Sicko-nomics 101

Tim Worstall looks at some of the numerical manipulations underlying the claim that healthcare in the US is worse than in places like Cuba.

For example: Medicare is more efficient than privately-funded health care? Well, Medicare has an overhead of 1%, and the overhead for private health care is between 10% and 30%. But...

"Overhead" includes not just profit and administrative costs, it includes the cost of collecting the money to feed the system itself. It's a commonplace of public finance that the deadweight costs of taxation finance are 20% of the sum raised through that taxation. That deadweight hasn't been included in our Medicare costs, meaning that the truly comparable overheads are in fact 21%: slap bang in the middle of our private sector range. Let us take this as our first example of your results being dependent upon what you're measuring.

Then there's the question of how you measure the quality of a health care system.

There's a story of a land where the law required doctors to fly a red flag outside their offices for every patient who had died in their care. One man was shopping for a doctor, and he saw offices with lots of flags outside them. Then he spotted one with only three flags, and went in.

The doctor looked up and exclaimed, "I never expected so many customers my first week in business!"

The point is, you need to make sure what you think you're measuring is what you're actually measuring.

We've got a system of rankings of health care systems. France and Canada are in the top 10, the USA, despite spending more, at number 37. But let's look at how those rankings are composed:

To make the definition of the composite easier to understand, these survey results have been rounded to the nearest one-eighth so that the final weights to be used are 0.25 for health, 0.25 for health inequality, 0.125 for level of responsiveness, 0.125 for distribution of responsiveness and 0.25 for fairness of financial contribution.

Do you see that? Only 25% of the weighting is about the actual health care received. A similar amount is awarded for the equality of care received. So, imagine, say, the Canadian system, everybody waits the same amount of time for a hip replacement, in the American one some get it very quickly, others get it after a long wait: it doesn't matter that everyone in the US waits a shorter period of time than anyone in Canada: the Canadian system would be scored as better here. I'm not saying that those waiting times are actually true, I'm simply pointing to the effects of the weighting: inequality in treatment times is as important here as the actual treatment itself.

Indeed, dependent upon how these numbers are manipulated, it could be that a system where no one has hip replacements would be better rated than one where some do immediately and some wait six months.

The point that Professor Whitman makes is also there: the fairness of financing.

More importantly, the distribution of household contributions will obviously decline when the government shoulders more of the health spending burden. In the extreme, if the government pays for all healthcare, every household will spend the same percentage of their income - zero - on healthcare. In other words, this measure of health outcomes necessarily makes countries that rely on private payment look inferior.

The moral of the story: When you reduce a complicated system to one "figure of merit", it's always a good idea to check some known examples for reasonableness.

Just to hammer the point home. On this system of measurement, the actual level of treatment in the US could fall, but the amount tax financed rise: and the US would be declared to have improved its system. Yes, really, a decrease in the absolute level of treatment could mean a rise up the rankings.

Which rather means that the ranking system isn't of all that much use to us here.