One of the longest-lived debates in the world is whether it is worth having a state-funded health sector or not. Those who prefer the latter (e.g. the US), believe that it does not make sense for the state to pay for the health of its citizens because they will be more heavily burdened by tax, and a larger amount of their taxes will be spent in health, when there might be better use for their hard-earned money. The countries who favour the former though, do not believe that this is the case. Have a look at the following graph on total per capita expenditure on healthcare, obtained from OECD data for 2011(measured in dollars, PPP):
The United States appears to have the largest per capita expenditure on the health sector, nearly double of what other developed countries are spending. In addition, even though these are per capita numbers the reader should remember that these do not reflect the whole population of the country, just like they do in most European ones. The reason is that not everybody is covered by insurance in the US and thus the amounts registered are those which belong to people under insurance schemes (and some others who both have enough money and are willing to spend it to get back to health). While he above graph shows total expenditure in health, the two below show how much is spent by the private sector and how much by the public on health:
In the public expenditure, the US only lags behind Norway and Netherlands (where 85% of health expenditure is by the public sector), but in the private health expenditure it surpasses its closest country (Switzerland) by more than 2.5 times, leading again to higher overall spending on health. The questions here are two:
1. Why is spending so high in the US?
2. How much extra taxes would it take to cover everyone?
The first question is rather easy, although at times it appears to elude most of the proponents of the private-funded health system. Imagine now that you have an insurance policy under a certain company and you get sick. The doctor (and the hospital in general) who examines you, knows whether you have insurance or not. The problem here is that almost any amount the hospital asks, the insurance company is willing to pay (obviously up to some specific amount over which the insurance company will deny to pay as it will consider it to be very large). This is actually profit-maximizing behaviour from the part of the healthcare providers, meaning that nobody could actually condemn the hospital for acting this way under the circumstances. Thus, they ask for higher prices than they possibly could had there been no insurance cover for everyone since its not the consumer who will pay the money (he does, indirectly though). How about those who do not have cover you might ask? Well, the hospital is "forced" to charge the same price for them as well, for the simple reason that if they charged them less then those who had cover might find it more profitable to lose cover, save the premium, and then pay the lower price at the hospital.
What's present here is free market with many frictions which are actually not allowing it to function smoothly. Insurance companies are distorting incentives and "forcing" hospitals to increase their fees, thus increasing the overall cost. When hospitals are public and healthcare is free, then prices in the private sector also fall. The reason is again simple: there exists a competitor and the competitor is a perfect substitute. For example, an oncologist working having a private practice would face the direct competition of a colleague working in the public sector. The two services are almost inseparable, meaning that the patient is indifferent as to who gets him better (so long as he gets better). Yet, if his competition is not charging anything, the only way for the private MD to charge high amounts of money is to make sure that he is providing a higher quality of service. Yet, the charge is somewhat capped: he cannot ask for as much as he wants, since everyone will shift to the public sector if he does. As you may easily see here, it is an issue of paying for extra quality; quality which is not debatable as people would not be paying all that money for a private doctor if he wasn't worth it (For those who do not think that this price change really happens have a look at this interesting article from the NYT comparing prices in the US and Belgium).
Moving on to the question on how much it would cost the US to move to state-funded healthcare, the answer is that it wouldn't cost as much as most people think. Let's say that it ends ups costing 20% more than it does to Norway (even though this is a hugely inflated amount), at $6802 per person. Then, deduct the amount already spent on healthcare by the state, currently at $4066, leaving us with $2736 per person. That's too much taxation a person might add. Is it really? Every person in the US spent $4441 on healthcare in 2011, i.e. more than 60% than the $2736 of taxation in the extreme case.
Readers might wonder how the reduction in cost will occur if the US shifts from private healthcare to public healthcare. As already mentioned this is simple supply and demand, with competition forcing prices down. At the moment, hospitals are acting like cartels, meaning that they have a strong incentive to hold prices up and nobody is willing to leave that situation. If more hospitals are funded by the state, then competition in prices is increased, forcing prices down. There will be some variation in prices, obviously; yet, this will reflect differences in the quality of healthcare or other local factors (e.g. higher prices in New York than Nebraska). Even more, the consumer will be more assured that higher prices actually mean higher quality.
If the case is so simple then why aren't things changing in the US? The answer is two-fold: first there are those whose interests are being hurt (doctors, private hospitals, insurance companies) and do not wish for the situation to change. Second, people do not enjoy change. The reason is that we learn to adjust to the current situation, whatever that might be, and we are afraid to change, even if it is for the better. All it takes in most of the times is a shift in mentality; not an easy task though.