Tuesday, November 26, 2019

Tim Taylor: Workplace Wellness Policies: Disappointing Evidence [feedly]

Another great example of the difference between appearance and reality revealed by (data) science. When analysis shows a widely supported, common sense,  good idea is maybe  not so good, it stimulates the search for deeper causes and solutions.

Workplace Wellness Policies: Disappointing Evidence

The idea behind workplace wellness policies is straightforward. Many workers could use a nudge toward adopting healthier lives, including diet and exercise. Employer are paying for health insurance anyway, and also experiencing costs of lower productivity and sick days for their employees. If a workplace wellness program can improve health, it could be a win for both workers and employers. However, a couple of recent studies from this year suggest that such programs don't pay off.

One study was published by Damon Jones, David Molitor, and Julian Reif, "What Do Workplace Wellness Programs Do? Evidence from the Illinois Workplace Wellness Study," in the Quarterly Journal of Economics (November 2019, 134:4, pp. 1747-1791). As background, they write (citations omitted):
The 2010 Affordable Care Act (ACA) encourages firms to adopt wellness programs by letting them offer participation incentives up to 30% of the total cost of health insurance coverage, and 18 states currently include some form of wellness incentives as a part of their Medicaid program. Workplace wellness industry revenue has more than tripled in size to $8 billion since 2010, and wellness programs now cover over 50 million U.S. workers.
This study was carried out among employees at the University of Illinois at Urbana-Champaign campus. Here's a capsule description of the process:
We developed a comprehensive workplace wellness program, iThrive, which ran for two years and included three main components: an annual on-site biometric health screening, an annual online health risk assessment (HRA), and weekly wellness activities. We invited 12,459 benefits-eligible university employees to participate in our study and successfully recruited 4,834 participants, 3,300 of whom were assigned to the treatment group and were invited to take paid time off to participate in the wellness program.3 The remaining 1,534 subjects were assigned to a control group, which was not permitted to participate. Those in the treatment group who successfully completed the entire two-year program earned rewards ranging from $50 to $650, with the amounts randomly assigned and communicated at the start of each program year.
The researchers had access to lots of background information as well, because they could look at past employment records and health care spending for those who wanted to participate They write:
From our analysis, we find evidence of significant advantageous selection into our program based on medical spending and health behaviors. At baseline, average annual medical spending among participants was $1,384 less than among nonparticipants. This estimate is statistically (p = .027) and economically significant: all else equal, it implies that increasing the share of participating (low-spending) workers employed at the university by 4.3 percentage points or more would offset the entire costs of our intervention. Participants were also more likely to have visited campus recreational facilities and to have participated in running events prior to our study. We find evidence of adverse selection when examining productivity: at baseline, participants were more likely to have taken sick leave and were less likely to have worked more than 50 hours a week than were nonparticipants.
The results? Disappointing.
Despite strong program participation, we do not find significant effects of our intervention on 40 out of the 42 outcomes we examine in the first year following random assignment. These 40 outcomes include all our measures of medical spending, productivity, health behaviors, and self-reported health. We fail to find significant treatment effects on average medical spending, on different quantiles of the spending distribution, or on any major subcategory of medical utilization (pharmaceutical drugs, office, or hospital). We find no effects on productivity, whether measured using administrative variables (sick leave, salary, promotion), survey variables (hours worked, job satisfaction, job search), or an index that combines all available measures. We also do not find effects on visits to campus gym facilities or on participation in a popular annual community running event, two health behaviors a motivated employee might change within one year. These null effects persist when we estimate longer-run effects of the two-year intervention using outcomes measured up to 30 months after the initial randomization. ...

Our intervention had two positive treatment effects in the first year, based on responses to follow-up surveys. First, employees in the treatment group were more likely than those in the control group to report ever receiving a health screening. This result indicates that the health screening component of our program did not merely crowd out health screenings that would have otherwise occurred without our intervention. Second, treatment group employees were more likely to report that management prioritizes worker health and safety, although this effect disappears after the first year.
As another example, Zirui Song and Katherine Baicker published "Effect of a Workplace Wellness Program on Employee Health and Economic Outcomes; A Randomized Clinical Trial" in the Journal of the American Medical Association (April 16, 2019, 321:15, pp. 1491-1501). The study involved "32, 974 employees at a large US warehouse retail company." Over 160 separate locations for this company, 20 were randomly selected to receive a workplace wellness program. "The program comprised 8 modules focused on nutrition, physical activity, stress reduction, and related topics implemented by registered dietitians at the treatment worksites. ... Self-reported health and behaviors via surveys (29 outcomes) and clinical measures of health via screenings (10 outcomes) were compared among 20 intervention and 20 primary control sites; health care spending and utilization (38 outcomes) and employment outcomes (3 outcomes) from administrative data were compared among 20 intervention and 140 control sites."

The results? Again, disappointing.
After 18 months, the rates for 2 self-reported outcomes were higher in the intervention group than in the control group: for engaging in regular exercise (69.8% vs 61.9% ...) and for actively managing weight (69.2% vs 54.7% ...). The program had no significant effects on other prespecified outcomes: 27 self-reported health outcomes and behaviors (including self-reported health, sleep quality, and food choices), 10 clinical markers of health (including cholesterol, blood pressure, and body mass index), 38 medical and pharmaceutical spending and utilization measures, and 3 employment outcomes (absenteeism, job tenure, and job performance). ... [T]here were no significant differences in clinical measures of health, health care spending and utilization, and employment outcomes after 18 months. Although limited by incomplete data on some outcomes, these findings may temper expectations about the financial return on investment that wellness programs can deliver in the short term.

A couple of takeaways here. First, both of these studies were done with randomized methods (albeit the randomization was of a different kind across the two studies). No social science methodology is flawless, but this is a highly respected approach; indeed, applying randomized experimental methods to issues in development economics won the most recent Nobel prize in economics. In other words, these similarly disappointing results from two different datasets deserve some weight in your thinking on this subject.

Second, the results are perhaps not surprising upon due consideration. People's habits about exercise and diet are deeply rooted. Many people say that they would like to change their patterns, or would like to have changed their patterns in the past. But it's hard to do so. Workplace wellness policies, at least as they exist at many locations, apparently don't offer enough of a shock to change people's behavior

 -- via my feedly newsfeed

How the OAS, and the Media’s Lack of Scrutiny, Caused a Violent Coup in Bolivia [feedly]

How the OAS, and the Media's Lack of Scrutiny, Caused a Violent Coup in Bolivia

As often happens when an elite-driven coup leads to US-endorsed regime change, there are powerful attempts to disguise its real character. A recurrent method is to blame the coup on its victim. Of this, the November 10, 2019 coup in Bolivia is a textbook example. The narrative went as follows. Bolivian president Evo Morales, eager to perpetuate himself in power, orchestrated a fraudulent election. His people saw this as deceitful and authoritarian. A popular uprising ensued, eventually leading to Morales's resignation and exile.

How such a storyline could have prospered, despite the absence of any solid evidence regarding election rigging, raises questions about the media and its role. It also sounds the alarm as to the part played by the institution that generated this narrative in the first place: The Organization of American States (OAS).

On October 21, the day after Bolivia's presidential elections, the OAS Mission of Electoral Observers in Bolivia issued a press release expressing "its deep concern and surprise at the drastic and hard-to-explain change in the trend of the preliminary results revealed after the closing of the polls". Two days later, the mission's preliminary report reiterated this claim and expressed its concern that the quick count "had been interrupted." The OAS report called for a second round of voting, in contrast to the official results that put Morales on 47.07 percent and afforded him the 10 point lead he needed over his closest contender Carlos Mesa, on 36.51 percent, to avoid a runoff.

The OAS recommendation was startling. The electoral results were in line with what many polls had predicted. And they coincided with the parliamentary elections, held on the same day, in which the Movement Toward Socialism (MAS), Morales's political party, had secured a majority in both houses of the assembly.

The OAS's attack on the validity of the results relied almost exclusively on its focus on the "interruption" on election night of the quick count: the nonofficial count carried out by a private firm to give the media and the general public some preliminary information on the electoral results.

Incidentally, Bolivia's electoral authorities had previously announced that the quick count would only include 80 percent of tally sheets. Given that it was halted at 83.85 percent, there were in fact no legal grounds on which to question this decision. But more importantly, the binding, official count was never stopped. Yet, all around the world, newsrooms claimed, falsely, that the "vote count" had been interrupted.

As for the OAS's argument on the "change of trend," this too was a serious mistake. A paper I have coauthored on the Bolivian elections clearly demonstrates that "the overall trends in the results (…) are easily explainable and consistent with the fact that later-reporting rural areas heavily favor the MAS." There was, contrary to the OAS's assertion, no "change of trend," merely a steady, continuous increase in Morales's lead throughout the vote-counting process; an easily projectable result for any statistician, which relied on the simple fact that later-reporting areas were more pro-Morales than earlier-reporting ones.

If the OAS's argument seemed absurd, it nevertheless served the interests of a broad anti-Morales offensive. On October 24, the US ambassador to the OAS led the charge: "Before the TREP [quick count] was suspended the results indicated the need for a second round of elections. After the TREP was reactivated, almost 24 hours later, lo and behold no second round is needed and Evo Morales is firmly ahead in the vote count!" he exclaimed. And thus, with the active support of the US, the flawed narrative was given more impetus.

Despite the weakness of the OAS's position, these suspicions of electoral wrongdoing had a decisive effect on the escalation and radicalization of the protests against Morales in Bolivia. Seeking to appease, Morales called for an international audit of the elections. So the OAS returned to Bolivia with a new team of experts and, on November 10, issued a preliminary audit report.

The audit was a foregone conclusion. Much of it focused again on the quick count and repeated some of the statistical blunders of the mission's preliminary report. A second part shifted the line of fire to new terrain. The audit spoke of "irregularities," even if it remained vague as to their exact nature and provided no evidence, or the tally sheets with problems.

The audit report essentially became a long list of denunciations, its sole purpose being to justify the mission's earlier report with as many irregularities as possible, regardless of scale and impact. The fraud narrative had become so prevalent that it was too late for the OAS to contradict its earlier conclusions. This, in turn, would have drawn some scrutiny on its practices and possibly awoken ghosts from the past ― the OAS's problematic role in the 2011 Haitian elections comes to mind.

US pressures were also on. Washington had waited for the right moment to settle its accounts with Morales for his expulsion of the US ambassador in 2008, among many other grievances during 13 years of frosty relations. And OAS Secretary General Luis Almagro, who has not always enjoyed unwavering support from the State Department, desperately needs US backing for his 2020 reelection bid. From his point of view, there was no turning back on the OAS's position.

How a global narrative of fraud should have emerged from the OAS's bizarre attack on a quick vote count that is not legally binding and on late-reporting votes naturally favoring a candidate over another, is quite incredible. Yet that is exactly what happened. In this world of post-truth politics, a false media narrative based on the OAS's flawed statistics was instrumental in overthrowing a democratically elected government. Now Bolivia faces the consequences.

Guillaume Long is a senior policy analyst at the Center for Economic and Policy Research (www.cepr.net) and previously held several cabinet positions in the government of Ecuador, including Minister of Foreign Affairs, Minister of Culture, and Minister of Knowledge and Human Talent.

 -- via my feedly newsfeed

Saturday, November 23, 2019

Dan Little: Organizations as open systems [feedly]

Wonky, but an interesting injection of philosophical materialism into how organization arises and is shaped by dynamic environment forces and institutions 

Organizations as open systems

 -- via my feedly newsfeed

The Return of the Patent Thicket [feedly]

...with all our other probs, we are in a patent thicket too.....

The Return of the Patent Thicket

Back in the early 1970s, Xerox had figured out a strategy to block competitors in the photocopying business. It took out lots of patents, more than 1,000 of them, on every aspect of the photocopy machine. As old patents expired, new ones kicked in at a rate of several hundred new patents each year. Some of the patents were actually used by Xerox in producing the photocopy machine; some were not. There was no serious complaint about the validity of any individual patent. But taken as a whole, Xerox seemed to be using the patent system to lock up its monopoly position in perpetuity.  Under antitrust pressure from the Federal Trade Commission, Xerox in 1975 signed a consent decree which, along with a number of other steps, required  licensing its 1,700 photocopier patents to other firms.  (Here's a later retrospective on the case, including some of the other issues, the 1975 FTC consent decree, and what happened with follow-up litigation.)

The long-ago Xerox strategy for blocking competition has become known as the "patent thicket." Any patent blocks competition for a time, of course; the whole idea of a patent it to reward inventors with a temporary monopoly. But patent thicket arises when one or a few companies have a large cluster of closely related patents, which are continually expiring and being replaced in overlapping ways. Big companies cut deals with each other, so that they have access to each other's patents. Small But smaller entrepreneurs are shut out.

Ufuk Akcigit and Sina T. Ates offer some exploratory evidence that a modern version of the patent thicket may be at the root of some interlocking problems of the US economy in "What Happened to U.S. Business Dynamism?" (University of Chicago Becker Friedman Institute, working paper 2019-56, April 2019).

As a starting point, they show that the share of patents going to the top 1% of firm ranked by how many patents they already have is rising: "While in the early 1980s about 35 percent of patents were registered by the top 1 percent of firms sitting on the largest patent stocks, this ratio reached almost 50 percent in three decades.In addition, the share of patents registered by new entrants (firms that patent for the first time) exhibits the opposite trend: Notwithstanding the small pickup in the early 1980s, there has been a dramatic secular decline in the entrants' share since then, with the ratio falling more than 50 percent in 25 years..." 
Next, look at who is buying and selling patents. They find "that while 30 percent of the transacted patents were reassigned to the firms with the largest patent stocks in the 1980s, the share went up to 55 percent by 2010. This drastic increase has crowded out small players in the market ... In the past two decades, the fraction of transacted patents that are reassigned to small firms has dropped dramatically from 75 percent to almost 50 percent, implying a shift of ownership from the hands of small firms to large ones." (For a discussion of how batches of patents are bought and sold, see Andrei Hagiu and David B. Yoffie. 2013. "The New Patent Intermediaries: Platforms, Defensive Aggregators, and Super-Aggregators." Journal of Economic Perspectives, 27 (1): 45-66.)
Is there some additional evidence to suggest that this greater concentration of patents among firms that already have the greatest share of patents is being used strategically to block competition, in true "patent thicket" style? They write:
In this part, we investigate whether firms produce strategic patents, which help the firm build thickets around its core business to ensure that technologies are not easily copied and challenged by others. ... If a firm's aim is mostly protecting its core technology, the new internal patent will cite many patents from the firm's existing portfolio. In contrast, if a firm's aim is expanding into new fields, more citations will be made in that case to patents that are not in the firm's portfolio. In this regard, the fraction of self-citations is informative about how internal a patent is and how likely it is that a patent serves to build a thicket. ... The striking observation is that while until 2000 patents were becoming more explorative in nature based on our earlier interpretation, this trend reverses completely around 2000, and patents become more exploitative and internal since then.

The main focus of the Akcigit and Ates paper is to present an economic model suggesting that many of the problems of the US economy can be explained by a fall in the diffusion of knowledge across firms--which is what one would expect if firms that already have the largest share of patents are steadily increasing their share. They write:
With knowledge diffusion slowing down, the direct effect is that market leaders are protected from being imitated. As a result, the technology gaps start widening, presenting market leaders a stronger market power. Market concentration and markups rise on average. Profit share of GDP increases, and labor share decreases. Larger gaps also discourage the followers, causing the productivity gap between them and the leaders to open up. The strengthening of leaders also discourages forward-looking entrants; hence, firm entry and the employment share of young firms go down. Discouraged followers and entrants exert smaller competitive pressure on market leaders; as a result, market leaders relax, and they experiment less. Hence, overall dynamism and experimentation decrease in the economy. To sum up, our quantitative investigation in this section underscores the importance of potential distortions in knowledge diffusion in explaining the declining U.S. business dynamism.
Of course, the fact that you can build a model which produces these results doesn't prove the model is the best or only explanation. And while the patent evidence is suggestive, it doesn't prove that a resurgence of patent thickets are the best or only explanation of a reduction in the diffusion of knowledge across the economy, either. But

I've written from time to time about other pieces of evidence along these lines, like this study from the OECD which argues that the gap between market leaders and other firms is rising around the world; or this study from the US Bureau of Labor Statistics about how the productivity gap between firms is rising in US industries; or this description of how US antitrust authorities used to much more commonly order compulsory licensing of patents to improve competition; or this essay about how the greater separation between market-leading firms and the rest across many industries is driving inequality of wages. Thinking about how to facilitate a faster and broader dispersion of knowledge and productivity gains seems like a potentially important part of explaining the current economic picture and suggesting a policy agenda  

 -- via my feedly newsfeed

Friday, November 22, 2019

Trump and His Corrupt Old Party [feedly]

Trump and His Corrupt Old Party

(text only if blocked by paywall)

Formally, the House of Representatives is holding an inquiry into the question of whether Donald J. Trump should be impeached. In reality, we've known the answer to that question for a long time. In a different era, when both parties believed in the Constitution, Trump's abuse of his position for personal gain would have led to his removal from office long ago.

No, what we're actually witnessing is a test of the depths to which the Republican Party will sink. How much corruption, how much collusion with foreign powers and betrayal of the national interest will that party's elected representatives stand for?

And the result of that test seems increasingly clear: There is no bottom. The inquiry hasn't found a smoking gun; it has found what amounts to a smoking battery of artillery. Yet almost no partisan Republicans have turned on Trump and his high-crimes-and-misdemeanors collaborators. Why not?

The answer gets to the heart of what's wrong with modern American politics: The G.O.P. is now a thoroughly corrupt party. Trump is a symptom, not the disease, and our democracy will remain under dire threat even if and when he's gone.

The usual explanation you hear for G.O.P. acquiescence in Trumpian malfeasance is that elected Republicans fear being defeated in a primary if they show any hint of wavering. And that's certainly an important part of the story.

Republicans haven't forgotten what happened in 2014, when David Brat, a Tea Party insurgent, ousted Eric Cantor, at the time the House majority leader. Cantor was a hard-line conservative, but mild-mannered in affect, and perceived as soft on immigration. The lesson was that the G.O.P. base demands red meat, and these days that means supporting Trump no matter what.

But electoral fears aren't the only thing keeping Republicans in line.

On one side, I don't think most observers realize, even now, the extent to which many Republicans view their domestic opponents not as fellow citizens but as enemies with no legitimate right to govern.

William Barr, the attorney general, says that progressives are "militant secularists" out to "destroy the traditional moral order." If that's how you see the world, you'll support anything — up to and including soliciting and/or extorting intervention by foreign powers in U.S. elections — that helps defeat those progressives.

On the other side, it's notable that with few exceptions even Republicans who are leaving or have left office still refuse to criticize Trump. There has been a wave of Republicans announcing retirements from the House, and there's little question that some of these politicians are leaving because they're disgusted with serving this administration. Yet almost none have said so explicitly, even though they won't be facing any more primaries. What keeps them in line?

The answer is, follow the money.

What, after all, do retired officials do for a living? Many become lobbyists, and in an era of extreme polarization that means lobbying their own party. Being honest about why you quit would be bad for future business.

Beyond that, the modern U.S. right contains many institutions — Fox News and other media, right-wing think tanks, and others — that offer sinecures to former officials. However, this "wing-nut welfare" — which has no counterpart on the left — is available only to those who continue to toe the line.

Earlier I mentioned David Brat, who ousted Eric Cantor. As it happens, Brat himself was defeated in last year's Democratic landslide. So what's he doing now? He's dean of the business school at Jerry Falwell Jr.'s Liberty University.

So financial incentives keep even retiring Republicans in line. And the exceptions prove the rule.

As far as I can tell, Gordon Sondland, who is ambassador to the European Union — but surely not for long — was the first political appointee, as opposed to professional civil servant, to attest to the Trump administration's abuse of power in Ukraine. A key point about Sondland, however, is that he's a rich man who doesn't need wing-nut welfare.

He'll live comfortably in retirement as long as he doesn't go to jail. So his incentives were very different from those facing most G.O.P. figures.

So are all Republicans corruptly subservient to Trump? No, there are some honorable Never Trumpers, including many of the foreign-policy neocons like William Kristol. Some of us will never forgive this group for misleading us into war, but it turns out that they really do have principles, and deserve recognition for their current political courage.

But the modern G.O.P. as a whole is overwhelmingly fanatical, corrupt, or both. Anyone imagining that the mountainous evidence of Trump's malfeasance will lead to a moral awakening, or that Republicans will return to democratic political norms once Trump is gone, is living in a fantasy world. Even catastrophic electoral defeat next year probably wouldn't do much to change Republican behavior.

The big question is whether America as we know it can long endure when one of its two major parties has effectively rejected the principles on which our nation was built.
 -- via my feedly newsfeed

China's Xi Stresses Need for ‘Mutual Respect and Equality’ in Trade Deal [feedly]

It is embarrassing that "Mutual Respect and Equality" are words that will never be heard from the current US President. He abhors both.

China's Xi Stresses Need for 'Mutual Respect and Equality' in Trade Deal

Chinese President Xi Jinping said his nation wants to work toward a phase one trade agreement with the U.S. on the "basis of mutual respect and equality," his first comments on a partial deal that he could potentially sign with President Donald Trump.

"We didn't initiate this trade war and this isn't something we want," Xi reiterated in a Friday meeting with prominent international visitors to Beijing including former U.S. Secretary of State Henry Kissinger. "When necessary, we will fight back, but we have been working actively to try not to have a trade war."

Just a few days ago, U.S. President Donald Trump said China wasn't "stepping up to the level that I want" in the negotiations amid doubts about whether the two sides can hammer out a written agreement. On Wednesday, China's chief trade negotiator, Liu He, indicated he was "cautiously optimistic" about reaching the first phase of a deal.

Liu made the comments in a speech in Beijing on Wednesday ahead of the Bloomberg New Economy Forum, which is being organized by Bloomberg Media Group, a division of Bloomberg LP, the parent company of Bloomberg News. Some of the foreigners who met with Xi on Friday were also in Beijing to attend the forum.

The Chinese leader spoke to more than a dozen people including former U.S. government officials such as Hank Paulson and Gary Cohn. Bloomberg LP Chairman Peter Grauer also attended the meeting.

Since Trump announced the phase one deal a month ago, markets have been whipsawed by comments from both sides, first indicating progress, and then the opposite.

The latest potential hurdle came after Liu made his dinner-time comments, when the U.S. House voted 417-1 for legislation supporting Hong Kong protesters that has already been unanimously approved by the Senate. It could go to Trump as soon as Thursday and he plans to sign the bill, a person familiar with the matter said.

Financial Sovereignty

Xi on Friday also shed some more light on China's plans to open up its financial markets. He said the reforms set in motion will not stop, but that the nation needs to be careful and will also ensure its "financial sovereignty."

"We are working to realize the Chinese dream of renewal of our nation," he said. "It's not a dream about hegemony, it's not about replacing others. We are just trying to restore our place and role in the world rather than reliving the humiliating days of the semi-colonial and semi-feudal era."

China has this year sped up the opening of its $40 trillion financial market, and will next year give the go-ahead for foreign securities firms to take full ownership of joint ventures they have in the country. Officials in Beijing are seeking to attract foreign investments to support economic growth, which in part has been hurt by a crackdown on lending at their local banks after years of rapid growth.

Top executives from banking firms such as Goldman Sachs Group Inc. were also in Beijing attending the forum, flagging they were preparing major investments and expansions in the country to capture an estimated $9 billion in annual profits.

Brock Silvers, managing director at Adamas Asset Management in Hong Kong, said Xi's emphasis on financial sovereignty signals Beijing's unwillingness to cede too much control.

"Where reform conflicts with state economic authority, the Xi Administration will continue to support the statist position," he said. "This policy, which could effectively restrict larger systemic reform, also seems to be a major factor in the ongoing repatriation of China's offshore listed giants like Alibaba."

 -- via my feedly newsfeed

Thursday, November 21, 2019

Lane Kenworthy What’s the best type of healthcare system? [feedly]

Excellent and detailed comparison of various rich country universal health coverage systems.

What's the best type of healthcare system?

If we're going to improve our healthcare system, it's worth looking closely at the experiences of other rich democratic countries. There are two principal types. They're sometimes referred to as the Beveridge model and the Bismarck model. I'll label them "single payer" and "insurance funds."1

Single payer systems

In this type of system, the government pays providers (from tax revenues), decides prices, decides what procedures are covered, decides copayments, and more. It also runs some or most of the hospitals and employs some or most of the medical providers. The best-known example of this type of system is the United Kingdom's National Health Service (NHS).

Health care is paid for via taxes. Britons don't pay health insurance premiums. There are no copayments for diagnosis and treatment, whether for a visit to the doctor or specialized surgery. There is a small copayment for medicines, but it is waived for the elderly, people with chronic conditions, and other needy groups.

A government agency draws on available research to decide what treatments and medications are sufficiently effective and affordable to justify coverage. Some basic things, like eyeglasses and some types of dental care, aren't covered. Patients must see their general practitioner first and get a referral in order to see a specialist, much like with HMOs in the United States. Patients can see any general practitioner of their choosing, and once they get a referral they can choose which specialist to see next.

How is cost control achieved? The key is that a single agency decides what tests, procedures, and medicines will be covered and how much providers will be paid. In addition, administrative costs are very low because there are no disputes about eligibility, there is a single set of rules, and there is a single price list.

General practitioners are paid based on the number of patients they have ("capitation"), not the number of patient visits or the number of tests and procedures they perform or the number of referrals they make to specialist doctors. Most general practitioners in the UK aren't government employees. Formally, they are self-employed doctors who contract with the government. But this is a distinction that makes little difference, as what they can do and how much they can charge are determined by the NHS. Doctors can provide private medical care on the side, charging what they like. But the private market is utilized by a small minority of Britons; 90% use only the NHS for their health care.

Britons pay for health care via their taxes and some small copayments. And if they want to avoid waiting to see a specialist or for a "nonessential" procedure, or if they'd like to get a procedure that isn't covered by the NHS, they pay out of pocket.

Among the world's rich longstanding-democratic nations, Australia, Canada, Ireland, New Zealand, Italy, Portugal, Spain, Denmark, Finland, Norway, Sweden, and South Korea have healthcare systems that are broadly similar to the British one. The United States does too; about 40% of Americans get their health care via Medicare (elderly), Medicaid (low income), the Veterans Administration (former military), or the Military Health System (current military). So this is the type of system favored by the English-speaking nations, the southern European countries, the Nordic countries, and most recently South Korea.

There are differences among these countries — whether or not medical providers are formally government employees, what tests and procedures are covered (two out of three nonelderly Canadians have private insurance to supplement the government package), whether patients must see a primary-care physician first or can go straight to a specialist, how much choice patients have about doctors and hospitals, the existence and size of copayments and deductibles, whether the key decisions are made mostly by a central government agency (UK) or by local governments (Canada, Denmark, Italy, Sweden), whether private health insurance can cover the same procedures as the public system (in Canada and Italy it can't), and more. But the basic structure is the same: government decides what tests, procedures, and medicines are covered, how much providers are paid, and where the money comes from (taxes, copayments, something else).

In this type of system, these matters are political decisions. If citizens aren't satisfied with their access to medical care, with its quality, with waiting times, or with the amount of taxes they're paying to fund it, they can lobby the government to make changes or vote in a new government that will do so.

Insurance funds systems

Austria, Belgium, France, Germany, Japan, Netherlands, and Switzerland — the affluent continental European nations plus Japan — organize healthcare differently. Health insurers, usually referred to as insurance funds, are the principal payers. Citizens pick an insurance fund and pay a fee, often supplemented by a payment from their employer. The insurance fund determines what tests, procedures, and medications will be covered. Hospitals and doctors are mostly nonprofit or private; relatively few are administered or employed by the government.

In this respect, things work similarly to the way they do for a majority of working-age Americans who get health insurance through an employer-sponsored plan and get treated by nonprofit or private physicians and hospitals. But there the similarity ends. First, everyone is covered. Individuals typically are required to purchase health insurance through an insurance fund, and those who don't or can't are either assigned to a fund or are covered by the government. The insurance funds must accept all applicants; they can't refuse coverage on grounds of age, risk, preexisting conditions, or for any other reason. Second, there is a basic plan that all insurers must offer at a fixed price. Typically they also can offer better plans, which cover more services or allow more choice among doctors or shorter waits, at a higher price. Third, prices are tightly controlled. Sometimes, as in France and Japan, government sets the prices in consultation with representatives of hospitals and doctors. In other countries, such as Germany and the Netherlands, prices are determined, for the nation as a whole, via bargaining between representatives of the insurance funds and representatives of medical providers. If those negotiations break down, government steps in to impose a resolution. Fourth, insurance funds can't be for-profit. (They do compete with one another, though.)

There are differences across these countries. The number of funds varies: France has about 15, Germany 120, Japan 3,400. People can choose to join whatever insurance fund they like in most of these nations, but in France they must go with the one set up for their line or work or the region where they live, and they stay with that fund for life, even if they move across the country or lose their job. Japanese must go with their employer's fund. In some nations people can switch between funds on short notice (Germany, Switzerland), whereas in others switching can only be done once a year (Netherlands). In some countries patients can go to whatever doctor or hospital they like (France, Japan), while in others they must first see a primary-care physician. Copayments and deductibles vary. In some of these countries, lots of people purchase supplementary private insurance to cover things the insurance plan doesn't (90% of the working-aged in France, 84% of the population in the Netherlands). In Germany, but not in most other countries, the affluent (about 7% of the population) are allowed to opt out of this system and purchase private insurance on their own.

Using employer payments as a major source of financing for health care seems outdated. In a society where people switch jobs frequently, it makes little sense for insurance against a potentially major and very costly risk to be tied to one's employer. Moreover, providing health insurance is expensive for firms, putting them at a disadvantage relative to foreign competitors. And it likely acts as a brake on wage increases. Nevertheless, employer-based health insurance seems to work reasonably well in these insurance funds countries. An important reason why is that if people quit or lose their job, they are automatically kept with their existing insurance fund or switched into a government health insurance plan. And the cost of health care is contained, so it's less of a burden for employers.

Which type of system works better?

Figure 1 shows average life expectancy since 1980 in the twelve rich democratic countries that have a single-payer system and the seven countries that have an insurance fund system.2 There is no meaningful difference between them.

Figure 1. Life expectancy by type of healthcare system 
Years of life expectancy at birth. The vertical axis doesn't begin at zero. The "single payer" countries are Australia, Canada, Denmark, Finland, Ireland, Italy, New Zealand, Norway, Portugal, Spain, Sweden, and the United Kingdom. The "insurance funds" countries are Austria, Belgium, France, Germany, Japan, Netherlands, and Switzerland. Data source: OECD.

Life expectancy is influenced not only by a nation's healthcare system but also by lifestyle, diet, education, affluence, violence, and more. A measure that more directly gets at the impact of the healthcare system on longevity is "avoidable deaths," defined as deaths among persons aged 0 to 74 from diseases or conditions that are treatable or that could have been prevented through better public health interventions. Comparable data are available only for European nations and only for recent years. This includes nine countries with a single-payer system (Denmark, Finland, Ireland, Italy, Norway, Portugal, Spain, Sweden, and the United Kingdom) and six countries with an insurance-funds system (Austria, Belgium, France, Germany, the Netherlands, and Switzerland). As we see in figure 2, the avoidable death rate is virtually identical across the two system types.

Figure 2. Avoidable death rate by type of healthcare system 
Per 100,000 persons aged 0 to 74. Deaths from diseases or conditions that are treatable ("treatable" deaths) plus deaths that could have been prevented through better public health interventions ("preventable" deaths). The vertical axis doesn't begin at zero. The "single payer" countries are Denmark, Finland, Ireland, Italy, Norway, Portugal, Spain, Sweden, and the United Kingdom. The "insurance funds" countries are Austria, Belgium, France, Germany, Netherlands, and Switzerland. Data source: Eurostat, "Preventable and Treatable Mortality Statistics."

Figure 3 shows health expenditures as a share of GDP. Here we see a slight advantage for single-payer countries, and that advantage increases a bit over time. It may be that this is due to greater efficiency — for instance, lower administrative costs or less waste. Then again, it could be a result of political choices to cover fewer procedures or medications, which might result in longer wait times or less use of medical care. We lack data that would permit the sort of detailed comparison we need in order to reach a confident conclusion about the sources of this difference in health expenditures.

Figure 3. Health expenditures by type of healthcare system 
Share of GDP. Total (public plus private) expenditures. The "single payer" countries are Australia, Canada, Denmark, Finland, Ireland, Italy, New Zealand, Norway, Portugal, Spain, Sweden, and the United Kingdom. The "insurance funds" countries are Austria, Belgium, France, Germany, Japan, Netherlands, and Switzerland. Data source: OECD.

In 2013 and 2016, the Commonwealth Fund conducted thorough assessments of the healthcare systems of eleven of these countries. They included six countries with a single-payer system (Australia, Canada, New Zealand, Norway, Sweden, and the United Kingdom) and four with an insurance-funds system (France, Germany, the Netherlands, and Switzerland), along with the United States. They scored each nation in five areas — care process (preventive care, safe care, coordinated care, and engagement and patient preferences), access (affordability and timeliness), administrative efficiency, equity, and healthcare outcomes — and they used these scores to determine an overall ranking.

Figure 4 shows the countries' ranking in each year along with the averages for the two groups. In 2013 the average rank for countries with a single-payer system was exactly the same as the average for countries with an insurance-funds system. In 2016 the average ranking was better for single-payer countries than for insurance-fund countries. But the difference was small — small enough that it easily could disappear if more nations from each group were included. It might also be a product of error; while these assessments are careful and thorough, that doesn't mean they are perfectly accurate.

Figure 4. Healthcare system performance rank by type of healthcare system 
The rankings are for 2013 and 2016. Data sources: Karen Davis, Kristof Stremikis, David Squires, and Cathy Schoen, "Mirror, Mirror on the Wall: How the Performance of the U.S. Health Care System Compares Internationally," Commonwealth Fund, 2014, exhibit 2; Eric C. Schneider, Dana O. Sarnak, David Squires, Arnav Shah, and Michelle M. Doty, "Mirror, Mirror 2017: International Comparison Reflects Flaws and Opportunities for Better U.S. Health Care," Commonwealth Fund, 2017, exhibit 2.

Given what we observe in the data, I see little, if any, basis for concluding that one of the two types of healthcare system works better than the other.


For the United States, transitioning to an insurance funds system would seem, at first glance, to be easier, because we could build on our existing employer-based provision of health insurance. But it would be no small matter. Insurers would need to shift from for-profit to nonprofit. Government would need to create a policy whereby the noninsured are assigned to an insurer or covered by a government program. Government would need to ensure that there is a basic plan that everyone can get. Prices paid to providers could be decided by negotiations between insurers, doctors, and hospitals, but government would need to be willing to step in and impose a decision if such negotiations fail to yield an agreement.

A transition to an American single-payer system could be done in one fell swoop, by expanding either Medicare or Medicaid to the entire population. Or it could be done gradually: lower the age at which Americans can get Medicare, raise the income limit for Medicaid eligibility, and add a Medicare-like program ("public option") that individuals and families can purchase on health insurance exchanges and that firms can purchase for their employees. Or simply allow any employer or individual to buy into Medicaid or Medicare, with subsidies for those who need them. Eventually, much of the population would be covered by these public programs. This would achieve universal coverage, and the government, as the dominant payer, would be in a strong position to control healthcare costs.3

  1. The following draws heavily from T.R. Reid, The Healing of America: A Global Quest for Better, Cheaper, Fairer Health Care,Penguin, 2009; Elias Mossialos, Ana Djordjevic, Robin Osborn, and Dana Sarnak, eds., International Profiles of Health Care Systems,Commonwealth Fund, 2017. 
  2. South Korea isn't included in the comparison here because it switched from one type of healthcare system to the other in 2000. 
  3. Jacob S. Hacker, "Stronger Policy, Stronger Politics," The American Prospect, 2016; Hacker, "The Road to Medicare for Everyone," The American Prospect, 2018; Dylan Matthews, "Donald Trump Promised 'Insurance for Everybody'. Here's How He Can Do It," Vox, 2016; Sarah Kliff and Ezra Klein, "The Lessons of Obamacare," Vox, 2017; Paul Starr, "The Next Progressive Health Agenda," The American Prospect, 2017; Starr, "A New Strategy for Health Care," The American Prospect, 2018; Michael S. Sparer, "Buying into Medicaid: A Viable Path for Universal Coverage," The American Prospect, 2018. 

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