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.
This the second part of my article on the recent epidemic and government-run health care takes a look at the health care systems in Europe. In most countries over there, government is the main payer – in many cases the only meaningful funding source – for medical services. This has put the health care systems across Europe under stress in a way that we have not experienced here in America.
At the heart of the problem is, as I explained in Part 1:
-The advancement in medical skills and technology that come from research and innovation; and
-The decoupling of that cost increase from the free market that is necessary under a government-run system.
Under a free-market system the cost increases from advancements in technology and skills are mitigated by medical providers who learn to do more with less. He who excels at that will be more successful. By contrast, a government-run system has no limitations on cost hikes. Since government does not spend its own money it does not have any incentives to do more with less. Therefore, it maxes out what its taxpayers can afford – and then some – whereupon it has to turn to health-care rationing.
This is precisely what we have seen in Europe. Countries like Italy, Spain, Greece and Cyprus are frightful examples of what happens when government can no longer deliver on its health-care promises.
More on that in a moment. First, let us see what happened when European health systems were confronted with Covid-19.
Government only has one method for containing costs: rationing. Also known as “waiting lists”, health-care rationing is unavoidable under a Medicaid-for-All style system. To use Sweden as an example – a very popular country among the American left – their health care system costs every working adult 14 percent of their pre-tax income. This is just the direct tax; there are services provided by local governments and there are subsidies from the central government that add up on top of this tax.
In total, the cost for hospitals, clinics, as well as ambulatory, elderly and rehabilitative care, amounts to about 12.5 percent of the Swedish GDP. To cover this entire bill, In other words, the 14-percent health care tax on personal income does not cover the full cost. Health districts – regions or landsting as they used to be called – also get substantial funding from the central government. All in all, Swedish taxpayers surrender about 20 percent of their personal income to government, solely for the funding of their health care system.
What do they get for the money? To begin with, patients have to dole out a substantial amount of money out of pocket. Based on OECD and Eurostat health expenditures data, out-of-pocket costs – we know them as deductibles and copays – account for 16 percent of the total funding of Swedish health care. This is money that patients have to pony up after government has imposed its heavy taxes on their incomes.
Swedish health care is also rationed. The Swedish government tries to conceal aspects of this problem; to take one example, Sweden does not report the staffing structure of its health care system to the EU statistics agency Eurostat. Other countries do this; in Greece, 24 percent of all hospital employees are medical doctors; about as many are nurses or midwives; just below 30 percent are other medical professionals or employees; and the rest are administrators.
We are going to review the staffing structure later. It is important to do so, as the staffing structure conveys important information on the quality of the health care a patient can expect. Put simply, the more medical doctors there are, and the more medical doctors there are per capita, the higher the presumed quality of care.
Likewise, one can measure access to health care by the staff-to-population ratio. All other things equal, the more health care staff there are per capita, the more accessible health care will be. Again, no such profile is reported by the Swedish government,  but Eurostat and the OECD publish valuable data for other European countries.
First, though, we turn our attention to another metric with useful information on health care quality: hospital beds. Figure 1 reports an interesting trend in the number of hospital beds per 1,000 residents. The trend is prevalent across Europe:
Figure 1: Hospital beds per 1,000 residents
The density of hospital beds has declined across the board, with more health-care procedures shifting from in-patient to out-patient. However, there is a distinct outlier in Figure 1, and – again – that is Sweden. This hard-line single-payer system, which has a practically universal ban on private hospitals and – again – relies almost entirely on government for its funding, underwent a catastrophic rationing reform during the 1990s. Today, Sweden ranks at the bottom among its European peers in terms of hospital-bed supply.
It is important to note the Swedish hospital massacre. It happened during a very serious fiscal crisis, one that I covered in detail in my book Industrial Poverty. To mitigate heavy losses in tax revenue, government resorted to drastic tax hikes; at one point the tax-to-GDP ratio topped 60 percent. Yet despite bone-crushing increases in taxes in the midst of an economic crisis, government still could not balance its budget. Gasping for air in the chokehold of fiscal panic, the Swedish government coupled its confiscatory tax hikes with a long series of very hard spending cuts.
One of its many cost-slashing measures was to dramatically “reform” the health care system. The plunge in hospital bed supply was part of that “reform”. Another was to fire a lot of administrators at hospitals, forcing medical professionals to take over administrative duties and thus spend less time with patients. This, of course, only exacerbated the rationing of medical services.
It is here that the coronavirus epidemic brings together Medicaid for All, our current budget deficit and the challenges that come with a health-care epidemic. So long as the health care system can provide treatment on an out-patient basis, the decline in beds is of no consequence. The problems start piling up when a public-health epidemic breaks out and its treatment requires widespread in-patient treatment, i.e., hospitalizations.
The coronavirus outbreak provides an excellent test case for how responsive a health-care system is, or is not, to such an event. Behold Table 1 below, which compares hospital-bed supply to Covid-19 mortality rates as reported in May 2020 at the height of the epidemic by the Johns Hopkins University Covid-19 database.
Interestingly, countries with a bed count above four per 1,000 residents have a visibly lower mortality rate than countries with a bed ratio below four:
- In the left column in Table 1 are the countries with a bed count above four (average 5.85); their mortality rate is 6.27 percent;
- In the right column in Table 1 are the countries with a bed count below four (average 2.94); their mortality rate is 8.52 percent.
Of the 15 countries in the higher-bed-count group, only three had a mortality rate above ten percent, while more than half had a mortality rate below five percent. By contrast, in the low-bed-count group five out of 12 countries experienced more than ten percent deaths, while only four saw mortality below five percent:
Table 1: Hospital beds and Covid-19 mortality
The numbers reported here are experimental, of course. They are based on two important premises:
- The hospital bed count, which is from 2017, is assumed to be representative of the bed-count number for 2020. This is an imperfect assumption, but with the exception of chainsaw-like reductions in hospital funding as in Sweden in the 1990s, the supply of beds only changes slowly over time.
- The bed count includes all hospitals, in other words psychiatric ones as well as those for general-admission purposes. This could be challenged as too blunt of a bed count, but there has also been anecdotal evidence in European media during the epidemic that beds in specialized facilities have been converted for the purposes of treating Covid-19 patients. Therefore, using the totality of hospital beds is a reasonable measure of the epidemic-response capacity limit of a nation’s hospital system.
Despite the experimental status of this comparison, it does suggest that health-care systems that are starved for hospital beds tend toward higher mortality rates.
Table 2 compares the same bed count, in the same two groups, with the coronavirus infection rate, or the number of confirmed cases per million residents. The average rate of coronavirus cases in the higher-bed-count group is 1,772 per million residents, with five of the 15 countries above 2,000 and eight below 1,000. Among the lower-bed-count countries, nine out of 12 exceeded 2,000 cases per million residents. Not one of these countries had an infection rate below 1,000, making for an average of 3,013:
Table 2: Hospital beds and ratio of Covid-19 cases
Again, countries with a more generous hospital system are better prepared to deal with a public-health threatening epidemic than those with a more stingy health care system.
The next question is how the staffing and funding structure itself affects a health care system. More on that in Part 3.
 It is technically known as a municipal income tax, but a portion of the 30+ percent tax charged by municipalities is dedicated to the health care districts.
 They do report their numbers to the World Health Organization, but since their database suffers from other incompletion problems, it does not help in determining the structure of Swedish health-care staff.
 Please see: https://coronavirus.jhu.edu/map.html. Numbers were retrieved on May 16, 2020. The reason for choosing the month of May is to capture the readiness of a health-care system at the very onset of a crisis. More recent data would obfuscate the role of the institutional structure of the health care system itself.
The Covid-19 epidemic has given the world a good opportunity to study the quality of health care systems. We often hear from proponents of single-payer systems that we would get so much better health care if we just handed it all over to government.
Experience from this epidemic says otherwise. On the contrary, Europe, which is saturated with government-run health care systems, has struggled quite a bit with the epidemic. At the forefront of their problems has been a shortage of hospital beds.
Before we get there, though, we first need to take a quick look at the U.S. system. Thankfully, we don’t have a Medicaid-for-All system, but politically we are closer to it than most people realize. We are in fact hanging on the precipice of it, which makes the recent European experiences so much more important. There are few people remaining on the right side of the political aisle who are willing to fight back against the Medicaid-for-All movement. Outside of the Republican Study Committee, whose report last year presented a great plan for strengthening free-market health care, there is not too much happening among conservatives and libertarians.
This is strange and tragic. A Medicaid-for-All system is the crown jewel of the socialist welfare state, and since the libertarian movement has essentially surrendered on the welfare state in general, it lacks the ideological prowess to fight back on the Medicaid-for-All issue.
The lack of interest in fighting socialism in practice – the welfare state – is clearly noticeable across the libertarian movement. Their own party and presidential candidate barely even pay token interest to the welfare state. Worse still, America’s leading libertarian think tanks only use about ten percent of their resources to the fight against socialism in practice:
- The Cato Institute reports 67 experts on their website; six of those can be said to be working with issues even tangentially related to the welfare state and its systemic impact on the U.S. economy;
- American Institute for Economic Research, with its 63 experts, has four or five that touch the welfare state in their work (depending on how thin you want to stretch the definition);
- The Reason Foundation, proudly libertarian since 1968, boasts no more than three welfare-state interested individuals among its 32-strong expert crew;
- The Mercatus Center, the think tank at George Mason University, has practically enrolled the entire economics-department faculty among its 60 scholars, yet they still cannot find more than five whose research interests even affiliate with the welfare state.
The Heritage Foundation is the strongest institution in this respect. They have the Grover Hermann Center, which is dedicated to the study of the federal budget. In total, spread across all their departments, the Heritage Foundation has 12 welfare-state oriented experts, out of 96. Still spending only a small minority of their resources on the most critical problem of our time, Heritage nevertheless leads the libertarian movement in that regard.
With this scant attention to the practice of socialism in general, there is very little in the libertarian movement that can stop a Medicaid-for-All program. This leaves the field essentially open to the neoconservatives within the Republican party (who want a single-payer system because Irving Kristol said so) and the socialist left. Our hope lies with the aforementioned RSC report and its appeal to more conservatively minded Republicans.
Hopefully, they can find some strength in the numbers presented below. It looks increasingly as if private health-care funding is instrumental in protecting public health. This is not surprising, given that government-run health care systems suffer from two deficiencies, the first of which is its reliance on taxes for funding. By virtue of advancements in medical skills and health-care technology, the cost of providing health care goes up over time. In other words, just to keep health care quality intact, medical professionals need to raise prices over time.
This tendency, in turn, is countered by market forces. He who does more with less will always win over less productive competitors. Only a market-based health care system can strike a proper balance between the rise in costs due to quality advancements and the competition-driven decline in prices.
As an example of what this means, the health-care share of our economy (our GDP) has increased over time: looking at medical technology alone – disregarding for now all other components of health care expenditures – it was 1.3 percent of our GDP in 1980. In 2017, the latest year for which the Department of Health and Human Services publishes comprehensive data, that share is more than twice as high at 2.9 percent.
How would a single-payer system handle this? Since it lacks a countervailing force to the cost drive from quality advancements, and since health-care costs evolve independently of what taxpayers can afford, the only choices for a single-payer government are to raise taxes constantly, or ration health care access.
If we had operated a Medicaid-for-All single payer system, and if Congress had been wise enough not to raise taxes, we would have been forced to keep the med-tech share of our health care costs constant. We would therefore have had to forfeit advances in medical technology – or raise taxes.
But what is a tiny share of our economy like this one to quarrel about? As a general point, this is a valid question, of course. As share of GDP, spending on medical technology looks like chump change. However, looking at it as a market within the economy, medical technology actually translates into significant numbers. In 2017 we spent a total of $569 billion on medical technology. This includes durable technical instruments, non-durable instruments, prescription drugs, health-care facilities and the medical equipment needed for them to be operational.
If we had kept the med-tech share of GDP constant, from 1980 to 2017 we as a nation would have been limited to spending only $267.4 billion on medical technology. This would have meant a loss of more than $301 billion worth of instruments, equipment, clinics, hospitals and pharmaceutical products.
Such rationing would have had serious consequences for health care access. For every $1 million we reduce spending on medical technology, we have to make proportionate reductions in staffing. Over time, this kind of rationing has serious cumulative effects: as a thought experiment, consider what the effects would be if we removed 53 percent of all health-care spending in our country.
Another key question is, of course, what incentives entrepreneurs would have had to develop new technology for our health care system. To stick with the time horizon from 1980 and on, where would our health care have been today in terms of quality and ability to cure and heal?
Proponents of health care socialism often bring up administration as the holy grail of cost reductions. What they forget is that the decisions being made by administrators in today’s systems also must be made under a single-payer system. Hospitals and clinics still need to file claims for every procedure; someone needs to evaluate every claim; someone needs to process every claim; someone needs to cut the checks and send them out to the health care provider.
Someone still needs to keep track of supplies, order supplies, pay for them, make sure deliveries were according to specifications, distribute the supplies within the hospital… Human resources staff still need to make sure there are enough doctors, nurses, midwives, cleaning staff, procurement staff, computer experts and other employees throughout the health care system.
And someone still needs to evaluate the health care procedures to make sure that resources are not being wasted. For a glimpse of what this means under a government-run system, see the chapter on fiscal eugenics in my book The Rise of Big Government.
Table 1 explains the components of health-care costs (billions of dollars) in 2017, for the nation’s entire health care system.
|Health Care Cost Breakdown||US$ billion|
|National Health Care Expenditures||3,492.1|
|Physician and clinical expenditures||694.3|
|Other health-care professionals||96.6|
|Home health care||97.0|
|Non-durable medical products||64.1|
|Durable medical products||54.4|
|Nursing, continuing care||166.3|
|Other health care||183.1|
|Administration, net insurance costs||274.5|
|Public health activity||88.9|
|Structures and equipment||116.9|
Administration costs amount to less than eight percent of total health-care expenditures. Of this, 83.6 percent is the net cost for insurance. In other words, even if the entire insurance administration cost was eliminated it would only save the health care system 6.6 percent of its total costs.
This would, again, be possible if and only if there would be no need for any administration in a single-payer system. As mentioned earlier, that kind of administration is always going to be needed. Government doesn’t just funnel money out to hospitals, clinics and other health-care providers without any kind of information on what is being done, when, how, why and for how much money.
On the contrary, a single-payer system would come under intense cost scrutiny, given the very high taxes it would require. If anything, administration would increase to minimize waste, fraud and abuse. It is simply a pipe dream to think that elimination of administrative overhead would have paid for the $301 billion in med-tech advancements that we would have had to give up in order to not raise health care taxes from 1980 for our hypothetical Medicaid-for-All system.
But that’s not all. A single-payer system requires another layer of administration: central planning of all resources. It would require National Medicaid-for-All Agency that would micro manage the appropriations for every hospital bed, every medical procedure, every drug prescription and every other transaction within the entire American health care system.
That takes a lot of people, and a lot of people cost a lot of money.
Once the single-payer system is in place, government will freeze its costs in parity with the tax base. This means making health-care rationing a standard operating procedure for the allocation of health care resources, meaning in practice that access and quality are made scarce.