Six months after it was signed into law, only 43 percent of all Americans say that they approve of national health reform. While “Obamacare” is not getting much love in the United States these days, the legislation has made Barack Obama more popular in Europe. In late March, French Premier Nicholas Sarkozy congratulated Obama with faintly concealed condescension:
“Welcome to the club of states who don’t turn their back on the sick and the poor…The very fact that there should have been such a violent debate simply on the fact that the poorest of Americans should not be left out in the streets without a cent to look after them … is something astonishing to us.”
Sarkozy’s statement captures a common sentiment among intellectuals on both sides of the Atlantic: Europe provide generous health benefits to its citizens, America does not. Statistics to support this assertion are not hard to come by. There are 50 million Americans without health insurance, and there are virtually none in Europe. Medical bills are a source of financial insecurity and account for perhaps more than half of all bankruptcies in the United States. In head to head rankings of health care systems, the United States often comes up last in access to care.
Yet the United States government directly spends as much on the health care of its citizens as most European countries, and subsidizes a massive system of employer benefits through the tax system. While much of this spending benefits relatively well-off households, those at the bottom receive substantial benefits too. In 2009, the federal government spent $262 billion on Medicaid, its program for poor elderly, disabled, and low-income families with children. This amount was more than food stamps ($56 billion), housing programs ($45 billion), and all other cash assistance programs ($157 billion) combined. This averages out to more than $5,000 per enrollee, ranging from around $2,000 for children to almost $15,000 for the disabled.
Irv Garfinkel, Lee Rainwater, and Tim Smeeding make the case in “Wealth and Welfare States” (OUP, 2010) that once transfers for health care are factored in, the United States emerges as a considerably more generous welfare state than the conventional narrative would suggest. This portion of the welfare state has remained largely invisible to scholars because health benefits, unlike cash assistance and pensions (and to a lesser extent food stamps) often do not appear in conventional accounting of the flow of benefits to households. For example, spending on health, education, and taxes are completely excluded in Gosta Esping-Andersen’s now classic typology of welfare states, leading him to conclude that the United States is a welfare policy laggard.
By bringing spending on health back into the picture, Garfinkel and colleagues have done a great service to the study of comparative welfare policy. The focus of their analysis is on nominal spending, which is a reasonable way to account for the how much governments spend on different kinds of households in different countries. But nominal spending can also be misleading, because health care is much more expensive in the United States – the $5,000 that it costs to treat a Medicaid patient in the United States might be able to purchase the same set of treatments for two patients in France. When we look across the bundle of benefits that low-income households receive, the plurality of it is in the form of health care in the United States.
Should we be troubled that Medicaid comprises such a large share of welfare payments? To start, we want to know how much getting Medicaid is worth to a household. Given the choice, some households would take some of the money that the government spends for their health care in the year and divert it to other areas of consumption. This is especially likely to be true for the healthier enrollees. Some of the Medicaid recipients in poor health, by contrast, may value their Medicaid more than what it cost the government to provide it to them, particularly if they are not insurable on the private market. Additionally, households may undervalue Medicaid since it tends to produce benefits that are longer term and meets needs that, for healthy households, are not immediately pressing.
Medicaid is redistributive along some dimensions that other programs, like food stamps, are not. It provides more resources for people that have greater health needs. Reasonable people might disagree about whether to spend more on meeting the health needs of low-income seniors and the disabled rather than, say, investing more money in preschool for poor children. In political reality, when Congress cuts Medicaid it is rarely for the purpose of helping out other disadvantaged groups, so there is little reason to believe that it is feasible to make these kinds of offsetting transfers. Finally, Medicaid may be cost-inefficient in the sense that it spends more than European public insurance to provide the same bundle of benefits to the poor, but health care may still be good value even at American prices.
Take spending on mental health care, an area where Medicaid is the leading payer. David Cutler and Mark McClellan estimate that in the 1990s every $1,000 dollars spent on depression care resulted in a $6,000 dollar improvement in quality of life per treatment year. (Improvements in mental health treatments have continued over the past decade, albeit at a cost, and so the Cutler and McClellan estimate needs to be updated). In other words, mental health treatment is an exceedingly good investment – it dramatically improves the functional abilities of people getting treated and improves employment outcomes. Of course, not all Medicaid spending is as good value as depression care. States try to limit spending on expensive, low-value procedures through tighter Medicaid managed care, but Medicaid has limited ability to influence the prices of health care. Like private insurance, Medicaid pays too much for expensive drugs and unnecessary diagnostic and imaging procedures.
National health reform in many ways represents a strategy to expand coverage within the framework of a dysfunctional delivery system. At a cost of $450 billion, nearly 16 million people that are currently uninsured will enter Medicaid in the next decade. The newly eligible population is mainly comprised of low-income adults, many of whom have not seen a doctor regularly and may be suffering from chronic health conditions. Getting health care to this population is a good investment. An even better investment would be working harder to streamline the delivery system in order to reduce the average cost per enrollee. This is a problem larger than Medicaid – it stems from structural problems in the pricing of American health care. If the United States health care system could be made to work like (gulp) the French health care system, it could cover everyone and put a little bit of money back into their pockets too. The principal American vice is not cruelty, but waste.