A fundamental problem for Europe is the issue of sovereign debt. At present levels, the continent will never be able to find a solution to repay this debt, and the staggering deficits run every year are compounding the problem. In order to overcome it, high economic growth — but one that is not liquidity-driven — would be required. And yet we know empirically that high public debt, in the long term, is detrimental to growth.
This is already a predicament, but the situation is worse. In most European welfare states, health insurance and retirement payments are obligations of the government. People have paid high taxes, including for social security, for which they should be entitled to benefits. The excessive levels of taxation and social security also limited the viability of private alternatives. The low-interest environment of recent years put another nail in the coffin of healthcare and pension provision.
But the worst part is that in the complacent democracies of the world, states and governments were not planning for future healthcare and retirement payments. The money that citizens entrusted to the state for their future health and retirement needs was cynically and irresponsibly misallocated. These obligations, properly accounted for, will multiply the existing debt between two and fourfold.
From the outside, the situation appears fine. People in Europe still believe that the welfare state will honor its promises to pay for their healthcare and retirement when they age. There are certain analogies here to the Ponzi scheme of Bernard Madoff, who convinced his investors that they would make a return. In reality, he paid old investors not with revenue but with money from new investors, and then repeated the cycle on and on. Inevitably, once all the money was spent, the system imploded and Madoff (rightfully) went to jail. Europe’s healthcare and retirement money will also, one day, be spent. Eventually, the welfare state will collapse and democracy will be critically challenged.
People in Europe still believe that the welfare state will honor its promises to pay for their healthcare and retirement when they age.
Yet a certain naïve trust persists among citizens of the welfare state, as shown in a new report by the global insurer Aegon, The New Social Contract: Empowering individuals in a transitioning world. People living in states with high public welfare expenses, especially in Europe, worry less about protecting their health and finances when they grow older than they do in the United States or India.
Between underfunded benefit obligations and the declining demographic picture in Europe, a large number of future retirees will fall into poverty. Pension plans will not meet the needs of many, at least in terms of purchasing power (inflation can help prop up the nominal value of pension plans, maintaining a quasi-fraudulent window dressing). The prospect of retirees suffering disease and healthcare challenges — and lacking the means to treat them — is a grim future indeed.
There is no hope that this catastrophic situation can be solved from the financial side. As in the case of the Madoff scheme, the money is gone, and the scale is simply too large for any fix to work. And the terrible truth is that irresponsible welfare and clientelist politics let it all happen, knowing full well the consequences and yet continuing on this path all the same.
In fact, the only possible solution is to reform the entire healthcare and retirement system, taking the reins from reckless public administrations and inspiring the citizens themselves to take responsibility for their health and financial future.
The criminal behavior of the irresponsible politicians of the past will require able-bodied people to retire later in life, even in their seventies. This is not so unrealistic, as the average life expectancy in Europe has now happily increased to some 85 years (varying regionally and individually). Later retirement will also be necessary to cover forthcoming job shortages, the result of a declining population. This should not be strictly regulated by the government but left to develop organically, provided that politics does not get in the way with limitations or confiscatory taxes.
A more flexible system of later retirement would also enable greater professional reorientation for people over the age of 55. New careers would not be time-limited, a factor that today prevents employers from hiring people with fewer than ten years before retirement. Another obstacle is the general presumption that older people are tired, and simply want to take it easy.
This leads to the issue of vitality — meaning health, energy and dynamism, as opposed to frailty. The biggest drains on the healthcare system are the age-related diseases such as cancer, cardiovascular problems, diabetes, Alzheimer disease, dementia and others, all of which predominantly strike people in the last 20 years of life.
Age-related diseases can, however, be avoided with lifestyle changes. It is an economic and political imperative to achieve a healthier and more vital population. That begins with an emphasis on prevention.
Europe must promote systems that can check healthy people and support them to protect themselves from chronic diseases through nutrition, movement and lifestyle.
The Western school of medicine is more geared to “sick care” than healthcare, widely ignoring the importance of prevention. One alarming example is the increasing problem of obesity, especially in childhood, which can lead to early-onset diabetes.
We must do more to promote regular health tests; not targeted simply on the symptoms of diseases, as they are now, but on the possible underlying causes of diseases before they strike. These tests can give personalized advice on lifestyle and nutrition, to help protect individuals from chronic and age-related diseases and make them healthier, happier and more active.
Traditionally, Chinese medicine has emphasized prevention. There exists an intriguing, if overly ambitious anecdote: Chinese doctors should charge for keeping people healthy, and provide care for free if their patient gets a disease.
In reality, the Chinese government is indeed promoting the idea of moving from “disease-centered” care to “big health.” The aim is to deliver a full suite of health services that cover the entire continuum of care, with an emphasis on health management and chronic disease management. Chinese citizens and healthcare professionals alike should recognize the importance of prevention in healthcare, the essence of the “big health” program of President Xi Jinping’s government.
Conversely, European medicine today generally react only when symptoms of disease first appear. By then, of course, the disease has already started. Following the traditional Chinese approach, Europe must promote systems that can check healthy people and support them to protect themselves from chronic diseases through nutrition, movement and lifestyle.
This can only be successful in a voluntary system. We will need to change how we educate the medical profession in the West to include more emphasis on lifestyle choices, diet and exercise. The danger, however, is that government will not restrict itself to helping change the education system. It may also start nudging and introducing regulatory limitations, and frustrating or misdirecting incentives, which deprive the citizen of taking responsibility for their health.
Governments can provide the framework, especially in education. The insurance industry can offer incentives. Combining business and science will bring solutions.