The Hindu Business Line : Not a model for India

India should certainly not consider the US its model as far as healthcare is concerned. The basic reason why satisfactory health insurance is so expensive is that the cost of prescription drugs and medical treatment has been skyrocketing in the US. But it is important to understand the problems in the US healthcare system in the interest of pursuing better policies in India, says ALOK RAY

It is difficult to believe that nearly 47 million people in the US, the richest country in the world, have no health insurance cover.

In addition, there are many millions who are underinsured. Their health insurances (provided either by their employers or purchased privately) have hefty deductibles (that is, they have to pay, say, the first $5000 of medical costs from their own poc kets) and co-pays (that is, they have to pay, say, $20 each time they visit a doctor or buy a prescribed medicine).

Further, they provide only partial cover (like, say, only 80 per cent of hospital bills) with many exclusions (like dental care or pre-existing diseases even when the patient was unaware of the diseases when he purchased the policy).

The end result is that these people try to avoid going to the doctors as long as possible. Apart from the prolonged human suffering, this prevents early detection and treatment of diseases which ultimately leads to much more expenditure on treatment later. It produces adverse effects on the community at large, specially when the diseases are communicable or infectious.

Major election issue

This problem is not new in the US. But, for the first time in the US Presidential elections, healthcare has become a major election issue because businesses have started suffering in a big way. In US policy-making, business interests usually carry more weight than that of the general public.

Employer-provided (rather than provided by the state or the individuals) medical cover is putting many US companies (like General Motors) in serious cost-disadvantage relative to competing foreign companies (like Toyota). Estimates indicate that the health insurance costs add around $1000 extra to the price of a GM car relative to the price of a Toyota.

In today’s world, many developing countries end up following the US model in many areas. Sometimes, the US model is pushed in other countries by international agencies and various vested interests. So, it is important to understand the problems in US heathcare system in the interest of pursuing better policies in India.

Inadequate cover

Unlike the system in Canada and in many European countries, the US does not have any state-provided national health care system. The insurance is provided either by the employers or has to be purchased by the individuals. The government provides some minimum healthcare facilities for the old (under Medicare) and the destitute (under Medicaid). That leaves millions of low-income families (who are not entitled to either Medicare or Medicaid) without adequate health cover. They cannot afford to buy hugely expensive private insurance. The insurance that their employer provides or they can afford to buy is riddled with many exceptions and co-payments.

The human tragedy involved can be illustrated by an instance reported in the US media. A married couple had a child born with a disease which would require life-long medical care that would cost millions of dollars.

The medical insurance that the self-employed family could afford would not cover these expenses. In desperation, the couple decided to file for a divorce. After the divorce, the child would be treated as the daughter of a destitute single-parent who would qualify for Medicaid. So, the family had to break up, for no other reason than to save their child from death.

The basic reason why satisfactory health insurance is so costly is that the cost of prescription drugs and medical treatment has been skyrocketing in the US.

Why is this so? Several factors are responsible for this. First, most of the new generation drugs are under the patent of multinational corporations.

The standard argument for high prices of new drugs is that it costs a lot to invent but is cheap to make. So, the innovating company needs to charge a high monopoly price to cover the huge Research and Development costs over the patent period which is 20 years under the current WTO patent regime.

But all experts are not convinced that the prices of drugs need to be that high. According to the US Food and Drug Administration (USFDA), only about 10 per cent of the drugs developed over the last 10 years are real breakthroughs, despite billions of dollars spent by drug companies.

In most cases, drug companies make only marginal improvements in existing drugs, get new patents on them, spend billions of dollars on advertisement in primetime TV to make them appear as big qualitative breakthroughs. It is this practice which keeps prices of many branded drugs so high.

Second, since it is the insurance companies that end up paying the cost of treatment, including diagnostic tests and prescription medicines rather than the insured patient (except for a co-payment), doctors prescribe hugely expensive diagnostic tests and costly branded drugs even when cheaper substitutes are available. The insurance companies, in turn, pass on the costs by hiking the premium. The doctors get a lot of incentives from private companies to push those drugs and tests.

Legal malpractice cases

Third, the fear of legal malpractice cases. It encourages doctors to prescribe expensive state-of-the art diagnostic tests even when they are fairly certain that they will not reveal anything abnormal.

All these keep the cost of treatment high and unaffordable for those who cannot buy adequate medical insurance.

Though poor families have been suffering all along, powerful lobbies working on behalf of the American Medical Association (AMA), the drug companies and the private insurance companies have succeeded in ensuring that US does not follow Canada or the UK in providing universal state-provided health care.

They use the argument that in Canada and the UK, patients have to wait in line for months for major surgeries. In addition, the quality of healthcare provided in US, they argue, is superior to those available in other countries.

Access to better facilities

Even if these points are valid, that only implies that people should be given the choice between state-provided medical care (presumably lower quality with longer waiting time) and more expensive privately-provided (presumably better quality with shorter waiting time) medical care.

Even some patients from Canada and the UK, to jump the queue, prefer to go to private clinics in the US (which is more expensive) or to India (which is less expensive).

Another alternative could be state-provided universal health insurance at highly subsidised prices to poor families, along with private provision of health care. Either of these alternatives would enable poor families to access some minimum health care facilities.

The problem is that these would require higher tax rates (as in Canada or Europe) to finance the cost which the large majority of US tax payers are not willing to bear just for the benefit of their poorer brethren.

In the absence of state-provided health cover financed by higher taxes, the US continues to be one of the richest countries in the world with millions of insecure unhappy people living under the mortal fear of suffering from untreated diseases while most of the major technological advances in medical care are being made in the US.

Some Americans living close to the borders travel to Canada to buy medicines at lower prices (they can not get treatment in Canada which is provided only to Canadians under the state health system) or to Mexico to see doctors and buy prescription drugs at lower costs.

India certainly should not take US as its goal, as far as healthcare is concerned. Most civilised nations have other and certainly better universal healthcare models.

(The author, a former Professor at IIM Calcutta, is currently a Visiting Professor of Economics at the Graduate School of Public and International Affairs, University of Pittsburgh, USA. His e-mail: alokray15@yahoo.com)