Uncomfortable truths

The Economist has a graph that doesn’t seem to fit into the worldview of either of America’s political parties:

On the left, pundits often bemoan the fact that America’s government doesn’t provide a generous health care program like those European countries.  On the right, the prevailing view seems to be something like, “Thank God we don’t have socialized medicine like those European countries.”  But what if they are both wrong?  What if our government actually spends more on health care than other developed economies?  What should we make of that fact?

I find it interesting that neither political party seems willing to propose the following reform:

Keep US government spending on health care at 8.5% of GDP, but use the money to cover the entire US population.  Set up a system analogous to Medicare Advantage, where the government funds various private insurers to provide coverage.  Insurers compete for customers by offering as generous a plan as they are able to given the funding provided by the government.  Under this sort of regime, the health care would presumably be rather bare bones.  People could purchases more extensive coverage out of pocket.

I’m not at all convinced that this proposal is a good idea.  Nonetheless, I find it interesting that no one seems to be proposing this sort of system.  What can we infer from the fact that almost no one seems to advocate replicating the European system, despite the fact that lots of pundits claim that they like the European system?

America currently spends roughly 17% of GDP on health care.  Under my proposed system, Americans could continue to purchase that much health care if they chose to do so.  (Real incomes would rise sharply once employers no longer had to provide health care to employees.)  But it seems overwhelmingly likely that most people would not choose to maintain current levels of spending on health care.  Spending at levels exceeding 8.5% of GDP would come out of pocket.  Many people would spend less, and settle for less health care consumption than they currently enjoy.  

I suspect that my proposal would hurt people that work in health care, and also hurt people on Medicare and Medicaid.  It would help the rest of the public, and the net effect on welfare would probably be positive.  But I doubt whether either political party would support this sort of reform.

People on the left say they want a European type system, but I don’t believe them.  I suspect they actually support a system where the government spends more like 17% of GDP on health care, not 8%.  People on the right say they want to spend less on health care, but I don’t believe that conservative politicians wish to lose the votes of doctors, nurses and Medicare recipients.  The status quo is very well entrenched, and would be difficult to reform.