With a substantial part of America’s youth having a favorable view of socialism, there is a considerable risk that in the near future we will experience the final government takeover of our health care system. Those who think this is a good idea sometimes claim that it will actually reduce the cost of health care, a point I refuted in Part 1, and they unanimously ignore the rationing that takes place under single-payer systems.
In Part 2 I covered one angle of health-care rationing, namely the decline in hospital beds per capita in European health-care systems. I explained how countries with more stingy medical resources were more likely to suffer worse from the Covid-19 epidemic.
This third and last installment takes another angle to the supply of health-care resources, namely spending and staffing. Focus is not specifically on the performance of Europe’s health-care systems during the epidemic, but on what happens to them under episodes of fiscal austerity. When tax revenue is in decline and government runs a big deficit, a system for socialized medicine suffers accordingly. A review of European countries confirms this:
Austria: Government funds three quarters of the health-care system. Out-of-pocket costs charged to patients pay for 19 percent of total health-care costs. During 2005-2009 total health spending increased by 4.6 percent per year; the increase tapered off to 3.24 percent per year during the austerity period. The slowdown in funding was pronounced in preventative care, declining from five percent per year in the pre-crisis period to one percent under austerity. The slowdown in funding was also noticeable for residential long-term care patients, although the annual pre-crisis rate of eight percent was cut to a still-reasonable 3.6 percent.
Belgium: Government funds 77 percent of the health-care system. Out-of-pocket costs for patients account for about 18 percent of total health-care costs. In the pre-crisis years total spending on health care increased by 5.35 percent per year; in the austerity years that dropped to 3.35 percent. Cost containment was most pronounced in general hospitals, where annual budget increases were reduced by half, and in preventative care, where resources grew by 26 percent per year pre-crisis and ground to a halt during austerity. In terms of staffing, the total headcount grew by 2.1 percent per year pre-crisis, 1.1 percent during austerity. There were outright cuts in staff with low or no medical training; a third of all nursing associates lost their jobs in 2010-2014.
Cyprus: Hit hard by the austerity storm, one would expect Cyprus to exhibit serious budget-cut symptoms. However, it appears as though the high private funding share in Cypriot health care helped protect it. From 2010 – the earliest year for which the OECD reports health-care spending for Cyprus – to 2017, the private share rose from 51.5 percent to 57.4 percent. Out-of-pocket costs rose from 41 percent to 44.6 percent. Per capita, this represents an increase from 606 euros per year to 686 euros, or an average of 2,744 euros for a family of four. Though strenuous for hard-hit Cypriot families, this increase helped weather the austerity storm: the number of staff in the health-care system per 1,000 residents increased from five in 2004 to 6.6 in 2014. Better still: the share of highly educated health-care professionals – doctors and nurses – rose from 79 to 81 percent.
Denmark: With government paying for 84 percent of all health care and households contributing almost all of the rest out of pocket, the Danish system is one of the most socialized in the world. The growth in health-care system staff slowed from 2.1 percent per year pre-crisis to one percent per year under austerity. There were explicit reductions in the number of health-care assistants, while hospitals and clinics continued to slowly increase the number of doctors and nurses (albeit at very low rates). All in all, the Danish system remained stable, but residential long-term care facilities have seen a noticeable slowdown in the growth of appropriations.
Estonia: Government funds 76 cents of every euro of their health care. Households provide almost all the rest out of pocket. There was a dramatic slowdown of appropriations increases from the pre-crisis years to the austerity episode: in 2005-2009 the annual increase was 13.5 percent; in the austerity years 2010-2014 it was 5.85 percent. This is still a respectable year-to-year increase, bringing per-capita health-care spending up from 478 euros in 2006 to 1,072 euros ten years later. Staff-wise, the system has emphasized hiring more health-care assistants and so-called “other medical professionals”, ostensibly to expand accessibility of the health-care system as much as possible.
Finland: Three quarters of every euro the health-care system gets comes from taxpayers. Out-of-pocket payments account for another 20 percent. With funding growth slowing from 5.4 percent per year pre-crisis to four percent during the austerity episode, staffing policies shifted from nurses and midwives to nursing associates, a lower-educated category. Preventative care and long-term residential care took the brunt of the cost containment.
France: Taxpayers bankroll 76.5 percent of French health care, though in the last couple of years it has increased to more than 83 percent. This increase has replaced some of the “voluntary” contributions that previously accounted for 13.5 percent, on average, of annual funding. Patients pay about 9.5 percent out of pocket. Similar to many other countries, when the funding increase slowed down – from 4.4 percent per year pre-crisis to 2.6 percent under austerity – residential long-term care and preventative-care services took a hard hit. The latter category actually lost more than five percent annually of its funding (though most of the cuts were made in 2010). Medical staff was cut by -0.6 percent per year on an annual basis during the austerity episode, a change from an almost two-percent increase pre-crisis. Cuts were made primarily to health-care assistants and administrators.
Germany: With three quarters of total funding coming from taxpayers and out-of-pocket costs accounting for 12.5 percent, the German system has a standardized funding model. However, except for cuts in preventative care and in lower-educated medical staff, the system was largely unaffected by the austerity episode. The main reason is very likely that the German economy took less of a beating from the Great Recession generally, as the currency union – the euro zone – was designed around the Deutsch mark. This gave the Germans an inherent comparative advantage vs. other economies in the union. Therefore, their economic growth was affected less, as were their tax base.
Greece: While no data is available for health-care funding prior to the austerity episode, OECD numbers from 2009 forward show a decline in government funding from 68.5 percent in 2009 to 60.8 percent in 2017. During the same period of time, out-of-pocket costs increase in importance from 29.3 percent to 34.8 percent. This increase in share did not increase the current-price cost to households, the reason being that health-care funding in Greece was basically butchered: in 2009 total spending on health care amounted to 22.5 billion euros; in 2013 that had dropped to 15.2 billion euros. By 2017 it had declined further, to 14.5 billion. From 2009 to 2014, the core of the austerity era, the health-care system lost 15.4 percent of its staff, including 10.3 percent of its medical doctors. Hospitals lost 36 percent of their funding, with a 19.4-percent drop for mental hospitals. Ambulatory care was cut almost in half. Without increased reliance on out-of-pocket costs, the system would have lost another seven percent of its funding from 2009 to 2014.
Ireland: During austerity, modest staffing reductions replaced pre-crisis increases. This was achieved through reductions in the number of nurses and administrators, and a halt in hiring “other medical professionals”. The Irish health system responded like many others, by prioritizing quality amongst cutbacks. With 72 percent of health care being tax-funded, the rest is split equally between out-of-pocket charges and voluntary contributions. This has resulted in a small rise in the share of health-care professionals being medical doctors.
Italy: The Italian health system has taken a beating or two in recent years. It became the poster child for botched Covid-19 response, but few people dug deeper to see why. In reality, the Italians went into this epidemic with a health-care system in bad shape. During the 2010-2014 austerity episode they cut every category of medical professionals, with three percent fewer doctors and nurses and four percent overall staff reductions. The number of hospital beds, on the other hand, fell precipitously throughout the austerity episode and beyond. It was 14 percent smaller (measured per 1,000 residents) in 2016 than it was in 2010.
Lithuania: During the austerity years, 2010-2014, funding of health care shifted from 72 percent government money to 67.6 percent. That share continued to drop after that, though modestly. Households pay the remaining share out of pocket. However, overall funding remained good: there were minor changes in staffing, and after cuts of 3.6 percent in, respectively, 2009 and 2010, Lithuanian health care has enjoyed five-percent annual increases in funding.
Netherlands: The Dutch economy was among the ones taking a bad beating during and after the Great Recession. In health care, annual increases in funding dropped by half, from 5.3 percent pre-crisis to 2.6 percent during the austerity years. Reductions hit all forms of providers, but mental hospitals took the largest beating. Their funding ground to a virtual halt after 6.4-percent annual growth in 2005-2009. While overall staff increases also ended, the expansion of medical-doctor staff continued under austerity. This indicates attention to quality, which in turn may be attributable to the funding reform from 2006 when the Dutch parliament cut back government funding from two thirds of all health care to one third. Funding was instead shifted to private insurance, which now cover two thirds of the country’s health-care costs. Out-of-pocket payments have remained in the 10-11 percent bracket.
Portugal: Government funding of health care fell from 69.5 percent pre-crisis to 67.2 percent. During austerity, total revenue for the health-care system dropped three years in a row; in 2017 total funding was almost the same as in 2009. Austerity policies in 2010-2014 took a toll on every form of health care, reducing funding across the board (except long-term residential). Staff cuts reduced the number of health-care employees from 12.1 per 1,000 Portuguese people in 2010 to just over 11.3 in 2014.
Spain: Second only to Greece, the Spanish economy was hit very hard by the austerity crisis. Government funding dropped from 75 percent to 70, with households picking up the balance by increasing out-of-pocket contributions from 19.5 to 24.5 percent. Every provider form was slashed (except long-term residential care whose funding stood still), with specialized hospitals losing 10.8 percent of revenue per year in 2010-2014. Providers of preventative care lost almost as much during the same period of time, 9.85 percent per year. Staff reductions concentrated to health-care assistants, other medical professionals and administrators kept the number of doctors, nurses and midwives steady. Thanks only to a decline in population, Spain did not suffer a drop in health-care staff density.
The lesson from this review is clear: if you want to protect your health care from bad times and budget cuts, make sure as much as possible of the funding comes from private sources. Government is the least reliable provider of money for your medical needs.