The NHS, Obamacare and the priorities of a US President

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I just came back from the UK and as you know if you read my blog regularly, I was at the London Olympics but more importantly I was in the UK to soak up the Olympic spirit and the great atmosphere that settled on London.  Now I saw Danny Boyle's Olympic Opening Ceremony like many people on the planet and was, I confess, a little surprised that Boyle emphasized the NHS as one of the "firsts" that the UK should celebrate as a nation. Now most of my US friends don't know what the NHS, but the National Health Service as it is known in the UK is the state funded healthcare system that has been in force since it was introduced in 1948 in post-WWII UK under the most left-leaning UK government under Clement Atlee, as one of the consequences of a reconstruction of the UK after the terrible hardships suffered by the country during the war (see here for more).  Health Minister Aneurin Bevan introduced the NHS with the following principles - i) it meets the needs of everyone; ii) that it be free at the point of delivery and iii) that it be based on clinical need, and not the ability to pay.

Now as you can see on the left, the NHS isn't necessarily seen as the most wonderful institution by all concerned in the UK ( - here David Cameron (UK PM) and Boris Johnson (Mayor of London) - are seen grimacing) in the way Boyle was determined to celebrate the NHS as a real achievement using real NHS nurses and doctors.

But one thing I think that people not from the UK need to recognize is that even the right wing party in the UK, the Conservative party, is not about to scrap the NHS because it is a beloved part of the UK landscape and although most people complain about various facets of the system, in the UK the horror stories about the US healthcare system are such that most Brits have no wish to embrace a private healthcare system like the US's system.

Now to Obamacare. Paul Krugman recently noted on his blog (here) that references a CEPR blog article (here) that comments on an article that criticises President Obama for focusing so much on healthcare in his first term in office when in the opinion of the author he could have been focusing more on the economy.  But in my way of thinking reform of the US healthcare system will probably be one of the major accomplishments of the Obama Presidency.

My basis for making this statement is partly because healthcare costs are an extremely large part of the government budget and because also they are much higher as a percentage of GDP than for any other country in the world. Whether you like Michael Moore or not, one of his major contributions must be his film "Sicko", which points out how expensive and inefficient the US healthcare system is, considering the economic resources that are absorbed by the healthcare sector.

But also I can make this statement from a personal point of view as I have been a recipient of healthcare under the US, Canadian, UK, and Finnish healthcare systems - how many people do you know who can say that? Now admittedly I haven't been on the operating table in any of these systems, so I haven't gone through the whole GP, to specialist to operation procedure, but I have received treatment by doctors in all 4 countries, and received some basic tests (blood work or some other basic testing). These are my observations about the US compared to the other systems:
 - a doctor's visit in the US involves much more basic "triage" than elsewhere - which might yield some useful observations, but is likely to be superfluous in most cases.
 - US doctors have an incentive to give many more tests than in other countries as they can charge for these tests - but they are permitted to give these tests according to the HMOs and PPOs, so naturally, they do!
 - US doctors will not contact patients on the phone - but they do elsewhere.
 - the HMOs and PPOs really determine the charges and expense of the system - thereby setting the minimum prices for the system.

Critics of both the Canadian healthcare system and the NHS say that they are "socialist".  Certainly in the UK that cannot be further from the truth. The structure of the system has been to create decentralized NHS "trusts" which are given a budget and then tasked with delivering care as efficiently and effectively as possible. In both the UK and Finland there are private options if you want to pay, but everyone pays for the NHS through their taxes, so that leads to a minimum level of care. And when you go to the doctors in Canada, the UK and Finland, the doctor personally invites you into his or her office without all the "triage" tests, and basically gets straight down to business. This "personal touch", in my experience, sets these systems apart from the US system, in which lawsuits and rent extraction are the main foci.

So, what do I think of Obamacare?  I think it really comes up short compared to the "single payer" systems that I think work more efficiently than the US healthcare system, but it is certainly better than what the US has right now. Will the US ever get rid of the middlemen ( - the HMOs and PPOs)?  The answer is likely no - they have way too much power now and are completely entrenched in the system.

So did President Obama waste his time focusing on reforming the US healthcare system?  No, I don't believe he did - it was an important task to complete, and now ranks as one of his biggest achievements over the past 4 years. 

5 years on...and no gold medal for the UK economy!

Today marks the 5 year anniversary of the beginning of the financial crisis that gave rise to what most economists have labelled the "great recession".  It marks the date 5 years ago when France's Banque National Paribas first reported having trouble with its hedge fund because it had invested heavily in US subprime mortgages.  Economists at that time lined up to say that everything was alright, that the economy would be fine and even the Federal Reserve and Bank of England seemed unconcerned at what appeared to be a minor problem with a French banking subsidiary.  But what it presaged was not pretty, as we now know, and led to deep recessions on both sides of the Atlantic, and particularly in the US.

As today is my last day in the UK for a while, I thought it might also be a good time to reflect on what has happened to the economies on both sides of the Atlantic in the last 5 years, and what might happen from this point onwards. In one sense the US might have been expected to have had by far the worse economic situation given the fact that it was its mortgages that had caused the crisis. Indeed the US economy was in a bad way, but government spending was ramped up in the first Obama administration to offset the collapse in consumption expenditure and investment as it was by the Brown regime.  The first interesting point from the diagram below which shows real GDP for both the US and the UK is that in fact the UK had a deeper recession than the US.  This was because the UK was affected by the US downturn and the consequent downturn, but also had it's own housing bubble and banking crises to deal with as well.

Data source: Real GDP volume, chain index from UK ONS and US BEA
Graphic by blog author

After the UK general election in 2010, and the new liberal-conservative coalition government took up office, the new Chancellor (equivalent to a finance minister), Charles Osborne, declared that it was more important to balance the budget and embark upon cuts to budgets to instill confidence than continue the high level of government spending that the previous labour administration had been undertaking. This was supposed to lead to a revival in growth, but unforunately the Chancellor appears to have got things badly wrong.  The graphic on the left shows the level of real GDP using 2007 Q4 as the beginning of the recession in both the UK and the US ( - in fact the US recession might have started a quarter after this date). It is easy to see that: i) the UK doesn't appear to have done quite as much stimulus in 2009; then ii) in the first half of 2010 the UK appears to be closing the gap and then iii) once there is talk of the policy U-turn things abruptly change in the second half of 2010.  But it's the period from the middle of 2011 when the difference is most stark.  Clearly the US is continuing on a "recovery trajectory", ending up with higher levels of output than at the peak of the previous boom, whereas the UK now slides into a "double dip" recession with output now still nearly 6% below where it was at the end of 2007.

To my way of thinking this suggests that the US has been doing something right on the economic policy front, and as suggested recently in the UK by the Prime Minister David Cameron, UK economic policy needs to be changed.  The danger is that the current UK coalition will go in for a tweak rather than a radical re-think. Figures published today in the UK relating to the trade balance make things look even worse - exports of goods are down 8.4% year on year and even though imports are down slightly too, the trade balance is now the worst on record. So in other words, the UK can't grow from exports, and it's banks are still not lending, so investment is sluggish.  The only thing left is government spending.  Let's hope George Osborne is brave enough to do a U-turn or at least a radical re-think!