Single-Payer National Health Insurance around the World Part II

by admin on 06/19/2011 12:50 PM

In 2002 and 2003, we reviewed The Twenty Myths of health care reform. Now a decade later the authors have updated the book, renamed it, and added important 21st century data.
Lives at Risk by John C. Goodman, Gerald L. Musgrave, and Devon M. Herrick
(Continued from the January 2014 HPUSA Newsletter)

Let’s now turn to a second well-documented, but rarely discussed, fact about modern health care systems.

Whatever we are spending on health care today, we are probably going to want to spend more tomorrow. This is true for two reasons: first, the average age in all developed countries is rising and health needs increase with age, and second, health care is a “superior good,” which means as income grows people choose to spend more of it on health care.

At 15.2 percent of the GDP, the United States spends more of its income on health care than any other nation, a sum that equals $1.6 trillion.11 This fact is a usual source of criticism both at home and abroad. But if you think 15 percent is high, you haven’t seen anything yet. Currently, senior citizens (over sixty-five years of age) spend about 45 percent of all their consumption (regardless of who pays for it) on  medical care. By 2020, it is estimated that three-fourths of all consumption by seniors will be on health care.

Is such spending good or bad? That depends on whether people are getting their money’s worth for the dollars they spend. If people are getting value for money, nothing is wrong with devoting more resources to health care. If they are not getting value for money, something is wrong with it. This way of looking at the issue is very different from what one hears in most public policy discussions. The standard complaint is that health care “costs” are rising. And innumerable conferences, briefings, books, articles, essays and so forth have sought to “solve the problem” of rising health care costs.

Note that in a general sense “spending” and “costs” are the same thing.

If people are aging and their incomes are rising, one can predict with great confidence that they will want to devote more of their income to medical care. Not only is this not a “problem,” it is a natural and inevitable part of life. Indeed, to the degree that this phenomenon is viewed as a problem, it is not a problem that is going to be solved. It will only get worse through time.

We noted above that in a system with no prices, decision makers cannot determine what value people place on different services. Thus, they cannot know what’s being oversupplied or undersupplied. A similar problem arises with respect to total spending on health care. Given that it should rise over time, by how much should it rise? How would one know? Without markets through which people can reveal their preferences for health care versus other goods and services, it’s anybody’s guess.

American employers who complain about the “problem” of rising health care costs are in a similar situation. Because decisions about health care typically are made collectively at the workplace and because the premiums employees pay rarely reflect real costs, employers have no way of discerning their employees’ willingness to trade off higher wages for more health care, except through union negotiations and other imperfect devices.

Fortunately, when American employers make a mistake, its consequences are confined to their companies and their workforces. But when the managers of national health insurance make mistakes, the whole nation suffers.

To be continued in the July, 2014, HPUSA Newsletter

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