Noam Chomsky (pictured right) has recently claimed, repeatedly, that moving to a publicly funded healthcare system would provide sufficient savings to eliminate the deficit from the US budget. In what follows I show why his claim is plausible.
Here’s Chomsky’s claim in black and white. In response to current discussion about measures for dealing with the US deficit, Chomsky notes that it is
Not even discussed … that the deficit would be eliminated if, as economist Dean Baker has shown, the dysfunctional privatized health care system in the U.S. were replaced by one similar to other industrial societies’, which have half the per capita costs and health outcomes that are comparable or better.
Here’s a relevant excerpt from Baker’s blog:
The problem with Medicare is that our healthcare system is broken; we pay far more than other wealthy countries for our care and get worse outcomes. We don’t need to fix Medicare; we need to fix our healthcare system, and this is something we should have started yesterday.
The remedies are actually easy; the problem is that the political will does not exist to challenge powerful vested interests such as the insurance industry, the pharmaceutical industry and the doctors lobbies. Close to 20% (about $500 billion a year) of our healthcare spending is wasted on financing the insurance industry and the paperwork requirements that it imposes on providers.
We pay almost twice as much for prescription drugs as other countries. If we could get our costs in line, it would save us close to $100 billion a year. If drugs were sold in a competitive market without patent protection, we would save more than $200 billion a year. If we paid our doctors the same salaries as those in other wealthy countries, we’d save another $80 billion a year.
That’s a potential total saving, on the most generous interpretation, of $880 billion. That’s exciting. The normative claim that people should have access to publicly funded healthcare would be all-the-more convincing if it could be shown to save the US a bucketload of money. But notice that Baker’s talking about total healthcare spending, public and private, not simply healthcare spending from the US budget. You cannot claim savings in the private sector as savings to the US budget. If a public healthcare system reduces private healthcare spending, those savings cannot be claimed as budget savings because the expenditure was never counted in the budget. Therefore, for Chomsky’s claim to be true, a public healthcare system would have to provide sufficient savings in the US budget alone to eliminate the deficit—no easy task for a country that has a largely private healthcare system and a massive budget deficit.
So let’s crunch the numbers.
The limit case
The US budget deficit for fiscal year 2011 was $1,298,600,000,000. For Chomsky’s claim to be true, a shift to a public healthcare system in 2011 would have to save the US budget $1.3 trillion. Is a $1.3 trillion saving possible?
In 2011, the US budget allocated $488 billion to Medicare, $276 billion to Medicaid and $80 billion to the Department of Health and Human Services (OMB 2010, pp. 79, 174). That’s a total spend of $844 billion. Deduct from that figure the $187 billion income from Medicare payroll tax (OMB 2010, p. 174) and the total budgeted public outlay for healthcare in the US in 2011 looks to be roughly $657 billion.
These figures provide a limit case with which to test Chomsky’s thesis. In 2011, even if the US state spent nothing on healthcare there would still be a $643 billion hole in the budget. Even if the US could provide its citizens with a public healthcare system that cost the US government $0, that system would not put the budget back in the black. So, on these figures, Chomsky’s claim that shifting to a public healthcare system would eliminate the deficit is false. In fact, Chomsky doesn’t even appear to be in the ballpark.
But let’s change the data source. The Organization for Economic Co-Operation and Development (OECD) estimates that 2009 US government—yes government—health expenditure totaled $1.164 trillion (OECD 2011, no figures for later than 2009 are currently available). Now I’m not entirely sure how the OECD comes to that figure, but let’s assume that it is correct—the OECD is, no doubt, better than I am at calculating the tax breaks offered to businesses who provide their employees with health insurance, and other such less-than-clear added healthcare costs in the US budget. If we plug this new figure into our limit case and accept that in 2009 the US government spent $1.164 trillion on healthcare, a year in which it ran a budget deficit of $1.4 trillion, then Chomsky’s back in the ballpark.
But remember, this is the limit case where the US spends $0 on healthcare. In the limit case, the US government is making a 100% saving on healthcare expenditure. A public system is going to cost the US government something. So how much will they spend? The best way to estimate, though it is far from perfect, is to use a first-world country that produces comparable health outcomes for its citizens but which is publicly funded as an example of what it could possibly cost the US to run a public healthcare system.
A comparable ‘public’ system
Canada provides the best example. A 2010 report comparing health outcomes in seven first-world countries shows that Canada and the US have similar health outcomes (Davis, Schoen & Stremikis 2010). However, in 2009 Canada spent 4,363 US dollars per capita on healthcare versus per capita spending of $7,960 in the United States (OECD 2011). Furthermore, of the $7,960 spent in the US, 48% or $3,795 came from government. The remaining $4,165 or 52% came from direct payment by private citizens and their insurance companies (OECD 2011). By comparison, of the US$4,363 spent in Canada, 70% or $3,081 came from government. The remaining $1,282 or 30% came from direct payment by private citizens and their insurance companies (OECD 2011). That’s a much higher percentage of public funding in the Canadian healthcare system than the US system. (And, yes, the Canadian government actually pays less per capita for a healthcare system that is 70% publicly funded than the US government does for a healthcare system that is 48% publicly funded.) Canada therefore provides a good comparison with which test the plausibility of Chomsky’s thesis. Not only does Canada produce similar healthcare outcomes to the US, it also provides those outcomes for a lot less per capita than the US does and is largely publicly funded.
So, what do we get if we plug Canadian healthcare figures into the US system? Canadian government healthcare expenditure was US$3,081 in 2009. Mapped onto the US population at the time (306,656,300), that amounts to a healthcare spend of $945 billion. As you will remember, 2009 US government health expenditure totaled $1.164 trillion. While that’s a saving of about $219 billion, $219 billion is still a long way short of the savings necessary to eliminate the US budget deficit of, in 2009, $1.4 trillion. When we consider how much a publicly funded healthcare system will actually cost the US government, Chomsky’s claim seems implausible—he is, again, not even in the ballpark.
Revised Chomsky thesis
But what if we reinterpret Chomsky’s claim. One could take Chomsky to be claiming that a public healthcare system would eliminate the US deficit if the total US per capita spending on healthcare remained the same but the government took control of all healthcare, pocketing the per capita difference between what it costs for the state to run healthcare and what the US state and citizens currently spend. That is, Chomsky may be thinking, ‘Well, if the US is going to get Canadian-level healthcare then the state may as well pay Canadian prices and keep the change to pay off the deficit each year’. So, let’s crunch the numbers on this modified claim.
In 2009 the US spent $7,960 per capita spent on healthcare whereas Canada spent US$4,363. Assuming that the per capita price difference between the US and Canada for a very similar level of healthcare is due to the efficiency of state-run over privately run healthcare systems, the US could potentially save up to $3,597 per capita on healthcare if it moved to the Canadian model. In total, that’s a potential $1.1 trillion saving.
How does this fit into the revised Chomsky thesis? If the US government provided healthcare, continued to charge citizens and their employers what they are currently paying and kept the $1.1 trillion difference generated by the increased efficiencies of a state-run system, then the 2009 US deficit of $1.4 trillion would be close to eliminated. Furthermore, if we consider that in 2009 the US government spent $714 more per capita than the Canadian government on healthcare, on a Canadian model the US deficit would have been about $219 billion less, reducing the 2009 deficit to about $1.2 trillion. The $1.1 trillion in new government revenue collected as a result of the efficiencies gained by moving to a state-run healthcare system would then have been even closer to eliminating the US budget deficit. In fact, it’s close enough to claim that the revised Chomsky claim is plausible. Not only is Chomsky in the ballpark, he’s hitting well.
So why wouldn’t US citizens agree to such a plan? They’d be spending the same amount on healthcare for the same outcome and would almost eliminate the US budget deficit. The only difference would be that instead of a private health insurer taking their premiums the US government would collect an annual healthcare tax for the same amount. If the costings that I’ve set out here are correct, then for no difference in cost or standard of healthcare the US could almost eliminate its budget deficit. The only possible reasons for rejecting Chomsky’s proposed reform to the healthcare system are, therefore, ideological.
Chomsky, N 2011a, ‘American decline: causes and consequences’, al-Akhbar (24 August).
———— 2011b, ‘America in decline’, Truthout (5 August).
Davis, K Schoen, C & Stremikis, K 2010, Mirror, Mirror on the Wall: How the Performance of the U.S. Health Care System Compares Internationally, The Commonwealth Fund.
OECD, see Organization for Economic Co-Operation and Development.
OMB, see US Government Office of Management and Budget.
Organisation for Economic Co-operation and Development 2011, OECD.Stat Extracts statistics database.
Treasury Direct 2011, ‘Historical debt outstanding — Annual 2000-2010’.
US Government Office of Management and Budget 2010, Budget of the US Government: fiscal year 2012, US Government Printing Office, Washington, DC.