Friday, August 14, 2009

Health Care Fundamentals

Health care is fundamentally no different from any other area of the economy. We live in a world of limited resources. Therefore, we need a mechanism to allocate those resources efficiently and fairly. Every individual decision about allocating a resource comes with a cost and a benefit, and neither benefits nor costs are the same across all individuals. As with every other area of the economy, a free market, in which individual consumers can make their cost-benefit decisions freely, and individual employees, employers, and companies can make their cost-benefit decisions freely, will provide a more efficient allocation of resources than a government controlled market. But perhaps not a fairer allocation.

Liberals are being disingenuous when they claim that giving the government more control will make the system more efficient. It will not. It cannot. I will get into the weeds on this later, but for now I think that most liberals want more government control over health care for one reason and one reason alone -- "fairness."

They have accepted to a certain degree that free markets lead to unequal outcomes in general consumption, in housing, in leisure time, and even in education. But they think that health care should not be treated as just another commodity. Poor people should not get worse health care than rich people. A person should not have to die early because he is poor. A corollary of course is that a rich person should not get better health care than a poor person, and a rich person should not be allowed to live longer because he is rich.

I have brought up the point about "fairness" and redistribution of wealth/income/consumption before, and I have basically accepted that there is no right answer. I have put "fairness" in quotes because there are many people who don't believe that unequal outcomes are necessarily unfair. Be that as it may, people value equality of outcomes differently, with liberals tending to value equality of outcomes higher than conservatives. I lean towards the conservative side. I believe there should be a safety net providing a floor on poverty, but I certainly don't believe in taking more than we are currently taking from the rich to provide for it. I cannot say that I am right, and those who are more liberal are wrong (and vice versa). We are just starting from different axioms.

The two claims I can make with confidence, however, are these:

1) treating consumption of health care as fundamentally different from other types of consumption is simplistic and wrong; and

2) a free market in health care in the US will lead to unequal outcomes but will make far more health care resources available for consumption by all (including the rest of the world, not just Americans).
To back up my claim in (1), I'll make two points. First, being poor is bad for health, regardless of the level of health care received. Poor people eat less nutritious food, they live in unhealthier places, they are exposed to more violence in their neighborhoods, they drive less safe cars, and they have more stress due to lack of money. There is a recent UK study that showed that low job status, which presumably leads to more stress, was a significant contributor to poor health. So to consider health care as having special moral implications is naive.

Second, we live in a world where many hard-working, smart people go into fields other than medicine. When somebody decides to become a financial analyst rather than a doctor, that decision reduces our aggregate health care resources, and therefore has consequences (probably negative) for the health of other people in the future. To the extent that such a career decision is largely an economic one, and it usually is, there is an entanglement between the economics of health care and the economics of all other fields, so that it is kind of meaningless to treat health care as an isolated area of the economy where the free market should not apply.
I will have more to say about (2) in later posts.

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