Recently I was accused of “increasingly exhibiting rational libertarian tendencies“. Now I’m sure this is true to some extent. While I think my normative goals in terms of social justice have stayed much the same, I’d certainly agree that my openness to methods of achieving these goals efficiently has changed. Hopefully this makes me rational. Libertarian, I’m not so sure.
In general I’m much more at ease than I once was with the use of markets to allocate goods efficiently. While I still think that inequality matters because low incomes are largely the result of poor fortune and we do need some method of redistributing wealth, in general though this is better done via a progressive taxation system and effective welfare than by price fixing and subsidies or by actual involvement in the production of services. Arguments for just how this is done though is meat for another post.
There is a select few areas though that I think deserve special consideration outside this general framework, because the alternatives are essentially either unfair or unworkable and the services provided are essential. In my view chief amongst these is health care.
Its easy to find problems with the health care system in Australia and other places with a similar system, bed shortages, long waiting lists and under resourcing. There is certainly plenty of room for fixes and considering better ways of delivering services. On the other hand, the radical solution to the problem that some would propose, is an entirely private health care system. I can only see this solution as far, far worse.
What is far, far worse of course depends on your goal is regarding health care. In my opinion that includes a high level of cover for every one in a country. Of course some limits have to be set, and I do not oppose a parallel private system where people can buy additional cover for if they prefer. Ultimately I realise that a public system is never going to be able to afford the maximum possible cover available as the cost for a tiny portion of individuals is going to be unacceptably high. The exceedingly wealthy are always going to be able to buy a higher level of care and should be allowed to as it doesn’t adversely effect what the general system is willing to spend.
The argument could be made (and is) that a private system of insurance can make up for the public system of insurance that we enjoy in Australia. It works well enough for insuring your house against theft, fire or storms. It works well enough for insuring your car against accident. If we accept that a competitive private system will through competition and innovation deliver the service at the lowest possible price, why not then let the private system extend to health cover? People buy insurance against getting ill (possibly with a governmental voucher top up for the poor) and the government leaves the field for the provision of this service.
The first problem with this is information asymmetry. This is always an insurance risk, but one that is easier to estimate for many other classes of insurance. For health care you have a better idea of your general health than your insurance company does, and so the mix of people taking up an insurance premium will always be biased towards the people who are more likely to be ill. This means there will tend to be a gap between what insurers will offer and what people will buy at.
However if we could eliminate the information asymmetry problem, give insurers full access to your medical history and allow them to do extensive physicals and genetic testing then you could probably get a market going. However there is an additional complication which has to do with the distribution of medical costs. As this article by Paul Krugman explains for the US:
… in any given year, most people have small medical bills, while a few people have very large bills. In 2003, health spending roughly followed the “80–20 rule”: 20 percent of the population accounted for 80 percent of expenses. Half the population had virtually no medical expenses; a mere 1 percent of the population accounted for 22 percent of expenses.
The statistics are similar here in Australia. Now this isn’t such an issue if we don’t know in advance who the one percent that take up nearly a quarter of the medical bills are. If the expected risk of individuals is relatively flat then its works. However, while some of these huge medical bills are due to accident (ie. relatively evenly distributed) in many case we do know who is likely to become chronically ill and require the exceedingly high medical bills.
Additionally in most cases of insurance you are insuring some of your physical assets against loss, we can expect people to be able to afford to allocate a small percentage of the value of those assets to insure against the risk of loss. This is not the case for someones health, where the cost are virtually the same regardless of the wealth of the individual. Especially as we would expect poverty and poor health to be correlated.
So as far as I can see if we are to get acceptable universal health care government intervention is necessary. Given that poor health is fairly arbitrary, this would seem an obvious place where government intervention can have a positive impact on equality of opportunity. Its also not clear that it costs more as the graph below from The Economist shows, the US with a comparatively private system spends more than most countries with a public system, not only in total, but also more than the OECD average in terms of public contribution. For all this spending they get great health care for a large portion of the population but still perform relatively poorly on basic statistics like child mortality compared to Europe and Australia, due to the quarter or so of the population not covered. Given this, I’m still skeptical of other models to give either good coverage or cost efficient delivery.