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Friday, April 17, 2020

Covid-19: Learning the Health Policy Lessons

There is emerging evidence that all-government run health care systems make a country more vulnerable to epidemic outbreaks like the current one. 


While we have no meaningful example of an all-private health care system (not even in Switzerland) we can already see evidence that private involvement, profit or non-profit, is essential to keep a health care system adaptable, dynamic and resilient in the face of epidemic outbreaks.

This emerging evidence is not surprising. Throughout the coronavirus epidemic I have pointed to the role that the health-care structure plays in the ability of a country to keep mortality rates down. Some - primarily many of my fellow libertarians - suggest that it is the presence or absence of a lockdown that makes the difference. While I am opposed to a lockdown on principle, I have maintained consistently that the main driving factor here is the ownership of the health care system.

Now a paper has emerged, written by a Professor Yitzhak Ben Israel of the Tel Aviv University, making the exact same point. Ben Israel's paper is so far only available in Hebrew, so for now we will have to do with a Townhall article referencing the paper (here is a link to the original). According to Townhall writer Marina Medvin, professor Ben Israel,
who also serves on the research and development advisory board for Teva Pharmaceutical Industries, plotted the rates of new coronavirus infections of the U.S., U.K., Sweden, Italy, Israel, Switzerland, France, Germany and Spain. The numbers told a shocking story: irrespective of whether the country quarantined like Israel, or went about business as usual like Sweden, coronavirus peaked and subsided in the exact same way.
This confirms what I have said previously, namely that a lockdown is not the relevant variable in fighting this epidemic. Then Medvin gets to the substantive question:
But what about Italy and their staggering 12% mortality rate? "The health system in Italy has its own problems. It has nothing to do with coronavirus. In 2017 it also collapsed because of the flu," Professor Yitzhak Ben Israel told the news agency.
The Swedish mortality rate is now at 10.6 percent, up from a flat ten percent earlier in the week. The Swedish health care system is a single-payer model that has been in place since the 1950s and went through crippling budget cuts in the '90s (see my book Industrial Poverty for a detailed account of that whole episode). Among the more staggering numbers is the 21-percent reduction in health-care staff, forcing the country into health care rationing. 

Other reforms included a reinforcement of the centralized nature of health care funding and concentration of medical specialties to a small number of hospitals. This combination is particularly problematic: since the health care districts - basically identical with counties or regions - operate under a strict mandate to keep their budgets in line with tax revenue, increases in health care costs over time run afoul with increasing concentration of medical specialties. The health care districts that provide specialty care are under the same cost-containment mandate as districts that do not offer those.

As a result, specialized health care gets cut and rationed just like general health care does. When waiting lists grow (and Sweden has some of the worst waiting-list problems in the industrialized world) politicians respond by throwing more money after specialized clinics and hospitals. The problem is that this happens under a universal budget cap, which forces them to cut spending on general health care. 

Over time, health care costs rise faster than GDP. This is true not only in the United States but universally. There are common-sense reasons for this, such as:

  • Health care treatment methods get more and more sophisticated, requiring a higher level of specialization and more sophisticated instruments, both of which require more research, development and education;
  • Medicines cost more to develop, require carefully calibrated trial periods and higher market prices to motivate the R&D input.

In the U.S. economy the cost of medical technology and structures - which includes everything from scalpels to hospitals - goes up about 2-3 percentage points per year faster than current-price GDP. This is a decades-long statistical truth, traceable back as far as this statistical product is available. Since medical technology generally is the same in Europe - albeit more rationed in many countries - the cost trajectory is overall the same.

What differs is how we pay for it and how we distribute health care among those in need of it. Here, the Israeli study could be on to something; we will have to wait with a definitive verdict until we have an original paper in English by Professor Ben Israel, but the charts in his Hebrew paper are in English and give us a brief idea of the findings the Townhall article reports.

I am myself in the process of building a database on welfare-state spending in Europe. Going back to 1992 or 1995, depending on data availability, I am examining the composition of government spending before, during and after the austerity crisis in 2009-2014. One of the preliminary findings is that countries that suffered bad budget deficits back then, and had single-payer or largely government-funded health care systems, also subjected those systems to noticeable budget reductions. 

Italy is a striking example. According to the Johns Hopkins University covid-19 database, the Italian mortality rate is at 13.1 percent. A look at their health care spending gives us an idea of why it is this high. 

In 2014, the Italian government spent 115.9 billion euros on health care and health insurance for its citizens. That was 1.1 percent less than they spent in 2009 - and since these are current prices, it means that they deprived their health care system of five years' worth of resource advancement. 

During the same period of time, the German government, which only funds part of the country's health care, increased spending by a total of 27 percent. In Switzerland, which has a private-based insurance system, total health care spending increased by about 22 percent. 

These figures give us a good indication of just how much health care resources the Italian government starved its citizens of. 

From 2014 to 2018, the latest year that Eurostat reports, Italy grew health care spending by a total of four percent.

Four percent. If health care spending in Italy had followed the German model, things would have looked very differently:

  • For every 100 euros in health care spending in Germany in 2009, they spent 147 euros in 2018;
  • In Italy, every 100 euros in health care spending in 2009 grew to 103 euros in 2018.

A breakdown per capita will further highlight this resource starvation, but it is worth noting that both Germany and Italy have birth rates that as so low the population does not reproduce itself.

As mentioned, the Swedish covid-19 mortality rate currently stands at 10.6 percent. Spain has a mortality rate right behind Sweden: 10.4 percent. With its almost complete single-payer system (the province of Catalonia has some private alternatives) Spain stands out even more than Italy:

  • In 2014 total government spending on health care was 13 percent less than it was in 2009;
  • By 2018 total health-care spending was one percent behind its 2009 level.

Again, these are current-price levels.

My database is still not complete and won't be for another couple of weeks. My data so far does not unequivocally rule out government involvement in health care funding - Finland, for example, has a covid-19 mortality rate of 2.2 percent, and they couple public funding with an elaborate system of private practices. However, Finland is thus far an exception; based on my own cultural background I would guess that the almost-genetic Finnish preference for social distancing plays a role in their successful covid-19 outbreak management. 

Finland notwithstanding, thus far available data is building a case against an all-government health care system. Since there are no all-private systems (not even in Switzerland) we cannot know for certain how such a model would perform under the pressure of an epidemic like this; what we can say thus far, though, is that private involvement in one form or another (profit or non-profit) is essential to guarantee an adaptable and dynamic systemic response.

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