Health Care: Rationing and Cost

Of all the silliness being thrown up in the air during our ongoing health care debate three aspects stand out as being the most silly: that a public option introduces ‘unfair’ competition, that any government plan implies the introduction of rationing, and that the idea of extending coverage to everyone is just not affordable.

All these arguments are wrong, and we should stamp on them wherever we find them.

I have talked about the ‘unfair’ point before, so I won’t go into it again at length here. Suffice to say it is rubbish. Those who oppose a competitive government plan have to justify why it is they are defending the tangled mess of local monopolies and cartels that now pervades the system: in most states one or two providers account for over 65% of the insurance. That’s not competition. Nor is it a ‘free market’. It is an unfair concentration of power that inevitably means we all pay too much. It is a perfectly legitimate role for government to intercede and break the pricing power of near monopolies. So far from being ‘unfair’, a government plan injects a healthy dose of good old capitalist competition. In other words, in the view of the pro-market folks, in injects ‘fairness’. Enough said.

Next: ‘rationing’. I hate this one. The problem is most people don’t understand that all economic systems are devices to ration things. It is a fundamental property of the world we live in that resources are not limitless: there is not enough stuff for all of us to have everything we want. So, inevitably we have to find ways to allocate resources. In a market we allocate by using prices: if you can’t afford the price you can’t buy the stuff. So the scarce resources get allocated to those who can afford to pay the price. In other words we ration using prices. There is absolutely no mystery to this. Prices are a rationing mechanism. Were stuff limitless it would be free to everyone. It isn’t, so it’s not. To say that a system of allocation other than prices is ‘rationing’ and a price system is not is to tell a lie.

Nor is it correct to argue that prices are more ‘fair’ than other forms of rationing. Those who hide behind the ‘prices as fair’ argument are actually arguing that those who cannot afford something are in truth ‘unwilling’ to pay the necessary price. That argument belongs only to those blind to the impact of income and wealth distribution. This may include all the neoclassical economists of the world, but it shouldn’t include anyone in touch with reality. All the willingness in the world does not necessarily translate into sufficient cash to buy something.

So the price system is not ‘fair’.

It is, however, impartial. One of the bedrock tenets of the free-market faithful is that impartiality implies fairness. They argue that by stripping away any ethical, judgmental, or normative component within an allocative system it magically becomes cleansed of bias. So: a price driven system cannot be biased against ‘poor’ people because it is ‘impartial’. The free-market folks thus use ‘impartiality’ as a faux disinfectant to rid their ideology of the taint of class warfare or systemically sustained privilege. Further they feel consequently emboldened to attack all other allocative systems as exactly the opposite: because all other systems lack impartiality they must, by definition, be biased and thus inhibit the ‘free’ flow of resources to those who ‘truly’ want them.

But their argument simply melts into vapor when the distribution of incomes and wealth are taken as part of the equation: the price system loses its impartiality when it is shown to favor those with enough income to bid prices up to levels unaffordable by those less fortunate.

So prices are a method of rationing.

That means we already ration health care. This is a universally known truth in economics, but still requires hammering in publicly. Uwe Reinhardt explained it well in the New York Times with the help of nice quotes from a standard microeconomics textbook.

Shouts of ‘rationing’ are thus as silly and misleading as those of ‘unfairness’.

Lastly: the cost.

There was a considerable brouhaha in the media a couple of weeks ago when the Congressional Budget Office [“CBO’], the non-partisan scorekeepers of the cost of legislation, reported on the preliminary bill floating through Congress at that time. The CBO showed that the proposal would significantly add to the cost of health care and yet not achieve the goal of extended coverage. The angst and hair tearing that followed this announcement was stunning. The media immediately piled on and concluded that Obama’s health care proposals were ‘dead on arrival’. The breathless cheering from the right wingers and so-called centrists was more in relief than anything else: they now had a legitimate platform to attack health care reform: we can’t afford it.

The only problem with this display was that the CBO was ‘scoring’ a draft proposal, one that excluded some very key aspects of reform including one that provided significant revenue to cover costs. When a more complete proposal was similarly scored last week the result was radically different: universal coverage is extremely affordable. The media seems to think that this is not newsworthy. The absorption with Michael Jackson, and various recalcitrant GOP governors, knocked the debate about health care off the front pages.

Nonetheless the CBO has clearly analyzed the more complete proposal now wending its way through Congress and the good news is that universal health care is well with our budget. Yes, total costs will rise initially: over a ten year period the out-of-pocket expense will be an increase in costs of the order of $1.3 trillion. In the context of our overall health care bill during that same period that amounts to a 4% increase. So a 4% increase buys us coverage for the 45 to 50 million people who are currently not covered. Not bad.

All this should be intuitively obvious: as Paul Krugman points out this morning, every other large industrial country has figured out how to provide universal coverage, why can’t we? Plus, that 4% increase can be recouped by some basic cost control. As I have argued before, if we get some old fashioned capitalist incentives to drive doctor and hospital behavior and thereby reduce useless treatments, shorten treatment plans to within efficacious limits, and drive down the costs of drugs the cost of health care can actually be made to shrink.

That would leave us more money to build more productive assets and would thus improve our future.

So let me get this right: a ‘fair’, competitive, universal, and affordable health care system is possible?

Who wouldn’t want that?

Apart from the Republicans.

Addendum, 4:30 p.m. July 6th:

I just found this link in Paul Krugman’s blog. It is an article by Jonathan Cohn of the Boston Globe. He nails the rationing argument plus some. For those interested the French system is consistently considered, in anecdotal stories and popular surveys, as the best there is [here, of course, only the American system can be best!]. The point being that we need fundamental change. Quickly.