Opinion
Why Obama's healthcare plan matters to Europe
By George Irvin
Europeans look at America's health care with a mixture of awe and puzzlement. On the one hand, US hospitals and specialised clinics are amongst the best in the world. On the other, you wouldn't want to fall ill in the United States unless you're a millionaire.
Many a European visitor has experienced the shock of unexpectedly having to pay US medical fees. A visit to a GP and a prescription can easily set you back a thousand dollars; anything more serious can critically impair the health of your family finances.
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We in the EU generally have excellent medical facilities, too; and moreover, we benefit from universal coverage and single-payer plans either run or tightly regulated by member states. Does it matter to us that the USA spends about twice the per capita EU average on healthcare but has the highest infant mortality rate in the OECD? After all, isn't it their country and their choice how to organise healthcare? Yes, it matters. US healthcare affects us all.
Three reasons to care
Whether President Obama gets his health care plan through Congress concerns Europeans for a number of reasons. The most obvious is that if Obama fails, his presidency will be weakened and other reforms, including vital economic policy changes, will most likely fail as well. Secondly, the US healthcare industry is huge, so big that it affects the world's allocation of resources. Thirdly, the rising cost of US healthcare has bloated US consumption, and the latter is a key factor underlying the present crisis. When the US sneezes, Europeans tend to catch cold!
To be sure, there are many more reasons for concern---perhaps most importantly, the fact that in 2009 more than 50 million Americans are without coverage, that many more have insufficient coverage and that these numbers are growing.
A weakened President
Like it or not, the USA is still a major power both politically and economically, and the prospect of a fatally weakened presidency---not to mention a Republican victory under Sarah Palin or someone similar in the next presidential election---would hardly be welcomed on this side of the Atlantic.
Since 1968 when Lyndon Johnson abandoned the US presidential race, there have only been two Democratic Presidents prior to Obama. Jimmy Carter, fatally weakened by the Iran hostage crisis and by alleged secret Republican negotiations with Ayatollah Khomeini before the 1980 election, lost to Ronald Reagan after only one-term in office.
Bill Clinton, having ditched his health reform plan in his first term, effectively became a lame-duck President by the time he was re-elected for a second term in 1996. Again, machinations by Republicans like Newt Gingrich helped the Republicans to overturn the Democrat's 40 year majority in the House of Representatives---and that was followed in 1997 by Clinton's self-inflicted Lewinsky scandal and the Republicans' attempt to impeach him.
The dearth of Democratic Presidents in the past half century of US politics and the rise of right-wing ideology has had a deep impact on Europeans. The view that ‘welfare' is inefficient and unaffordable or that the private sector is always superior to the public - such ideas have been largely imported from the US.
Inefficient health care
There are other reasons, too, why Obama's health bill must not be allowed to fail. The US spends 17% of its GDP on health, nearly twice the OECD average although its health record is nearly the worst amongst OECD countries. US spending on health in 2008 was about US$2.4 trillion, which makes the US healthcare industry nearly as large as the entire German economy (US$ 2.9tr) - and larger than the GDP of Britain, France or Italy. Moreover, over the past two decades US healthcare spending has been growing much faster than the OECD average.
If the US used its healthcare resources more efficiently and brought its spending down by half - ie, to 8%, roughly the average proportion of GDP spent in the major EU countries where universal health insurance is the rule - this would be equivalent to freeing more than one-half the entire output of France or the UK to be used for other things. For example, such savings could be used to combat global warming and/or to relieve world poverty. Now there's a thought!
Debt and the Great Recession
A recurrent theme in the discussion of the crisis these days is that the rich countries have been on a huge spending spree, particularly the Anglo-Saxon countries.
True, debt-fuelled consumption has led to huge global imbalances - with China and other net exporters lending money cheaply to the US by holding US Treasury notes. Today, money ‘flows uphill' from poorer to richer nations, a pattern which is unsustainable in the long term.
But not all consumer spending in the US consists of large cars or widescreen televisions. According to US official statistics, the share of total consumption spent on healthcare has doubled since 1975. By contrast, the share of manufactures in US consumption has fallen, from nearly half of total consumption in 1980 to about one-third today.
In other words, inefficient healthcare spending in the US explains a growing share of the debt-fuelled consumption bubble that in 2008 turned into the Great Recession.
Who will pay?
Obama's health care plan is important not merely because it will extend insurance to working class (and many middle class) US families. Perhaps the most important aspect of his plan is the ‘public option': the government-run health plan that will compete with the private sector insurers, known in the US as Health Maintenance Organisations (HMOs).
As EU experience demonstrates, because a large government-run programme has lower administrative costs per insured person than a myriad of small private schemes, the ‘public option' will be more affordable than most current HMO plans.
Next door in Canada, when the province of Saskatchewan introduced state-sponsored universal health insurance in 1962, it proved so popular that it was soon adopted by the rest of the country. This is clearly what is hoped for Obama's ‘public option', namely, that it will prove its worth quickly and that, as it spreads, the rising administrative costs of HMOs and the rising profits of the big pharmaceutical companies can be kept in check.
If the ‘public option' fails, either this year or in Obama's remaining years, it is not just the uninsured and underinsured - in general America's poor - who will pay. Healthcare in the US is so big today that its economics affect us all. Like climate change, health spending has become a global issue.
The writer is Research Professor at the University of London, SOAS and author of Super Rich: the growth of inequality in Britain and the United States, Cambridge: Polity Press, 2008.
Disclaimer
The views expressed in this opinion piece are the author's, not those of EUobserver.