Senior Thesis

The role of health care privatization during COVID-19: A comparative analysis

Jacqueline Reilly Stockton University

Abstract The U.S. is leading in both cases and deaths in this global pandemic. A comparative analysis was performed looking at the relationship between health care spending and COVID-19 data in the Brazil, Canada, China, France, Italy, Japan, South Korea, the U.K., and the U.S. All countries except for the U.S. provide health care to the population. There is an inverse relationship between higher health spending and inadequate pandemic response.

2 Introduction The World Bank had projected that international growth could shrink as much as 8% amidst the COVID-19 pandemic (Kaye et al., 2020). The national lockdown measures that were enacted effectively halted economic activity, to the point that it affected global supply chains and every economy (Williams, 2020). The world’s gross domestic product (GDP) in 2020 shrunk by 4.4% according to the International Monetary Fund, while the United States contracted by more than 5% (Williams, 2020). The disruption of global supply chains left many countries unable to adequately provide personal protective equipment to those in health care professions, as well as people who most needed masks or ventilators (Williams, 2020). Many industries have suffered because of the pandemic, particularly manufacturing, service and hospitality industries (Klein & Smith, 2021). Unemployment in the U.S. reached record highs, with about 15% of the labor force losing their jobs. However, it is likely that the true percentage could be closer to 20% due to misclassifications because there was no way to measure workers who became unemployed because they were temporarily laid off (Groshen, 2020). This has had a devastating effect in the U.S. because of the nature of employer-based health insurance coverage.

The economic variables included in this study are the unemployment rate, gross domestic product (GDP) per capita, health care spending per capita, out-of-pocket expenditure per capita, private and public health expenditure as a share of current total health expenditure, health expenditure as a share of GDP, and hospital beds and physicians per 1,000 people. The pandemic variables analyzed are totally COVID-19 cases and deaths by country, cases per million, deaths per million, COVID-19 tests per 1,000 people, and vaccinations per 100 people. The data indicates that higher health care spending in the United States has not resulted in better COVID19 outcomes. In fact, the U.S. ranks highest in total cases and deaths. Moreover, per capita

3 coronavirus data places it in the top three in deaths per million people. While the U.S. government spending in health care, it is clear the higher domestic private health expenditure does appear to have an inverse relationship with coronavirus outcomes. This will be further discussed in the section on empirical results.

Literature Review Economic Impact of COVID-19 The sectors of the U.S. labor market that accounted for the most job losses are leisure and hospitality, retail trade, professional and business services, and health care and social services because they were non-essential and had to close, following lock down measures (Groshen, 2020). Combined, these four sectors “accounted for 49% of jobs in February, 69% of jobs lost in March and April” (Groshen, 2020). Owing to health care’s fee-for-service business model (which was in jeopardy due to the postponement and/or cancellation of doctor appointments and elective procedures), in combination with the increased costs associated with COVID-19, hospitals found themselves incredibly vulnerable (Kaye et al., 2020).

The Commonwealth Fund produced a report on how many people lost jobs that had employer-based health insurance and found that about 7.7 million people lost jobs that provided them with insurance coverage by June of 2020 (Fronstin & Woodbury, 2020). This not only affects workers who lost their jobs, but those who are dependent upon them. The ages that have been most impacted by the loss of jobs with employer-sponsored insurance are workers 25-34 and 35-44. (Fronstin & Woodbury, 2020). In another survey conducted by the Commonwealth Fund, one in five adults reported they or a spouse were laid off or furloughed because of the COVID-19 pandemic (Collins et al., 2020). While there has been an expansion of eligibility for Medicaid, the federal government, as well as many states, have not informed the public of this

4 information or have opted to not expand Medicaid altogether (Blumenthal, Fowler, Abrams, & Collins, 2020).

Current State of U.S. Health Care The health care industry has been privatized significantly over the past fifty years. This has resulted in health care providers operating as for-profit businesses (Blumenthal et al., 2020).

While the Affordable Care Act (ACA) resulted in millions gaining access to healthcare, at least 30 million Americans are still uninsured (Crowley et al., 2020). Roughly 56% of the United States’ population has employer-sponsored insurance (Russo, 2021), however, it is still very expensive. The U.S. spends twice as much on health care expenditures compared to other developed countries, about 16% of GDP, with higher private spending and out-of-pocket expenditures, totaling more than $10,000 per capita (Tikkanen & Abrams, 2020). The private spending in the United States is five times higher than Canada (Tikkanen & Abrams, 2020), which has a single-payer system, covers all Canadians, and has a similar amount of public spending. The portion of public spending in the U.S. covers Medicare, Medicaid, and veterans (Felter & Maizland, 2020). Of all OECD nations, Japan’s population is closest to the U.S. and spends less than half of what the U.S. spends on health care per capita (Crowley et al., 2020).

An important cause for the United States’ spending is the administrative costs incurred by the multi-payer system. Billing and insurance-related activities are one significant part of the high administrative costs, which have been calculated to be roughly 31% of total health care expenditures in the U.S. (Crowley et al., 2020). Even though the U.S. spends more on health care, the outcomes are below other countries in the Organisation for Economic Co-operation and Development (OECD). In the Commonwealth Fund’s report, Tikkanen and Abrams note that

5 suicide rates in the U.S. are higher, Americans have a lower life expectancy, and have more chronic illnesses than other OECD countries.

In regard to the pandemic, the United States struggled to put together any type of federal response. In the first few months of 2020, the U.S. did not increase capacity in hospitals, obtain the needed medical supplies and PPE, or put together a cohesive testing program which catapulted America into the leading the world in cases and deaths (Felter & Maizland, 2020). In New York City, one of the early epicenters of the virus, disparities in access to care became evident. According to a report from The New York Times, the privatization of hospitals has led to consolidation and closures, while public hospitals are left struggling (Rosenthal, Goldstein, Otterman, & Fink, 2020). This means that wealthy health care institutions are more likely to be able to “absorb and survive the immediate losses inflicted by COVID-19” (Blumenthal et al., 2020). Data collected in the New York Times report indicated that people seeking treatment for the virus at community hospitals were three times as likely to die compared to those in the wealthiest parts of the city (Rosenthal et al., 2020). There has been a pattern of areas that have higher-median income having more hospital beds per 1000 residents (Manhattan had 5 per one thousand) and lower-median income areas with less beds per 1000 residents (Queens had 1.8 beds per one thousand) (Rosenthal et al., 2020). This has disproportionately affected people of color and the working class.

Hospitals, as well as the overarching health care system, were not prepared to deal with the increase in demand and mitigate the losses faced from routine services (Blumenthal et al., 2020), as well as to hire the necessary staff and obtain PPE (Kaye et al., 2020). Nursing homes and long-term care facilities were hit the hardest by the COVID-19 pandemic. They account for about 35% of the United States’ COVID-19 deaths (Werner, Hoffman, & Coe, 2020). These

6 facilities faced a lack of PPE and testing, as well as staff being underpaid (Gupta, Howell, Yannelis, & Gupta, 2021).

Americans faced the additional concern over payment for treatment because they face higher out-of-pocket expenses for medical care compared to other developed countries (Scott, 2020). Thirty-three percent of Americans are likely to say that cost was a barrier to accessing care compared to 7% in Germany and 22% in Switzerland (Scott, 2020). This pandemic provides an opportunity for all nations to consider increasing investments in public health (Narain, Dawa, & Bhatia, 2020).

Health Care Systems Around the Globe The crises that have been brought on by the coronavirus pandemic have touched all corners of the Earth, throwing all health care systems into disarray. The Council of Foreign Relations (CFR) conducted a brief analysis of six health care systems and their responses to the COVID-19 pandemic. While the United Kingdom was supposedly prepared to deal with a pandemic, the delayed government response contributed to the pressure on their National Health Service (NHS), as coronavirus cases accumulated (Felter & Maizland, 2020). In South Korea, people are covered by the National Health Insurance program, which is sponsored by the government, but services are provided by the private sector. Having faced a prior respiratory outbreak in 2015, South Korea had the benefit of being better prepared to deal with a public health crisis and managed to roll out nation-wide testing for free, by setting up drive-through testing (Felter & Maizland, 2020). China, where the outbreak originated, had a swift response to the pandemic, implementing strict lockdown measures and providing easy access to tests (Kaye et al., 2020). Brazil has struggled in dealing with the pandemic, primarily because President Jair Bolsonaro (like President Trump) failed to address the virus early on. Brazil faces a challenge in

7 the favelas, where social distancing is not feasible (Kaye et al., 2020). Italy had more hospital beds and doctors per capita than the United States, and still struggled to mitigate the spread of the virus (Scott, 2020). Worldwide, countries were faced with shortages of PPE, ventilators, and ICU beds. This can be attributed to an overall lack of preparedness (Kaye et al., 2020).

Research Methodology The study being done here is a comparative analysis of the various levels of privatization in health care systems across the globe. The purpose is to investigate how privatized health care systems have fared throughout the course of the coronavirus (COVID-19) pandemic of 2020 in nine countries with varying degrees of privatized health care systems. Through the examination of Brazil, Canada, China, France, Italy, Japan, South Korea, the United Kingdom, and the United States, I am looking for trends in both coronavirus data as well as economic data as it pertains to health care.

The pandemic-related variables I am using in this analysis are:     

Total COVID-19 cases and deaths by country; Cumulative COVID-19 tests per 1,000 people; COVID-19 cases per million; COVID-19 deaths per million; and Vaccinations per 100 people.

This data was gathered from Our World in Data. Our World in Data is a non-profit project of the Global Change Data Lab that connects researchers at the University of Oxford with the data tools owned by them. They are primarily focused on tackling and analyzing some of the world’s biggest problems. The purpose of examining these variables is to see how various nations are faring in terms of the pandemic.

The economic-related variables that have been compiled are:  

Unemployment rate; Gross domestic product (GDP) per capita;

8      

Health care spending per capita, Hospital beds per 1,000 people; Physicians per 1,000 people; Health expenditure as a percentage of GDP; Out-of-pocket expenditure per capita; Domestic private health expenditure as a percentage of current health expenditure;



and Domestic general government health expenditure as a percentage of current health expenditure.

In comparing this data for the nine selected countries, I will be able to study the impact health care spending and, more specifically, what kind of spending has impacted rates of coronavirus in a given nation. This data is primarily derived from the World Bank’s World Development Indicators. The one exception to this is health care spending per capita, which comes from the Our World in Data project.

My research hypothesis is that higher health care spending has an inverse relationship with the coronavirus variables. That is, nations which invest in the public sphere of health care spending see lower total coronavirus cases and deaths (also referred to as outcomes). By examining pandemic and economic variables per capita, I seek to compare the United States’ coronavirus outcomes against other nations in a standardized fashion. In this analysis, a negative impact means that COVID-19 cases and deaths increase, and a positive impact denotes a decrease in COVID-19 cases and deaths. My hypothesis expectations for the economic variables being higher are as follows:       

Unemployment rate – negative; GDP per capita – positive; Health care spending per capita – negative; Hospital beds per 1,000 people – positive; Physicians per 1,000 people – positive; Health expenditure as share of GDP – negative; Out-of-pocket expenditures – negative;

9 

Domestic private health expenditure as share of current expenditure – negative;



and Domestic general government health expenditure as share of current expenditure – positive.

Empirical Results In the empirical results that follow, the comparative analysis will happen in the form of tables and graphs containing the economic and coronavirus variables which are included in the study. All nations are included in the tables and the charts will follow to further the discussion.

The analysis of the data collected will be the final part of the discussion. The comparison does indicate that public spending has had an important impact in mitigating the damages of the COVID-19 pandemic.

COVID-19 The analysis of COVID-19 data bears out that all nations have suffered tremendous loss of life, however, China, Japan, and South Korea have significantly fewer total deaths, 4,849, 8,835, and 1,697, respectively. This can be attributed to the fact they have a lower number of total cases than the other nations. China’s total cases as of March 2021 are at 102,539, Japan’s are at 456,781, and South Korea’s are at 99,075. The most significant results when comparing to the United States are that of Japan. This is because both the U.S. and Japan have comparable population sizes.

10 Table 1. COVID-19 Cases and Deaths (Total and Per Million)

Table 1 contains the coronavirus data including cases and deaths per million, as well as the total COVID-19 cases and deaths for each country. As shown in Table 1, the United States and Brazil are leading in both total cases and total deaths. The U.S. has nearly double the number of deaths as Brazil, 536,781 compared to Brazil’s 292,752 total deaths. Both nations had delayed responses to the pandemic. Notice that Canada and Japan both have high numbers of total cases,

11 but the rates at which people are dying of coronavirus are less than what other countries have experienced. By studying the total deaths per million people, it reinforces the fact that China, Japan, and South Korean deaths are far below what Brazil, France, Italy, the U.K., and the U.S. have had to deal with. Canada is under the one thousand deaths per million threshold, suggesting that the country has been relatively successful in mitigating the spread of the virus as well as the fatalities endured in comparison to the U.S. Furthermore, we see in the data that the European nations have more total COVID-19 deaths per million. The United Kingdom has the highest with 1,869.49 deaths, and France with 1,401.30 deaths per million. The United States and Brazil are both within the same range as those nations with 1,664.63 and 1,494.39, respectively.

Figure 1. Daily Confirmed COVID-19 Deaths Per Million

Figure 1 from Our World in Data (2020) is a graphical depiction of a rolling average of the daily new confirmed coronavirus deaths per million people for the year 2020. In the early

12 stage, the first wave, of the pandemic, Italy was impacted first, followed closely by the United States and the United Kingdom. Brazil total deaths begin to rise around May 2020. Initially, we see that the U.K., Italy, the U.S., France, Canada, and Brazil total deaths jump during the first wave. More importantly, China, Japan, and South Korea total deaths remain steady and low in comparison to the rest of the nations. Their total deaths remain the same throughout the second wave, as the rest of the countries experience an uptick in new daily deaths per million beginning in late September.

Unemployment and GDP In studying the impact of the coronavirus on health care systems, I examined both the unemployment rates and GDP in order to contextualize the pandemic-related variables. Table 2 contains unemployment data for the year 2020 gathered from OECD and the Census and Economic Information Center (CEIC). The unemployment data shows that Brazil, Canada, and the United States experienced greater increases in the percentage of the labor force that became unemployed as a result of the pandemic. This is particularly relevant in the case of the United States because two-thirds of the labor force is dependent upon employer-sponsored health insurance. In the first month of the pandemic, from March to April, the U.S. saw an 10.4% increase in unemployment. This rate has steadily decreased; however, it has not returned to its pre-pandemic rate of 3.5%. The remaining Asian and European countries saw minor upticks in their respective unemployment rates, though they remained relatively stable throughout 2020.

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Table 2. Unemployment Rate

Table 3 from the World Bank’s Development Indicators (2019) consists of a list of countries’ respective GDP per capita in U.S. dollars. As GDP is an indicator of prosperity, the United States has the highest GDP per capita at $65,297.50, about $20,000 dollars higher than the nation with the next highest GDP per capita, Canada, at $46,194.70. Both Brazil and China have the lowest GDP per capita, with $8,717.20 and $10,216.60, respectively.

Table 3. Gross Domestic Product (GDP) per capita in $US

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15 Health Care Expenditure Table 4 contains health expenditures as a percentage of GDP from the World Bank. The United States spends the most on health care, 16.9%, which is 5.6% higher than France, which spends 11.3% of its GDP of health care. What the United States spends on health care per capita is more than double what the next highest nation spends. Table 5 comes from Our World in Data (2017) and denotes each nation’s health care spending per capita. The U.S. spends $9,402.54 per capita on health care, while Canada spends $4,640.95 per capita. The United States spends more on health care with worse results. In regard to the pandemic, the spending has not helped many Americans get access to the care they need.

Table 4. Health Expenditure as Percentage of GDP

16 Table 5. Health Care Spending Per Capita $INT

Figure 2. Health Expenditure Per Capita

The data in Table 6 comes from the World Bank (2018) and comprises of domestic private health expenditure as a percentage of current total health expenditure. Notice that Brazil and the United States have the highest percentages of private health expenditure. This means that the health expenditures are funded from private sources including households and corporations

17 and are either paid to voluntary health insurance or directly to the health care providers. Brazil’s health expenditures are 58.2% funded from these private sources and nearly half (49.6%) of the United States’ funding of its health expenditure is privately funded. Both China and South Korea have over 40% private health expenditures (43.6% and 41.5%, respectively), which is significantly higher than Canada, France, Italy, Japan, and the United Kingdom. Japan and the U.K. have the lowest private health expenditures, 15.9% and 21.4%.

Table 6. Domestic Private Health Expenditure as Percentage of Current Health Expenditure

Table 7. Domestic General Government Health Expenditure as Percentage of Current Health Expenditure

18 The general government health expenditure as a percentage of the current health expenditure is the share of these health expenditures that is funded from public sources such as domestic revenue. Japan and the U.K. have the highest shares of current expenditure come from public sources, 84.1% and 78.6% respectively. The U.S. and Brazil have the lowest shares of public sources funding current health expenditures, 50.4% and 41.7%. China and South Korea share of spending is slightly higher than the U.S. and Brazil, with 56.4% and 58.5% public funding respectively. Canada, France, and Italy’s share of public funding are within the same range, 73.5%, 73.4%, and 73.9% respectively.

Table 8. Out-of-Pocket Expenditure Per Capita (Current $US)

Out-of-pocket expenditures are the payments that come directly from households spent on health. Such expenditures by country are displayed in Table 8. Although two-thirds of the U.S. population has employer-sponsored health insurance, households are still spending significantly more per capita on their health. South Korea, Canada, and the United Kingdom have the next highest out-of-pocket expenditures per capita ($826.50, $735.70, and $721.00, respectively). It is noteworthy that the United States’ households spending $321.80 more than South Korea per capita. Figure 3 from Our World in Data (2017) portrays the public expenditure

19 on health care from 1995 to 2014. Notice that Japan has the highest public expenditure and the U.S. and Brazil have the lowest.

Figure 3. Public Expenditure on Health Care as Percent of Total Health Expenditure

While the United States spends the most on health care per capita, as seen in Figure 4 from Our World in Data (2017), it still has the most coronavirus deaths. This would indicate that simply spending more money does not necessitate better outcomes. Especially in a system that broadly attaches health insurance to employment status, the pandemic wreaked economic havoc in 2020. Figure 5, also from Our World in Data (2017), graphically depicts how France and Italy have public health insurance that covers more than 80% of the labor force, while the United Kingdom covers 100% of their labor force. During the pandemic, these countries ensured that those who lost their jobs would not lose their health insurance. This is vital in ensuring people have access to the care needed if they became sick with the virus.

20 Figure 4. Health Expenditure VS. GDP

Figure 5. Public Health Insurance Coverage in Western Europe

21 Testing and Vaccines A major part of dealing with the spread of COVID-19 has been testing and, later in 2020, vaccinations. Because the disease is airborne and is easily transmissible, detecting the virus early through testing has been a vital component in mitigating the spread. Although testing was slow to start in the United States, once it became more easily accessible, more tests were done. South Korea and China had some of the most efficient methods of testing, via drive-through sites and free tests made available to all. Figure 6 from Our World in Data (2021) portrays cumulative COVID-19 tests per 1,000 people. One key observation in Figure 6 is that the U.S. was testing the most out of the available nation’s data. This could explain why the United States saw higher COVID-19 cases per million, though testing was not free, so the total cases may actually have been higher than the data shows.

Figure 6. Cumulative COVID-19 Tests per 1,000 People

22 More recently, the roll out of the coronavirus vaccines worldwide has taken a more prominent role. Ensuring that everyone has access to the vaccines is a crucial element in ending the pandemic and limiting further spread of new strains of COVID-19. The United States, under the Biden administration, is providing free vaccines. Figure 7 from Our World in Data (2021) comprises of the total number of vaccination doses being administered per 100 people. The high number of doses being administered can most likely be attributed to the fact that is being made accessible to the entire population at not additional cost. China, Japan, and South Korea’s low number of doses administered is most likely attributable to the fact that they have low numbers of total cases.

Figure 7. COVID-19 Vaccinations Per 100 People

Conclusion COVID-19 has proven to be a challenge to the global economic system. In examining the per capita coronavirus data, it is clear that the United States is experiencing difficulty with addressing the scale of cases and deaths. This fact, in combination with the fact that the U.S. is

23 the highest spender on private health care expenditure, validates that privatization of health care has not improved outcomes related to COVID-19. There is a greater burden on American citizens to afford care whereas, in other Asian and European nations, the primary payer is the government. However, it is worth noting that China, Japan, and South Korea swiftly dealt with the virus, where European governments had delayed implementation of policies to test and curb the spread.

In summation, there is certainly a relationship between a private-sector oriented health care system, as exists in the United States, and worse COVID-19 outcomes. However, it is also the case that there are extraneous factors, such as political parties in power and the time it took to respond to implement preventative measures, which have impacted coronavirus outcomes across the globe. Further research on these two factors would be necessary in order to reach a more causal conclusion.

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