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Monday, March 26, 2007

Striking Health Care Fact?

Greg Mankiw says Tyler Cowen reports a striking health care fact:

Striking Health Care Fact, by Greg Mankiw: Tyler Cowen reports:

As of 2003, the average income of a French physician was estimated at $55,000; in the U.S. the comparable number was $194,000....Did I mention that health care is a labor-intensive industry? This is the major reason why French health care is cheaper than U.S. health care.

Let's take a closer look at this. According to the French Embassy:

Since the end of the 1960s, the number of doctors increased from 60,000 to more than 185,000 at the beginning of the 21st century. There are three doctors for every 1,000 habitants, which is an average ratio when compared to other Western countries.

So, there are 185,000 physicians, and, assuming the salary numbers given are correct, the difference in income between US and French physicians is $194,000 - $55,000 = $139,000. Thus, the total savings sounds like quite a bit, (185,000)($139,000) = $25,715,000,000. But, there are 62,752,136 people in France according to the CIA Factbook, so on a per capita basis the difference is only ($25,715,000,000/62,752,136), or around $410 per person.

Now, we know that

The United States spent an average of $6,102 a person on it in 2004, ... while Canada spent $3,165 a person, France $3,159, Australia $3,120 and Britain just $2,508.

So the difference in physician salaries only explains $410 of the $2,943 difference in costs (about 14% - I should acknowledge that some of these numbers are from different years, but all are during or close to 2003 so that shouldn't make much difference). Greg and Tyler may respond that they meant salaries generally, not just physicians, but that's not what is being claimed. For example, Tyler says "This is the major reason why French health care is cheaper than U.S. health care. France also spends less per unit on other inputs, such as prescription drugs," so it's clear he meant physicians alone in identifying the "major reason" for the difference in health care costs.

But why are lower physician costs a bad thing? Are Tyler and Greg saying that French physicians are not as good, i.e. that the lower salaries cause them to be of lower quality? If so, they should make that case directly and explain why health outcomes are better in France with lower quality physicians (Tyler covers this to some extent, though not the lower physician quality part, and he does note he'd like to see US physician salaries fall). If they are not making the claim that doctors in France are inferior due to the pay scale, then it seems to me they have presented yet another reason to support moving to a single-payer system - better or equal quality physicians at lower cost.

Tyler also says:

A visit to a GP's office (half of the doctors in France are GPs) had a reimbursement capped at 20 Euros, again circa 2003.  It is not hard to pay ten times that amount in the U.S.

But the French Embassy notes:

On the surface, it appears that health insurance reimburses medical care providers less in France than in other European countries. However, more than 80 percent of French people have supplemental insurance, often provided by their employers.

Finally, I found this part of the French Embassy's write-up of their system interesting:

The French government provides a number of diverse and comprehensive healthcare rights. For more than 96 percent of the population, medical care is either entirely free or is reimbursed 100 percent. The French also have the right to choose among healthcare providers, regardless of their income level. For example, they can consult a variety of doctors and specialists or choose a public, private, university or general hospital. Moreover, the waiting lists for surgeries found in other government supported healthcare systems do not exist in France. ...

The Medical care establishment is made up of three types of institutions: public hospitals, private clinics and not-for-profit healthcare. ...

Private clinics have quite a different history from public hospitals. They were started by surgeons and obstetricians and eventually evolved into private hospitals. A 1991 law requires all doctors in private clinics to share medical files with their colleagues and to create a Medical Care Commission to form evaluation procedures.

Another sector of the French healthcare system consists of not-for-profit private hospitals. These hospitals were originally denominational and currently make up 14% of the inpatient services among French Medical Care Institutions.

They are financed through endowments like public hospitals, but have the right to privacy like private clinics. The cooperation between the public and private sector in the French healthcare system is a positive feature that allows citizens to avoid waiting lists for surgeries, which are often associated with socialized medicine. Indeed, private medical care in France is particularly active in treating more than 50% of surgeries and more than 60% of cancer cases. This unique combination of government financed medical care and private medical services produces a health care system that is open to all and provides the latest in medical technology and treatment.

Update: In comments, Tyler says:

No, I didn't mean physicians' salaries alone, I meant unit prices alone.  The point is not that French doctors are worse, rather that we do not reap those cost savings simply by choosing more government intervention.

To avoid further confusion, here's more of Tyler's post:

Many people (Jon Chait also) argue that France has the best health care system in the world.

As of 2003, the average income of a French physician was estimated at $55,000; in the U.S. the comparable number was $194,000. A visit to a GP's office (half of the doctors in France are GPs) had a reimbursement capped at 20 Euros, again circa 2003. It is not hard to pay ten times that amount in the U.S.

Did I mention that health care is a labor-intensive industry? This is the major reason why French health care is cheaper than U.S. health care. France also spends less per unit on other inputs, such as prescription drugs.

Note that France still spends more than all or most other European systems, namely about 11 percent of gdp. When comparing health care outcomes, France only does slightly better than many Mediterranean countries with obviously non-enviable health care systems. It is not obvious that France does better on health care outcomes than Japan, again a country with non-enviable health care institutions. ...

It is easy to argue that the French system is better than that of the United States. But a defender of the French system must, in reality, fight "a war on two fronts"... The French system does not ... appear noticeably better than many other cheaper systems around the world. It does spend more money producing "customer satisfaction" and papering over some of the obvious inhumanities of the cheaper systems. That's why it is easy to hold up as a model. ...

If we are going to be umm...transitive here, let's have the debate where it belongs: expensive health care with marginal impact on measured health outcomes vs. saving lots of money and giving people much less in the way of health care services. I do think there is a good case for the latter, though looking toward the future I would myself prefer the former.

I might add I do favor taking action to lower doctors' wages in the United States. Letting in a greater number of qualified foreign doctors is step number one. But if we're going to criticize the U.S. system for its costliness, let's put the blame where it belongs.

I interpreted "This is the major reason" and "putting the blame where it belongs" and Greg's post as saying doctor's salaries explain the majority of the difference in costs, but Tyler apparently meant the blame should be placed more broadly.

Setting aside the debate about how different outcomes actually are, I understand the argument about comparing France to other European countries and to Japan. I haven't argued for France's system in particular myself, so in the parts of Tyler's post where he is arguing that France is not the best system in the world I think we are talking past each other to some degree - I was responding to Greg's post above which led with the point about doctor's salaries and was about France versus the U.S. alone. But I don't follow Tyler's contention in the comment that the large difference in costs between single-payer systems and the U.S. generally, or for France and the U.S. in particular, cannot be explained by differences in how the systems operate. That is likely affected to some degree by our different interpretations of what the data say about health care quality across the various systems.

    Posted by on Monday, March 26, 2007 at 10:26 AM in Economics, Health Care, Policy | Permalink  TrackBack (0)  Comments (38)

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