06/30/2012 09:52 EDT | Updated 08/29/2012 05:12 EDT

Live in the Developed World? Here's How Obamacare Affects You


The American healthcare debate is not a debate for Americans only. In two ways at least, the debate implicates the well-being of everybody in the developed world.

The first implication: medical innovation.

The profit-seeking American healthcare system is always looking for new products to sell: new drugs, new surgical procedures, new ways of delivering care. The result is that the United States has become the leading -- often the unique -- source of progress in the treatment of disease.

Just one example out of many: Through the 1990s, at least as much prescription drug research was done in Europe as the United States. But as European governments cut back on the price they were willing to pay for drugs, European pharmaceutical research shriveled. In the 1980s and early 1990s, at least as many new drugs emerged from European as from American labs. Since 1997, however, American labs have outproduced European labs by a margin of two to one.

New drugs are expensive, because the sale price must recoup -- not only the cost of manufacturing the pill -- but the years of research and development before a single pill was made. American consumers pay this full price. In Canada and Europe, however, government healthcare monopolies can use their market muscle to force discounts. Soon enough, the patent expires, and generic manufacturers cut the price even more radically.

But everything rests on that first decision by the American drug consumer to buy a new product at a high price. If changes in U.S. health policy stunt American drug development, it is not only Americans who will suffer.

The second implication: global peace and security.

The U.S. taxpayer pays the cost of the military protection that shelters Canada, Europe, and all the other democracies. The U.S. defense budget costs about 4 per cent of Gross Domestic Product. Rapidly rising U.S. health costs call into question America's ability to pay that bill.

The United States operates far and away the most expensive healthcare system on earth: 17 per cent of GDP and still rising. Most other developed countries spend between 10 per cent and 12 per cent. Runner-up Switzerland pays 13 per cent.

If the United States paid as much for healthcare as Switzerland, it would be the equivalent of getting the defense budget for free. Instead, healthcare and defense are becoming competitors for straitened government resources.

Remember, despite the supposedly "private" nature of the U.S. healthcare system, the majority of the dollars in the healthcare system are tax dollars: Medicare (for the elderly), Medicaid (for the poor), benefits for veterans, Indian tribes, public employees and poorer children.

The first of the baby boomers became eligible for Medicare in 2011. Medicare will soon surpass defense as the largest single item in the U.S. federal budget -- and federal budget-cutters will begin eyeing defense as a source of Medicare funding.

That's what happened in Europe, where defense budgets have declined below 2 per cent of GDP, in many countries nearer to 1 per cent.

At 3 per cent of GDP, the U.S. could still buy the world's most powerful military, but not a military so powerful as today's, and likely not a military that can secure all of America's allies as they would like to be secured.

When Americans talk about today's health costs, they are also talking about tomorrow's defense budget -- the budget that protects us all from a world of dangers.