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Obamacare vs Indiacare

Posted by kostub on August 28, 2009

In the last few weeks the healthcare debate has raged all over the US.  Everyday you see new articles in the media describing various conflicting positions held by different people. Now, I don’t claim to be an expert in healthcare reform, and nor have I analyzed the various positions throughly to make any sort of accurate judgement on the proposals. Instead, this article is more what the US could learn from the the healthcare system in India. In fact, it only focuses on one particular aspect of the system – the affordability of healthcare.

The Indian healthcare system is nothing to write home about, in fact it is dismal at best. The amount of government spending on healthcare is minimal, the health of the people is poorer and millions of people do not have access to decent healthcare. This is definitely not a model we want to emulate. But, there is one factor in its favor – viz. low cost. India has good medical facilities, well trained doctors and the  all the same medical treatments that are available in the US. Yet, all of this is available at a fraction of the cost of similar treatments in the US. This has resulted in a huge boom in the medical tourism industry. Before we speculate on the reasons as to why healthcare is more affordable in India, let us look at an example that illustrates the difference in cost:

A few days ago I visited a dentist in Pune. The dentist’s “office” was a tiny two room shack in the parking lot of an apartment building. In outer room or the lobby, there was no receptionist, instead there were just a few scattered chairs and benches for waiting patients to sit. We didn’t have an appointment, and the dentist probably didn’t take any. There were a few people waiting there before us, and the only way for us to figure out our turn was to wait until all those people had seen the dentist. Similarly, people who came in after us had to wait till we had had our turn. It was like an implicit queue was created by each person knowing who is before them.

We got to see the dentist after about a 30 minutes wait. The complaint was that a dental bridge had fallen out and needed to be reattached. The whole procedure took approximately 10 minutes. In fact, there were some complications, the tooth which supported the bridge was damaged and a permanent fix would have involved removing or fixing that tooth and then making a new bridge to fit in correctly. But both the dentist and the patient were satisfied with the temporary fix. A strange thing was that the dentist didn’t even know the patient’s name or have any of their records before treating them – she only asked for the name at the time of payment. This whole procedure took us about 45 minutes and set us back $6 (Rs. 300).

Now, let’s compare this to a hypothetical scenario had this same situation happened in the US. Firstly, we can’t just pop in to a dentist’s office, so we call them and ask for an appointment. We get there 10 minutes before our appointment and fill out paperwork. After waiting for 20 minutes in the lobby, the receptionist tells us that the dentist is now ready to see us. She takes us to an in-patient room and asks us to wait there. A nurse comes by to ask us the reason for our visit. She takes copious notes on our complaint and lets us know that the dentist will be in shortly. After another 15 minutes of waiting, the dentist comes by to have a look. She indicates that the support tooth is damaged and this bridge cannot be installed right now. We would need to fill the last tooth and make a new bridge. Oh well, we say – whatever. We get some X-rays done for the damaged tooth and are called back the following day. The next appointment is an hour long where the dentist works on filling the damaged tooth, after which the nurse takes some measurements for the new bridge. We are called again in a couple of days for fitting. Two days later, the bridge is ready to be installed and then we spend another hour to get it to fitted properly. This whole procedure sets us back around ~$1000. Now that’s more than a 150x cost as compared to the same treatment in India!

An obvious fallacy in this example is that the treatments given are vastly different in India vs the US. Now I’ve tried to present a realistic (albeit exaggerated) account of what would happen if a patient with a similar complaint went to a dentist in the US. Let us say that a dentist did actually provide the exact same treatment as was given India (this is unlikely in practice since the dentist needs to limit her liability) it would have still cost us ~$200 (30x of the cost in India) .

Another valid line of reasoning could conclude that the dentist in India does not get adequate monetary compensation. But that reasoning doesn’t hold up to further scrutiny. The dentist was able to see around 6 patients an hour and if we make the assumption that her rates are similar for all patients, conservatively she makes Rs 1500/hr on an average. Her clinic was open for about 4 hours a day (4pm – 8pm), so she would make Rs 6000 daily – which results in an annual revenue of Rs 1.5 million ($30,000) only for half a days worth of work. Assuming she does something else for the rest of the day, like be attached to a hospital or run the clinic in other times of the day, my guess is that her annual net income would be to the tune of Rs. 2 million (after accounting for rent, equipment and paying staff etc).  That is a fairly large income in India. To put the numbers in perspective – a starting programmer earns $70k in the US while a dentist earns $140k. In India, a starting programmer would earn Rs 0.5 million. Using that as a base, the Indian dentist is earning twice as much as her US counterpart  while keeping her costs 4x lower (after adjusting for the lower cost of living). Another point that we’ve to note that she is a dentist with a small private practice. Similarly, there would be larger more expensive dentists who would earn a lot more than her.

So why are costs lower in India? To speculate, in my opinion the main reason is free market. In India, the consumer is free to go to any doctor they wish to – public hospitals, expensive private clinics or the neighborhood doctor. The consumers bear the entire cost of the treatment and so they choose the doctor based on the utility of the treatment to them. A patient who wants to be mollycoddled and has the resources will go to an expensive clinic while a person who doesn’t want the extras and is content to wait in longer lines will go to the neighborhood doctor. This competition amongst the doctors keeps the costs low as they try to attract the most number of patients that they can treat. Another reason is efficient allocation of resources, there is no multitude of nurses, receptionists, insurance companies and other middlemen which would eat a significant portion of the cost. The transaction is between a doctor and a patient and allows the doctor to keep most of the proceeds which in turn helps keep the cost low.

Contrast this to the US, where all doctors are treated equally by insurance companies. The cost does not vary by the medical provider, it varies by the procedures performed and moreover it is paid off by the insurance provider. This basically means that there is no free market competition between doctors. Yes, there is competition for patients, but that does not translate to cost savings because the patient still bears a fixed cost to the insurance provider regardless of the doctor they see and the treatment sought. This is one point which is sorely missed by the US lawmakers. They talk about competition between private insurance providers, but how would that reduce costs if their expenses to hospitals and medical providers remain constant? Have they stopped and thought about the fact that maybe having an health insurance industry itself is the reason for the escalating healthcare costs and not the solution?

(Note: The question of how we should take this free market approach and apply it to the US healthcare system would probably be a subject of a future blog post).

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6 Responses to “Obamacare vs Indiacare”

  1. Jeff O'Connor said

    So why are costs lower in India? To speculate, in my opinion the main reason is free market.

    Are you serious? The reason costs are lower in India is because it’s still primarily a Third World country! That’s why nearly 800,000,000 people live on just $.50 per day. The “free market” is at work, alright – a market that supports the lifestyle of hundreds of millions of impoverished people for whom running water is a luxury (and a communal one at that), not an expectation!

    No slight towards India or its people, but get real. You cannot compare the healthcare system of a country where the overwhelming majority live off of less than the price of a Snickers bar to that of the United States. It’s beyond apples-to-oranges, it’s just plain silly – and frankly insulting the intelligence of anyone trying to have a coherent discussion about fixing the American healthcare system.

    • kostub said

      @Jeff
      I did not indicate that the Indian healthcare system was a model that the US should follow. There are many deficiencies in the Indian system that far outweigh the benefits. But there is no denying that even after adjusting for cost of living medical services in India are 4-5X cheaper than the US for the exact same treatment and sometimes with better outcomes.

      After I wrote my post, I found this excellent article in the Economist about the innovation in the Indian healthcare system which seems to corroborate my viewpoint. Healthcare after all is a business and it can’t afford to price itself above what people can pay. That is why you see people scrambling to figure out how to lower costs in India.

      On the contrary, there is no need for innovation in the US to lower costs since the insurance industry or government will still pay for the expenses. With no market force to apply the opposite control it has resulted in an exponential increase in costs.

      What I pointing out is that there are alternatives beyond the mainstream Democratic or Republican viewpoints that need to be examined to see if they could help make healthcare affordable.

  2. Kostub,

    I think this is an excellent article and I can completely relate; Here in Texas, I have heard many stories of people making day trips across the border to Mexico for cheaper care of equal quality. Doctors actually study here in the U.S. and set up affordable practices in border towns. I have heard the cost is about 1/5th of that for uninsured treatment at home. I’m speculating, since I haven’t seen this firsthand, but I would think it is probably for the same reasons you mentioned above.

    Good job! I look forward to reading more from you.

    Thanks for being a part of my blog carnival!

  3. Sam Gibson said

    I think the issues are sadly more complex than just a free market vs. non-free market. There are several reasons why the US is not a free market (artificial limit on licensing doctors via the AMA, medicare/insurance hiding costs from the consumer).

    However, the implication that a health care free market is necessarily the most cost effective or, more importantly that it provides the best cost-benefit is the premise that I disagree with.

    First, we already know that health care “consumers” often pick treatments without any medical efficacy (see: homeopathy, chiropractic, acupuncture, et al) based on perceived value, instead of true value. We also know that evaluating the literature and determining the efficacy of any given treatment is a highly specialized economically scarce skill. Simply put, health care demand can’t be trusted to solely drive the invisible hand in the health care industry.

    Additionally, we know that socialized healthcare doesn’t necessarily drive up the per capita costs of health care since the government can control costs (see: Norway, Finland, UK).

    Finally, regulation of the health care industry viz. things like drugs trials, FDA certification, etc are inherently not free market, but do provide benefit to the consumers of health care.

    Because of these (and probably some other things that I’m missing), I don’t think a free market trusted to regulate itself is the best idea.

    I agree that there are alternatives beyond the typical Republican (wait, they have a plan other than “do nothing”?) and Democrat options. However, I don’t think we should go into uncharted territory here. There’s already plenty of other wealthy nations whose mistakes and systems we can learn from that provide socialized universal healthcare to their citizens. I don’t think it’s worth the risk.

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