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Socialized Medicine: California Dreaming of Europe by Sven R. Larson

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Socialized Medicine:
California Dreaming of Europe

If you ask Americans how their country differs from Europe, many of them will point to single-payer health care. Those with left-leaning political sympathies will praise the government-run system as a civilized way to provide medical services, while those on the right will refute the idea as costly and a government intrusion on their personal freedom.

There have been proposals in America for national single-payer systems ever since Franklin Roosevelt was president. All of them have failed, and it often comes down to the same point: funding. European health care systems are costly to taxpayers; in Sweden, e.g., everyone pays a flat health care income tax of about 14%. 

After decades of trying to get a single-payer system through Congress, advocates of socialized medicine have shifted focus to the states. In 2014, Governor Shumlin of Vermont tried to create a single-payer system in his state, but failed when he could not come up with a “palatable” tax plan to pay for it. 

Eight years later, California has just ventured into the same territory. A new legislative bill is proposing a tax-funded government monopoly on funding health care in the Golden State. The bill just got the green light from a state legislative committee and is now moving to the next step. Another committee is now going to try what Governor Shumlin failed to do in Vermont: come up with a way to pay for it. 

If California passes the new proposal into law, the state government would in practice ban private insurance providers in the state. There would be a small exception for medical services that the state government does not pay for, but since the ambition is to pay for all health care that people are deemed to need, the plan would effectively make California the first state to outlaw private health insurance. 

It is easy to find elaborate ideological arguments for single-payer systems, but one of the most seductive is the claim that government is better at distributing health care than a private system. That point is incorrect: when single-payer systems in Europe fail to deliver medical services as promised, low-income families are the first to lose. Wealthy residents buy their way around the waiting lists that others have to put up with, or fly abroad for health care. 

In recent years, American proponents of a government health monopoly have moved away from the ideological argument and taken a more practical approach instead. The pitch in California is now that a government system is cheaper and that this is manifested in part in the lower costs of health care in countries with a government monopoly. 

A good example is offered by Michael Lighty, director of public policy for the California Nurses Association. In a piece for a local business news site, Lighty claims that taxpayers already pay for 70% of medical services in California, so the state might as well fully socialize the funding. It would, he says, help reduce the cost of health care in the Golden State by some 17%. 

This sounds like a reasonable point: why keep a costly private system when it is already close to irrelevant?

The only problem with this argument is that it is false. It rests on unverifiable facts and widespread myths about single-payer health care. To start with the unverifiable data: there are no public sources that can corroborate Lighty’s claim about the tax-funding share of California’s health care. Based on partial information from an assortment of mostly second-tier data sources, the best estimate of taxpayer funding is closer to 50%. 

It matters what the numbers are, because the premise of Lighty’s argument, and similar arguments made by proponents of a European-style reform in America, is that private insurance comes with exorbitant administrative overhead. It does not. According to the National Health Expenditure database, published by the U.S. Department of Health and Human Services, the administrative cost is 13% nationwide for private health insurance. In the government-run health insurance program for children, CHIP, the state-side overhead runs at 11.5% of total spending. 

Medicare and Medicaid, two programs paid for by American taxpayers, have somewhat lower administration cost shares at 8-8.5%. These are lower shares than for private insurance, but there is an important reason for this. The government programs do not cover all the complex and costly medical procedures that private insurance plans do. There are a host of limitations to Medicare coverage (which is for retired citizens) leaving many retirees with extra costs despite being on a government-funded plan. 

Medicaid, a program for low-income families, is even more limited in its coverage. It does not offer nearly the same access to prescription drugs and supplementary health services that private plans do. 

It is perfectly logical that administration is less costly for a health plan that provides only basic benefits. With standardized and less complex medical treatment, the costs are also lower and there is less evaluation needed for a procedure to be approved. Some government-run systems in Europe also apply pre-approval routines along so-called Quality-Adjusted Life Year (QALY) guidelines. These guidelines restrict the ability of doctors to make individual decisions on treatment, thus keeping costs down.

With all this in mind, let us also not forget that single-payer systems also come with heavy administrative overhead. Government does not just dole out money on good faith: health providers still have to process claims for their services. Hospitals still need to buy, store, and distribute medical supplies; someone must keep track of how operating costs match budgets. Someone has to hire and schedule staff; there will always be a need to keep track of regulatory compliance, and so on.

In short, the argument that the good representative for the California Nursing Association made in favor of single-payer health care is wrong. If he were correct about the share of private insurance, his claims about cost savings from eliminating that share are wildly exaggerated. He is over-estimating the single-payer cost savings by about 400%.

Like so many other single-payer advocates, he also ignores the widespread rationing of medical services in, e.g., Canada and the Nordic countries. According to a recent report from the Organization of Economic Cooperation and Development (OECD), the waiting times for a medical specialist appointment is at least twice as long in Canada, Norway, and Sweden as it is in the United States, Netherlands, and Switzerland.

Photo: Organisation for Economic Cooperation and Development i-Library.

The first three countries belong in the single-payer category, while the three last ones rely predominantly on private health insurance. The report also cites a number of research papers showing that long waiting times result in increased health care inequality.

It is worth noting that waiting times for specialist appointments have increased in the United States since Congress passed the Affordable Care Act. This goes to show how increased government intervention in health care hinders people’s access to it.

The Fraser Institute, a think tank in Vancouver, B.C., reports that Canadians have to wait three to four weeks on average for an ultrasound, almost five weeks for a CT scan, and more than nine weeks for an MRI. 

According to OECD’s annual data on waiting times for elective surgery, in 2019 a patient in need of knee replacement had to wait 214 days in Portugal after seeing a specialist. The same waiting time was 191 days in Spain, 179 days in Norway, 131 days in Sweden and 100 days in Finland. 

The Nordic health care systems offered hysterectomy operations within 63-152 days. For prostatectomy, the waiting times were about a week longer.

Norwegians in need of coronary bypass surgery had to wait 98 days. A patient in need of the same procedure waited 50 days in Portugal and 38 days in Spain. For cataract surgery, the average Norwegian waiting time was 160 days, while their Nordic friends in Finland only had to wait 113 days. The Swedish cataract patient was called in for operation after an average of 75 days. 

These examples illustrate how a single-payer system is nothing more than a promise of health care. If and when you actually get health care is a different matter, yet its American proponents continue to ignore this problem in Europe, fantasizing that it will not come to America. 

Another myth from Europe is that single-payer systems do not charge patients any supplementary fees. A quick look at Eurostat’s health-financing data shows that this is false. Numbers from 2017 (to take a pre-pandemic year) reveal how in Sweden, households pay for 15% of the country’s health care out of their own pockets. The Irish system charges 12% in out-of-pocket fees, while in Denmark those fees contribute 14% to the cost of health care. Finnish patients are responsible for 20% out of pocket, which is still less than the 23.5% in Italy and 27.5% in Portugal. 

While these numbers do not surprise Europeans, they are news to most Americans. But there is more: out-of-pocket costs can become a big problem in economic recessions. Spain is a case in point: their economy took one of the worst hits in Europe in the austerity aftermath of the recession a decade ago. Due to excessive budget deficits, the Spanish government made big cuts in health care funding: from 2009 to 2014, tax funding for medical services fell by 10.5% in current prices. During the same period of time, ambulatory and specialized health providers lost approximately 5% of their funding, while preventative-care spending was cut almost in half. 

Meanwhile, patients in the Spanish health care system had to increase their out-of-pocket payments by almost €4 billion, or 5.6%. This happened in a recession when unemployment topped 25% for the whole workforce and 55% for the young.

Greece was hit even harder. From 2009 to 2017, their government reduced its health care funding by a whopping 35%. 

Limited resources do affect access to health care in Europe, but it is worth noting that it usually does not reduce the quality of the care patients receive once they get to see a doctor. The problem lies in getting through the door. 

As noted above, Europe is full of examples why California should not adopt a single-payer health care system; we can also look to Europe to observe the benefits that arise from strengthening private health insurance. In 2006, the Dutch government switched their health care funding model from one centered around government to a private model. From one year to the next, private insurance plans increased their funding share of the country’s health care system from one third to two thirds.

In 2019, according to the OECD health care database, private health plans paid for more than 82% of Dutch health care. 

The transformation has paid off. In 1999-2005, prior to the reform, total costs of the Dutch health care system increased by 7.4% per year. In the seven years immediately after the reform, the increase dropped to an average of 4.7% per year. 

While hospitals were slowing cost hikes, they also reversed a trend of declining staff. In the seven first post-reform years, they added new employees at a rate of almost 2% per year. They also improved the skills level of their staff, increasing the share of medical doctors among their staff from 18.7% to 21.2%. 

These may appear as slight statistical details, but they are important. If politicians in California want to emulate the European model, they should take a closer look at the treasure trove of experiences that Europe offers. It is always better to avoid repeating mistakes that others have made, especially if the repetition would involve one of the largest tax increases in American history while, in all likelihood, leading to a deterioration of health care access and quality.

Sven R. Larson is a political economist and author. He received a Ph.D. in Economics from Roskilde University, Denmark. Originally from Sweden, he lives in America where for the past 16 years he has worked in politics and public policy. He has written several books, including Democracy or Socialism: The Fateful Question for America in 2024.

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