Monday, August 24, 2009

Health Care Rationing

There will be rationing under a government health insurance system. That is just simple economics. If you give away a valuable thing for free, then demand will exceed available supply. The government will have to allocate health care resources according to some formula, and I guarantee you, this will be extremely controversial and morally agonizing.

Proponents of a government health plan point out that in a free market rationing is also done, but it is done by price rather than by bureaucrats and lawmakers. The price rises until demand and supply are matched, and those unwilling or unable to pay that market clearing price will receive less health care.

This is certainly true, but rationing by price is more efficient and morally sound. Those that value health care a lot will be more likely to obtain it than those who don't value it very much. It is important to remember that health is not something everybody values equally. And pretty much everybody makes tradeoffs between health and money. That is why some people are willing to be coal miners or firefighters or football players, or are willing to work overtime with little vacation or even rest. It is also why some people don't eat healthy foods or exercise or stop smoking.

Some people care a lot about having (painful) surgery so they can continue to play tennis. Others not so much.

When you have rigid rules divvying up resources, you inevitably wind up giving something the government bureaucrats say is worth X to somebody who values it at X/10. Meanwhile, a person who values that thing at 10X must go without.

Perhaps most important of all, rationing by price will lead to more production of the health care services that are the highest price and therefore in the most demand versus available resources. In the long term, a market-based system will produce vastly more health care resources for everybody.

It's amazing that some people (read Barack Obama, Nancy Pelosi, Harry Reid, and other Democratic leaders) so easily forget the lessons of the Soviet Union and Communist China. Government control of the market stifles economic growth. It has been shown empirically that government bureaucrats simply can't do as good a job as the free market at pricing goods and services, providing incentives, and stimulating increases in productivity.

Some people want to believe health care is or should be exempt from market forces, but it isn’t, and it shouldn’t be.


Anonymous said...


You didn't address the rest of the big Government argument: affordability. With a free market system, some are priced out of the market, regardless of how much they value the good or service. In order to serve that segment, there will be some providers that give a lesser quality good or level of service for a lower price. However, there are many almost routine goods or services still unattainable by the poorest segments.

Is it reasonable for society, typically via Government largesse nowadays, to agree to provide a higher level of service or goods to those without sufficient means? Making this concrete, should the Government take money from those with greater means to provide some minimal, but higher than otherwise attainable, level of health care to those without the income to do so?

There are certainly things to be done to make the current system fairer and more efficient — like removing competition barriers erected by many states — but even after those improvements, there will be many unable to afford health care.

-- RAS

Anonymous said...

I didn't see a mention of it, but I just now read your previous post on Health Care Fundamentals in which you begin to address "fairness," the point of my previous comment.

-- RAS

ESM said...


The problem of poverty can be alleviated to some degree by having the government (or charities) subsidize consumption of various services by poor people. We do this already with food. Having adequate food is certainly more important than having adequate health care, but we have a free market in food (at least at the consumer level), and we have a food stamp and welfare program for people too poor to afford enough of it.

I think it would be pretty easy to provide a level of basic health care via a food stamp type program that would bring poor people to the same level of health care that the richest Americans enjoyed just 10 years ago. And it would be money that we are already spending collectively, since poor people aren't denied emergency care today anyway. I suspect the 10 year lag would be sustainable. Whether that is morally acceptable to most people is another question. It is to me.