The Agenda

Gauging Statism in the Health System

For Matt Yglesias, measuring the level of statism in the health sector is straightforward:

Canada’s in the middle ground here, with the UK much more statist and the US much less statist. A Canadian looking at the chart can see clearly that moving toward a less-statist, more US-style regime will push up expenditures. The creative energy of a million health care entrepreneurs will be unleashed on the unsuspecting Canadian people, offering them a dazzling array of choices reminiscent of the consumer bounty associated with shoe stores now that my grandpa’s got his price setting paws off of them. Conversely, moving in a British direction will turn things in the spartan direction of a crappy government office building. There should be no question that if you give 15 bureaucrats in Washington a budget with which to run Medicare, that they’ll deliver health care services inside the budget cap. If the concern is that health care consumption in the United States is currently insufficiently lavish and we need to move even further away from global norms of health spending, then maybe what’s needed is deregulation. But does anyone really think that? America’s health care spending is too low, and growing too slowly? Really?

There are many ways to think about the level of statism or state involvement in the health sector. We can measure public expenditures, we could gauge how tightly the central government regulates the health system, etc. Most health systems in the rich world are hybrid systems. In Britain, the paradigmatic example of a tightly centralized system in which a large share of health sector professionals are directly employed by a government agency, there is an increasing albeit limited role for the private sector.

The U.S. system is very much a hybrid system, in which single-payer Medicare controls a large share of health spending. Employer-provided health insurance is heavily subsidized and regulated, and the private insurance marketplace has been defined by institutional isomorphism. Business-model innovation is rare, due in part to regulation and the culture it engenders. I’m reminded of Megan McArdle’s remarks on the culture of heavily regulated industries:

They’re also not necessarily as worried about efficient capital allocation, since excessive profits tend to attract the beady eyes of the regulators, so there’s a risk that profits will be distributed as things that managers and shareholders can consume, like junkets and loans for friends and family members, rather than compensation or dividends.

Singapore is another hybrid system, in which the state aggressively regulates prices, mandates transparency, and has created a mandatory systems of savings accounts that residents draw on for routine health expenditures and universal catastrophic coverage. One can argue that Singapore’s system is more statist than the U.S. health system, yet the U.S., as a sprawling federal republic, has a large number of overlapping jurisdictions that impose their own regulations that add to the thicket. 

My sense is that we have a hybrid system now and that we will continue to have a hybrid system under any imaginable set of health system reforms. If the United States created a system of universal catastrophic coverage along the lines Martin Feldstein has described, I think we could plausibly argue both that our health system has become less statist and that it has become more statist. Much depends on the other elements of the system, e.g., will we relax regulations on providers to facilitate business-model innovation?   

Reihan Salam is president of the Manhattan Institute and a contributing editor of National Review.

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