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The most striking aspect of America's medical system remains how much of an outlier it is in the advanced industrial world. No other nation spends more than 12% of its total economy on health care. We do worse than most other countries on almost every measure of health outcomes: healthy-life expectancy, infant mortality and--crucially--patient satisfaction. Put simply, we have the most expensive, least efficient system of any rich country on the planet. Costs remain high on every level. Recently, the International Federation of Health Plans released a report comparing the prices in various countries of 23 medical services, from a routine checkup to an MRI to a dose of Lipitor. The U.S. had the highest costs in 22 of the 23 cases. An MRI costs $1,080 here; it costs $281 in France.
In 1963, Nobel Prize--winning economist Kenneth Arrow wrote an academic paper explaining why markets don't work well in health care. He argued that unlike with most goods and services, people don't know when they will need health care. And when they do need it--say, in the case of heart failure--the cost is often prohibitive. That means you need some kind of insurance or government-run system.
Now, we could decide as a society that it is O.K. for people who suddenly need health care to get it only if they can pay for it. The market would work just as it works for BMWs: anyone who can afford one can buy one. That would mean that the vast majority of Americans wouldn't be able to pay for a triple bypass or a hip replacement when they needed it. But every rich country in the world--and many not-so-rich ones--has decided that its people should have access to basic health care. Given that value, a pure free-market model simply cannot work.
The Swiss and Taiwanese found that if you're going to have an insurance model, you need a general one in which everyone is covered. Otherwise, healthy people don't buy insurance and sick ones get gamed out of it. Catastrophic insurance--covering trauma and serious illnesses--isn't a solution, because it's chronically ill patients, just 5% of the total, who account for 50% of American health care costs. That's why the Heritage Foundation, a conservative think tank, came up with the idea of an individual mandate in the 1980s, proposing that people buy health insurance in exactly the same way that people are required to buy car insurance. That's why Mitt Romney chose this model as a market-friendly system for Massachusetts when he was governor. And that's why Newt Gingrich praised the Massachusetts model as the most important step forward in health care in years. They have all changed their minds, but that is about politics, not economics.
The Obama health care plan is not perfect by any measure. It maintains the connection between employment and health care, which is massively inefficient and a huge burden on American business. While companies often talk about the need to reduce regulations to be competitive globally--which is true and important--they rarely talk about their single biggest handicap against global competitors. American companies have to pay tens of billions of dollars to provide health care for their employees and former employees, while their German, Canadian, Japanese and British counterparts pay next to nothing in health care costs in comparison.