Health Care "Rationing"

The whole "health care rationing" debate is reaching new levels of absurdity.  In part, this is because the very term "rationing" is a confusing misnomer.

So here is what it boils down to:  For every product or service purchase, someone makes a price-value trade-off to determine if that product or service should be purchased for a given price in that particular instance.

One option for making this decision is to have the person who actually will consume the product or service -- and whose money will also be used to complete the transaction -- make this price-value tradeoff.  This is how we make these decisions for just about, um, absolutely everything that gets purchased.  Since it is your money and you are the one who will enjoy whatever is being purchased, it makes sense that you make the decision - is the price worth it?  Do you buy a cheaper substitute?  Do you do without?

A second way to do this would be to have someone who has you specifically in mind make the price value tradeoffs for you.  This might be like your wife volunteering to go out to buy you some new underwear.  While results may be superior for this approach in a few cases (e.g. my wife buying me clothes), in most cases this approach is fraught with information asymmetries that will likely lead to a suboptimal purchase.  Consider, for example, my wife buying me the cheap 28" TV when I had wanted to drop the big bucks on a 60" beauty.

If one were sloppy, he might say that this second approach is the role that exists with insurance companies or is being proposed for the government.  But this isn't the case.  Because these third parties are NOT making the decision with me and/or my personal preferences in mind.  They can't.  While my wife may have an imperfect understanding of my preferences, a government health board has none.

So a third model, and almost certainly the worst in terms of individual satisfaction, is to have a third party make price-value tradeoffs for me only with some notion of average preferences for average people, or worse, with an incentive system that has absolutely nothing to do with my satisfaction at all.  This is clearly the case for the government, and is probably the case for many private insurers today -- though at least in the latter case one could imagine a regulatory regime that allowed for much more competition and a range of offerings with different service levels and pricing, such that I was more likely to find a pairing close to my preferences than I would in a one-size-fits-no-one government regime.

Skeptics worry that such a range of choices would not exist under private competition, but in fact it does in every single market where the government allows it.  Take grocery stores, since the President of Whole Foods has come into so much criticism from government health care promoters.  The choices in grocery shopping are simply staggering -- just think what different price/value points Wal-Mart, Whole Foods, Safeway, AJ's, and the farmers market offer.

I am constantly amazed when people say that government health care is no different than private competitive models because there will always be rationing.  If you cannot see the difference between "rationing" for yourself based on your own budget and preferences and "rationing" by government committee, well I suppose you deserve what you get.  Except for the problem that unfortunately, I will be forced to take it too.


  1. Dan P.:

    I have a old college friend who is a senior legislative assistant for a Democratic legislator. She embraced the idea that government rationing and private insurer "rationing" are the same thing. Try as I might, I could not get her to wrap her head around why that idea is false. In short, she didn't want to understand. I despair, Warren. I despair.

  2. Ben:

    I won't disagree with you at all: using price information to allocate resources is not rationing.

    However, you're talking past the folks who are advocating for single-payer. They fully acknowledge that you sometimes won't get what you (think you) want and that a government system is inherently less capable of following your desires than you could be on your own. But that's ok, those are features, not bug; the argument goes that the third model is better than the second model, and possibly the first model, too. Since you don't _really_ know what's good for you, you see, and technocratic and autocratic top-down solutions are capable of both discovering what's good for you and dispassionately carrying it out.

    The above presumes that I am willing to ascribe only the very best of intentions to those pushing for a single-payer system (or the equivalent system in which the insurance companies become public utilities which are totally regulated). But in reality it's substantially just Yet Another Government Power Grab (tm).

  3. Robert Arvanitis:

    Dan P.:

    Try this approach. Ask: "How can this nation spend even one dollar on (non-essential of choice; movie tickets, CDs, jewelry, vacation travel...), much less the $X billion (actual GDP component), as long as there is one child without insurance?"

    Indeed, turn the argument back onto government itself. How can the NEA spend even one dollar on art, as long as there is a child without insurance?

    That will necessarily force your legistlative assistant colleague to face the fact that life means trade-offs.

  4. Dan P.:

    Life means trade-offs? Not when you have a blank check drawn on the citizenry. We can spend everything we want on children's health care and arts and everything else; lack of money is no barrier(as Mr. Obama is admirably demonstrating). The only barrier is the nihilism of the opposing party (which can only be bothered to oppose spending when out of power).

  5. Link:

    Your analysis doens't fit at all. Hardly anyone in the US buys healthcare like they would underwear or TVs. Your employer buys it for you, or the government does. There's also an implicit idea that if anyone can buy the healthcare equivalent of the 60" TV -- then we're all entitled to it instead of the 28".

    Even if we had no government intervention, it wouldn't work like underwear and TVs

  6. Michael:

    I had two rather interesting health care to pricing experiences recently. I broke my arm this spring and was paying out of pocket. After a few visits, the doctor's billing gal told me my bill was $900. I asked for a breakdown of my bill and she said she couldn't provide the information. It's wasn't that she didn't want to, but that the billing technology the office was using was incapable of providing this information. I had a similar experience at a surgeon's office I do some consulting for. I went in the day his billing gal was there. She was flipping though an 8 by 11, 1000 page book. I was talking with her about the number of billing codes in the book when she brought out a second book of similar size. She gave me and overview of how she does billing for medical care. I was surprised that at the office level, there was no price to service relationship. Medical billing just isn't designed for the consumer to know the price.

  7. Mesa Econoguy:

    I just had a surgical procedure in May, and received multiple full breakouts of costs.

    A more in-depth analysis would incorporate utility curves, which differ widely among individuals. Individual market purchasing provides a much better fit to consumer needs.

    The giant problem with health care reform and inserting government as a 3d party intermediary - not even an agency function, as Warren describes above, rather simple administrative party - is that government has limited resources, and does not have your interests in mind in its calculation, hence there must and will be some determinative body charged with making decisions for scarce resource allocations absent a market-clearing price mechanism.

    People are completely price inelastic when it comes to catastrophic illness. Government (or agent acting on behalf of the government) is not.

    It should also be noted that much of cutting-edge medicine falls in the high cost/high risk area, and these innovations will be killed off under state-run (or single payer or "government option") health care, as government will not fund them.

  8. Michael:

    I should have put that better. I got a full break down from each medical group some days after the medical service was provided by a 3rd party. The medical provider was not able to provide me with the price of service before or at the times of service.

    John Stossel had a segment last night about health insurance and Whole Foods. They use a catastrophic insurance with health savings account model for their employees. While the employees like the plan, their main issue is trying to get up front pricing.

  9. Ken Willis:

    Having your wife make choices for you would be suboptimal but at least there is the possibility that she cares for your well being. Having your choices made for you by people who don't know you and care nothing about you or your well being is to live under the worst tyranny.

  10. Michael:

    "Having your wife make choices for you would be suboptimal but at least there is the possibility that she cares for your well being."

    Maybe men should have their wives make medical choices for them. Women tend to out live men.