health Ministers have said they will never privatise the NHS.” But the data tell a different story: increasingly, the government is transferring large swaths of healthcare provision to private contractors.
²¹

Private profiteers are replacing dedicated doctors. In October 2012, the government awarded 400 lucrative contracts for NHS services, worth a quarter billion pounds, in what was called “the biggest act of privatization ever in the NHS.” Virgin, for example, won lucrative contracts to deliver reproductive care (no pun intended). But the result was not the efficiency of private enterprise, but what had already been seen in the US market model—profits at the expense of patients. One journalist found this to be the case at health clinics in Teesside, northeast En gland. After Virgin won contracts to take over the services, the clinic repeatedly missed targets for screening people for chlamydia. It was a simple task that the NHS had fulfilled easily. The journalist found a memo that revealed “staff were asked to take home testing kits to use on friends and family to help make the numbers up.” In Oxford, patients complained about increasing wait times to see their doctors after Virgin took over a local practice. Virgin responded that the practice had been underperforming when it was taken over, and that “there are still improvements to be made but we're pleased that progress so far was recognised and applauded by councillors.” And so began what continues to be a highly sophisticated public relations campaign.
²²

The UK's next step toward US-style market-based medicine is moving forward at the time of this writing. It encourages patients to spend out of their pockets for healthcare rather than use the government-funded NHS. The Tory government is extending pi lot projects to offer those with chronic illnesses “personal budgets” so that they themselves can make choices about how to manage their care, with few safeguards against profit-seeking swindlers
or predatory insurance companies despite a government evaluation that highlighted many problems with this approach.
²³

Early evidence suggests the Health and Social Care Act may in fact be hazardous to the health of the citizens and residents of the United Kingdom. Just before the Coalition government came into power, the NHS had the highest patient approval ratings in its history, over 70 percent. Within two years, approval fell to 58 percent, the largest decline in three decades.
²⁴
There are already warning signs that the healthcare situation in Britain may come to resemble that in the US before Obama. Patients are being turned away from privately managed clinics, some of which simply close their doors after meeting a daily quota to fulfill their contractual obligations. And in the first year of reform, emergency room visits jumped to the highest in a decade—perhaps because more people are neglecting preventive care, like Diane.
²⁵
As the editor of The
Lancet
warned, “people will die.”
²⁶