Basic principles for understanding healthcare reform

Updated: Jun 30

There is a lot of talk these days about healthcare. It is imperative to correct misleading myths and review basic principles if we want to have an intelligent discussion on this subject.

Let’s first address the slogan: “We don’t want to ration health care”. That is nonsense. The economy cannot sustain unlimited amounts of anything, no matter how desirable. Everything in the economy must be “rationed”; or to use a less derogatory term, allocated in a rational way.

In a capitalist economy, there are two ways this can be done. Let’s call the first “the BMW method”. Everyone would like a new BMW 5-series in their garage. (Since we’re in Utah, maybe I should say a new Chevy Suburban). But there is a limited supply of these cars. How do we allocate them? The answer is simple: you get one only if you can afford it. A free, functioning market is a very efficient way of rationing goods and services. BMW and Chevrolet must provide the best product at the lowest cost, or the customer will go elsewhere.

The second method is how we pay for police, public schools, parks, and other public goods. We, the people through our elected representatives decide on a budget for these services, which are paid for by taxes. We hire smart people to administer them, and they do the best they can to stretch the dollars efficiently. This is perhaps less effective than free markets, but it works pretty well. Our streets are safe, our children are learning, and we hear frequent bragging from Utah’s conservative politicians about how wonderfully efficient our government is.

Let’s apply the first method to health care. A free market could yield an economically efficient health care distribution system. But recall the most important ingredient to a free market: If you can’t afford the BMW, you can’t have one. For a free market system to work in healthcare, someone coming into the emergency room with life-threatening injuries without the ability to pay would have to be wheeled out to the sidewalk to die. Conservatives will cry “charity should take care of that person!” That is nonsense. With rare exceptions, care for the uninsured is not charity care; it’s paid for by a de-facto (and inefficient) tax on those who do pay. If you don’t think it’s a tax, try deducting 25% from your next payment to the hospital with a note stating, “I’m choosing to not pay the charity portion”. Care must be denied, or the model breaks down. If you know you can get a BMW (or healthcare) for free, why pay for it? That’s why the admittedly unpopular individual mandate was a critical element in the Affordable Care Act, and those who passed it deserve credit for having the political courage to include it. Markets can be efficient, but there is nothing more inefficient than dysfunctional markets. There is no better example of a dysfunctional market, with as many market-ruinous incentives, than the American healthcare system. That’s why we pay too much.

If society is not willing to deny access unless you can afford it, the second model (publicly funded with set budgets) works best to fulfill the function of rationally allocating that resource. There are many forms this could take. Since the United States is the last developed nation to address universal health care, there are lots of examples to study. But if we insist on universal access, the public-funded model is the logical choice.

Conservatives will cry “But we don’t want socialized medicine!”. That is nonsense. We have socialized medicine, just a dysfunctional Rube Goldberg version. Few Americans who have health insurance pay for it themselves; it’s either covered by the government or by their employer.

Reform is necessary in America’s healthcare delivery system, but we must approach this debate free from myths and ideological-driven falsehoods. And if there is one thing we have learned from the pandemic, it is this: As a nation, we are only as healthy as our least healthy citizens. It only takes one person in a community to lack the means to stay healthy from the coronavirus for the whole community to be at risk. It's time we stop hiding behind ideological arguments and just do what makes sense.



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