If I were president of the United States, I would certainly be concerned about the cost and performance of the country’s healthcare system. The grim statistics are well known. As of 2022, the US spent $12,555 per person on healthcare, almost twice as much as other wealthy countries, including Australia. That gap alone cancels out about half of the difference in income per person between the US and Australia, according to World Bank estimates.
Higher expenditure on healthcare would not be a problem if it delivered a healthier population. But this is not the case. The US has one of the lowest life expectancies of any rich country. And even though more Americans die young, those who survive have worse health than elsewhere. Americans suffer from chronic diseases like diabetes, asthma and depression at around twice the (age-adjusted) rate of other rich countries.
This gap is too large to be accounted for by specific causes like gun violence or drug overdoses, or even unequal income distribution. The US has worse health outcomes at every point on the income distribution scale than other rich countries, even though those at the upper end have much higher incomes.
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And the problem is getting worse. The US saw declining life expectancy in the years after 2014 and, unlike other countries, saw a late, limited recovery from the increased death rate after the onset of the Covid pandemic.
There’s not much hope for rapid progress in US health outcomes. The destruction of US public health infrastructure through budget cuts, the gutting of key agencies such as the Center for Disease Control and the appointment of notorious anti-vaxxer RFK Jr as secretary of health and human services will only make matters worse.
It’s unsurprising then that President Donald Trump is looking at the cost side of the equation. As might be expected he has raised, again, the perennial grievances of US health policy. This is the fact that Americans pay far more for prescription medicines than do citizens of other countries where prices are controlled through mechanisms like Australia’s Pharmaceutical Benefits Scheme (PBS). And, given his grievance-based approach to the world in general, it is no surprise that his latest statement on the topic describes Australia and other countries as “freeloaders” on the US.
The US government is, of course, entirely within its rights to set its own policy regarding the pricing of prescription drugs. The US Department of Veterans Affairs already has a program similar to the PBS, under which it pays about half as much of the typical US price. There is no reason this couldn’t be extended to the entire US Medicare system, except that the result would be to close down 1,000 or more private plans, each with their own lobbyists.
And with a bit more effort, the US could establish its own version of the PBS, covering all Americans. Quite possibly, faced with lower prices in the US, pharmaceutical companies might demand higher returns from other countries including Australia. But a systematic reform of this kind is beyond the capacity of the Trump administration. Instead we have seen the typical Trumpian claim that other countries are benefiting unfairly from medical research done in the US.
This was arguably true in the second half of the 20th century when the US was the undoubted centre of global medical research, most notably through the National Institutes of Health. But funding for the NIH (adjusted for inflation) peaked in 2004, and has suffered from decades of financial stringency. Meanwhile, the US share of genuine innovations, measured by “new molecular entities” has declined and is no longer notably larger (relative to GDP) than that of leading European innovators. The development of semaglutide (Ozempic and Wegovy) treatments for obesity and diabetes by Danish firm Novo Nordisk is a notable example of a drug of particular importance to the US being developed in Europe.
More generally, if Trump wants to import ideas like the PBS into the US system, Australia has plenty to offer. Australia’s Medicare system, combining a single-payer universal scheme for standard healthcare with private insurance and fee-for-service medicine as an upper tier, could provide a politically palatable way of delivering the US demand for “Medicare for all” without destroying the private sector.
But of course, this isn’t the Trump way. What we will doubtless see, as in the recent tariff negotiations, is a series of bullying demands, resulting in triumphant announcements of magnificent deals, which turn out, on closer inspection, to be largely illusory.
The bigger lesson for Australia in all of this is that, as with China, we need to treat the US not as an ally or friend but as a trading partner which will seek to push us around whenever possible. The correct response, again as with China, is to stand our ground until the other side sees the pointlessness of bullying and the mutual benefits of free exchange.
John Quiggin is a professor at the University of Queensland’s school of economics
