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Markets vs. Socialism: Why South Korean Healthcare Is Outperforming Italy with COVID-19

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Tags Global EconomyHealth

03/13/2020

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Everyone is vitally aware of the spread of the novel COVID-19 pandemic as it rages in early stages across the globe. Travel restrictions are everywhere as people are trying to get tested, prepare for possible quarantines, and worrying about their jobs and their families. Events involving large groups of people are canceled, and in some cases entire countries are being locked down.

But in all this flurry of reaction over the crisis, there is an almost natural experiment in how well a socialized healthcare system can respond to such a problem. And the answer appears to be…not well. To demonstrate, we can look at the two cases of Italy and South Korea. As of the time of this writing (3/12/2020), Italy has experienced 15,113 cases while South Korea has confirmed 7,869. However, the South Korean number is rising at a relatively tepid ~100 cases a day to Italy’s roughly 2,500 added today. (Data on the spread of the novel coronavirus was obtained from this site tracking the outbreak.) Overall, Italy and South Korea have similar populations (around 60 million and 50 million, respectively), although the South Korean half of the Korean Peninsula is about a third of the size of Italy in terms of land area.

Italy is experiencing a quickly spiraling exponential growth in confirmed cases despite shutting down the entire country with curfews and travel restrictions and heavily focusing on the provision of care. By contrast, even with a cult that essentially spread the disease on purpose, South Korea has gained a strong foothold in containing COVID-19. There are many reasons for this difference in outcome, but some of them are directly related to the far more socialized healthcare system in Italy.

South Korean Healthcare

Although South Korea does have a state-monopolized system providing a universal health insurance, this state-provided insurance is not able to set prices in the market for healthcare. Hospitals and clinics routinely charge patients more than the state insurance will pay, which has caused many Koreans to take out private insurance to cover the difference. TheKorea Bizwire reports that eight out of ten Koreans take out such insurance, with the average Korean paying just over 120,000 won (about $120) a month for it.

Care is provided by a set of hospitals that are 94 percent privately owned, with a fee-for-service model and no direct government subsidies. Many of these hospitals are run by charitable foundations or private universities. Private hospitals in the country exploded in number from 1,185 in 2002 to 3,048 in 2012. The result is that South Korea has 10 hospital beds per 1,000 people, more than twice the Organisation for Economic Co-operation and Development (OECD) average (and nearly three times as many as Italy’s 3.4 beds per capita). These private hospitals also charge significantly less (between 30–85 percent of the price) than US hospitals (which are also often required to get a “certificate of need” from the government before construction, depending on what state they are built in).

Italian Healthcare

In Italy, by contrast, surgeries and hospitalization provided by public hospitals or by conventional private ones are completely free of charge for everyone regardless of their income. This is entirely paid for by the the national health service, the Servizio Sanitario Nazionale (SSN) (as are family doctors' services). Waiting times can be up to a few months for large public facilities, though they are somewhat shorter for small private facilities with contracts to provide services through the SSN. Public and private medical providers offer “free market” options in which the patient pays directly, but this is rarely taken up and thus contributes very little to hospital revenues. Emergency medical service is always free of charge.

Italy experienced an ongoing health worker shortage even before COVID-19 struck the country. The number of hospitals in the country has been on a steady decline over the last couple of decades, from 1,321 in 2000 to 1,063 in 2017.  SSN prices for payments to hospitals were set below market rates for the purpose of saving money on healthcare, and the results were as expected for a de facto price control.

Conclusion

Currently, the Italian healthcare system is overwhelmed by the tens of thousands of COVID-19 cases it is already facing. They have turned to rationing care to prioritize the young, leaving those most at risk of the virus to essentially fend for themselves. Most just chalk this up to the severity and danger of the pandemic. However, the evidence tells a different story. It portrays a situation made far worse by a reliance on government-centralized healthcare that manages costs by de facto price rationing rather than a free market system. Although South Korea provides a basic safety net, it is also one of the closest healthcare systems in the world to a free market, outpacing to a significant degree even the US system (which includes a great number of supply-restricting regulations that only drive up costs and hurt availability). As a result, South Korean healthcare did what Italy’s already undersupplied system could not do—cope effectively with the pandemic and manage to get it under control without shutting down the entire country in the process. 

If US officials wish to effectively handle the rising number of cases in big cities, they would do well to take lessons from South Korea and start freeing the market for healthcare rather than bungling a monopolized testing protocol that did not need to be monopolized, and thereby preventing people from getting tested. This would not immediately resolve the problems created by bad regulation in the past, but it would certainly reduce its negative consequences while improving the healthcare system's ability to deal with these sorts of crises going forward. It would also have the benefit of reducing the cost of healthcare generally.

Originally published at Disinthrallment.

Author:

Matthew Tanous

Matthew Tanous is a professional software developer with an autodidactic interest in economics, history, philosophy, and science. He is a main contributor for the blog Disinthrallment.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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