Sick of Austerity: The Crisis in EU Health Care

In the aftermath of the 2008 financial crisis, healing the sick economy quickly took over public policy discussions in Europe. At first, it seemed the continent might get by with only a light case and avoid the contagion of bad debt that was sweeping the U.S. Modest stimulus measures combined with existing social insurance to cushion the downturn, allowed most countries to weather the early months in relative calm.

Then in late 2009, the revelation of Greece’s vastly underreported debt burden triggered a radical change in direction, prompting a scramble by European leaders to restore credit ratings and confidence in the troubled economies. The policy choice was austerity: higher taxes and forced cutbacks in government spending intended to bring debt levels back in line.

The prescription involved reducing government payrolls and social benefits – pensions, unemployment compensation, family supports and public funding of health care – that together, have had devastating effects. Joblessness, particularly among youth, has soared, and broader measures, like growing homelessness, violence, and civil unrest, have mirrored the decline.

In the worst affected countries, many have lost hope: In Greece, for example, suicides rose by 40% in the early months of 2011 compared to the same period of time in 2010, according to the medical journal Lancet, which has been monitoring the effects of the crisis on public health. In their report "Financial crisis, austerity, and health in Europe" published in May, Lancet researchers highlighted the effects of severe health spending cuts – 40% in Greek hospital budgets and €7 billion annually in Spain – that prevented patients from accessing care. Rather than experience the punishingly long wait times – 65 days average in Spain – many patients take their chances and go untreated.

Most affected, as always, are the powerless. In 2012, the health insurance covering some 873,000 undocumented immigrants in Spain was cancelled, according to estimates gathered by prime minister, Mariano Rajoy – people whose untreated illnesses are a risk to all.

But while direct cuts to health care are indeed a contributing factor, it is the breaching of so many aspects of the social contract all at the same time that deepens the suffering.

"There is a strong connection between health care and social stability or instability, the strong impact on the health that we can see in Greece, Spain and Portugal," said Georg Ziniel, CEO of Gesundheit Österreich (Health Austria), a government-supported health care research and planning institute. "When you have such high unemployment – 40% unemployment among the youth in Spain or in Portugal – there is a strong correlation with a higher risk of getting ill."

So why, with so much suffering, have European policy makers persisted with austerity? Leaders across the EU have all pointed to a now infamous study by two American economists to defend fiscal austerity to reduce their deficits.

The policy game-changer was a paper by Harvard’s Carmen Reinhart and Kenneth Rogoff entitled "Growth in a Time of Debt". It suggested drastic cuts in government spending and tax hikes, warning that government debt exceeding 90% of a country’s GDP would stifle growth. Policy makers rushed to the table to initiate savings measures.

It was not until Harvard graduate student Thomas Herndon identified a computing error in an excel spread-sheet, that along with what critics have described as selective use of data and unsound methodology, that the almost mystical hold of the 90% claim on the public imagination was loosened.

The perils of misplaced trust 

In trusting the Harvard study, policy makers had set aside decades of experience, beginning with the Great Depression in the 1930s, which supported British economist John Maynard Keynes’ remedy of stimulus spending in a depressed economy.

Instead, leaders like president Jean-Claude Trichet took the position that decisive fiscal austerity created confidence in the private sector, which would translate into renewed investment and growth. So after the stimulus applied in the months following the original crisis, European policy makers in 2010 made an abrupt and dramatic shift into reverse.

"The results were disastrous," writes Nobel Laureate Paul Krugman, in an already influential article "How the Case for Austerity has Crumbled", released on the internet in advance of it appearance in the 6 June print edition New York Review of Books. "Countries forced into severe austerity experienced very severe downturns," almost in exact proportion to the cut backs imposed. Spending cuts and tax increases in Greece, for example, amounted to 15% of GDP, leading to shrinkage of some 18%, according to the IMF. Cuts of some 5% in Spain produced an equivalent negative GDP growth.

The effects of unemployment 

Past crises would suggest financial instability and an unemployment rate over 27% call for broaden social services to counteract mass poverty and deterioration of health. Instead, austerity policies have led to a sharp reduction in social services including a €7 billion cut in health care spending in Spain alone.

The Lancet study shows how job loss or even just the fear of it increased the number of mental disorders, while budget cuts in health services prevented patients from receiving care in a timely manner. These cuts have been met with protests on the streets of Spain and Greece.

Jessica Andujar, a Spanish immigrant working in Vienna, described how austerity is affecting her family at home. Her mother Carmen, 51, had worked all her life as a housekeeper and farmer, when she suffered an injury to her back, leaving her unable to work.

She was put on government disability, with full health care. However, in 2010, Carmen’s disability coverage was withdrawn. "The past system was universal; now it is not," said Jessica Andujar, "and we cannot afford a private doctor." Carmen, with her handicap, is now back looking for work.

And then there is Andujar’s grandfather.

José Rosique is 87 years old and has a broken hip that forces him to live in an assisted living residence. "He cannot move and needs somebody to help him everyday and my mother cannot help because of her back, and my aunt can’t either because cancer has made her lose movement in her arm."

The government has agreed to finance his assisted living, but the payments are never on time, and Andujar’s family is forced to pay upfront and then wait for reimbursement. Her parents are under constant pressure to pay with money they simply do not have.

"This is making us depressed," Jessica said. "My parents tell me to not come back to Spain, because it is better to be abroad."

These financial problems coupled with mortgage payments are creating a situation of continuing anxiety. If the economy doesn’t turn around soon, Jessica said, "We will have to leave our house."

They are not alone. Eviction orders in Spain have risen to over 350,000 since 2008 according to the BBC. While Jessica and her family still feel hopeful about the future, many do not. In February under threat of eviction, a 46 year-old man from Alicante, Spain committed suicide. There were three other suicides that week, including a retired couple in Mallorca whose eviction led them to take a fatal overdose of prescription drugs.

Faking it to make it

Greece has also cut healthcare drastically amidst the economic downturn and the consequences are worrisome. The Greek Documentation and Monitoring Centre for Drugs reports that drug users are now infecting themselves with HIV intentionally, to receive €700 in benefits a month and to gain quick admission into the Substitution Programme, instead of the normal waiting period of three to four years.

The alarming new wave of HIV cases is ascribed to a lack of preventative services. The prevalence of infection between drug users has also skyrocketed, the Lancet found, from 10-15 cases a year in 2010, to 256 in 2011.

Mental health disorders, mainly depression, have also risen significantly along with the number unable to receive care, according to the Lancet study. Admissions to public hospitals are sharply up and private admissions down, as patients can no longer afford private insurance.

Greece must find a way "to ensure public expenditures" to help create the social stability which is key to health, Ziniel said. "As diseases are not treated, [the number of] people who experience chronic diseases will expand." And while he concedes that cuts through austerity measures may save money in the short term, in "five years, expenditures will increase," generating yet another burden for recovering economies.

For Greece "the potential is there, but they cannot afford to translate that potential into economic growth," he said. But "the aid might come from Europe" – perhaps an EU-wide emergency health fund. "We can afford it."

Looking forward

All of these outcomes have not gone unnoticed in political circles around the EU. However even after seeing the adverse effects austerity measures had on Europe’s weaker economies, leaders are still not ready to give up on austerity policies altogether. Instead, they look at extending deadlines for deficit reductions, to allow governments to relax austerity measures and focus on reviving growth.

To Ziniel, this is not enough. "As an economist I am very close to the concept put forth by Keynes," he said, "which has given us [in Austria] stability, income growth and a high standard of living." More cuts in public expenditures will only "deepen the crisis."