Thursday, December 25, 2008

Comparative Health Care Disadvantage

At the request of my stepfather-in-law during a Christmas dinner table discussion, I am here taking up the topic of the comparative disadvantage of the U.S. Auto companies (or any other U.S. company, for that matter) in competition with companies from countries with socialized medicine.

I’ll start with my answer first and then work backward.

The comparative disadvantage that US companies face in a global world is equal to the difference in average per capita health care spending by the company in question versus the per capita healthcare tax burden of the competing nation in question.

First, let’s recognize that health care is not free in countries with socialized medicine. The money must come from somewhere. In fact, it comes from workers, too, just not directly in the form of health care compensation, but indirectly through taxation.

All other things being equal, a company in a country with socialized medicine must pay a worker a higher wage so that he can afford the incremental tax associated with socialized medicine.

For simplicity’s sake, let’s look at workers in two countries. Let’s assume that the economies of the two countries are roughly similar, so that those workers are going to demand the same net disposable income for their labor. Let’s further assume that the two countries spend roughly the same amount of money on healthcare. Let’s also ignore administrative costs.

The company ends up paying the same total compensation to each of the workers, so there is no comparative advantage to one country or another under these strict assumptions. Socialized medicine alone does not save a company anything.

If there is any comparative advantage then, it has something to do with the assumptions I mentioned above.

This is a topic for another day, as it is simply ginormous in scope.

However, let me point out that Americans are profligate health care spenders. Anyone who has a bad knee or bad hip in the United States just goes out and gets a new one, at a cost of 15 or 20 thousand dollars. We have cancer centers in the United States where the cost of outfitting a single screening room might be several million dollars. I myself have had two knee surgeries in the past three years, trying to get one recalcitrant joint to behave properly so I can ski and play tennis. My similar counterpart in the UK has probably had only one surgery, and possibly none.

In my opinion, the single most compelling benefit of a socialized system of medicine would be to keep the cost of health care down. Such systems are like austerity programs for healthcare spending.

However, such a benefit comes at a tremendous cost of freedom, and I am not yet willing to give that up. I’d rather have Americans spending too much money on healthcare by choice than spending considerably less by necessity. For we can always choose to spend less if we can’t afford it. The converse is not true in a socialized system. I might not be skiing this year if I lived in the UK.

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