The government should provide health care, because the economic characteristics of health care make it ripe for abuse in a market environment. Government should provide as a service to its population those goods that, for one reason or another, are open for abuse in a normal market economy. Normally, the main condition is natural monopoly, which makes the case for government involvement in commodities like electricity, water, or policing. Health care is not a natural monopoly in that there can reasonably be a number of different providers, but it has other characteristics that make it a strong candidate for government intervention.
In even the freest capitalist economies, there are public goods that the government provides. The government provision of certain services is accepted by populations because the alternative -- total anarchy -- results is a severely degraded quality of life. No government services at all is a failed state, one of the purest examples in the world today being Somalia. In the absence of any viable government, the quality of life is reduced to Hobbes' state of nature, characterized mainly by continual fear of death, given lack of security, which in turn means perpetual violent competition for the basic means of survival (Lloyd & Sreedhar, 2014). Even the most ardent of libertarians in today's society accept that societies benefit from at least some government intervention, if only to govern and regulate the most fundamental of markets.
Where one draws the line on which goods and services are public, and therefore subject to government interference, is a matter of personal preference. The wealthiest, most powerful individuals might see freedom from regulation as more opportunity than threat, while the poorest among us have little power to defend their interests, and thus may have a preference for more government intervention in markets, so as to increase their own market power. It is perfectly reasonable for a society to reject the idea that health care should be subject to government intervention.
The interesting thing about that argument, however, is that health care is one of the most heavily-regulated markets in America already. Moreover, there are many goods which are entirely superfluous to the quality of our daily lives that are subject to myriad regulations. Consider the humble bottle of cola. This product is entirely useless, and nobody would suffer the slightest if it were banned entirely, yet it is subject to FDA mandates regarding its production, Department of Justice mandates to guard against monopolies in its industry, and the SEC defends against cola executives from committing securities fraud. Health care, arguably, is more important than cola, and is thus subject to many more, and more stringent, restrictions on its trade.
Again, the level of government intervention in a market is determined by the society in which the market exists, is a matter of preference. The opposition to government provision of health care is seldom without bias. Typically, the opposition cites economic arguments, holding that competition drives down prices, increases quality and increases availability, all of which are true, if your understanding of economic concepts is inchoate. Government provision of health care would most certainly detract from market efficiency -- taxes would need to increase, and this would reduce the allocative efficiency of the economy (Sanders, 1989). Moreover, people would lack incentive to look after their own health, it is argued, because they are not going to pay the costs of their choices, but rather they will offload those costs on the taxpayer. Some has also argued that corruption is inherent in government provision of services, from which naturally flows arguments of further inefficiency and of reduced overall investment in that market (Gupta, Davoodi & Tiongson, 2001).
The opponent's claims are rooted in but the most rudimentary understanding of economic concepts. The corruption argument holds no water. The implication that public officials are more subject to corruption that private interests is the...
While there is doubtless some public corruption -- the U.S. ranks 17th on the Corruption Perceptions Index (TI, 2014) -- private enterprise always places the profit motive ahead of other considerations. What is corruption if not a manifestation of the profit motive? Where there is no corruption there is no pursuit of profit at the expense of duty of care, and this inherently implies that public provision of services should be superior.
More important is the issue of allocative efficiency, because that argument is rooted in actual economic thought. Allocative efficiency would occur in a state of perfect competition, or something close to it, but the actual economic condition of health care is far from perfect. Perfect competition, in economic terms, is a state where providers are undifferentiated, and buyers have perfect information. Under such conditions, there is no opportunity for profit and thus perfect allocative efficiency. There are few, if any, truly perfect markets in this world -- it is a concept more common the theoretical world of economic study. Relatively free markets, however, are close to this condition, and firms earn a small profit when they are able to differentiate their goods.
In health care, market conditions encourage extensive profit-taking, and that is what happens. The first reason is that there is very low price elasticity of demand for health care. Because health care is central to life, and to quality of life, people are generally willing to pay whatever it takes to become healthy again, when the opportunity exists. This alone can be leveraged by firms to maximize their profits. The second factor is that there is substantial information asymmetry, a characteristic that places economic advantage with those who have the higher level of information. In short, while health care professionals and managers have expert knowledge owing to their years of expertise, consumers have very low knowledge of what health care procedures are, let alone whether they are needed or what a reasonable cost of those procedures might be. The asymmetry is made worse by barriers between the end use and the provider -- insurance companies and employers. The former takes profits, and the latter has low price elasticity of demand despite its apparent bargaining power. It would be unusual indeed for a company to bargain with a health care provider via its insurance company over a bill. This has led to concerns that the insurance company is not contributing enough to cost control -- it is a price taker not because its margins are great (they aren't) but because it can pass the costs along to the inelastic consumer base (Besley & Gouveia, n.d.)
Thus, there are few controls to curtail market abuses. Lastly, market abuse occurs in health care with the consent of government -- the FDA grants monopoly conditions on new drugs and medical devices, knowing that means that the companies involved will seek to maximize their profits. Profit-maximizing behavior in other industries is checked by buyer information, or higher price elasticity of demand, but these conditions are both strongly in favor of the health care industry.
While the most logical method of curtailing runaway costs in health care is government provision, there are other ways that government can intercede in an industry in order to reduce market failure. Government addressed market failure in telecommunications through deregulation, for example, and did the same in the airline industry. In health care, there are enough industry players. The health exchanges we see today are a means of delivering more price competition from insurers. Any attempt to bring more transparency to health care costs will help, but insurance companies and corporate payers need to be compelled to exert their bargaining power over providers. Regulations that curtail excessive profit-taking may be a drastic solution, but one that at least can remedy some of the more blatant market failures in health care. Government as payer for more consumers will also work. Ultimately, government will have to be more involved in health care to avoid market failure, but if government is not the provider and payer, the tradeoffs will be complex and challenging for both consumers and providers alike.
Besley and Gouveia write about different modes of health care provision. They discuss in particular some of the cost drivers in the American system, and evaluate some other systems in order to come to some conclusions about what other options exist. They note that insurance is a key issue for a private health care system, and because of this most countries opt for public health care systems, typically with mandatory insurance.
Gupta and Davoodi seek to understand how corruption affects the provision of government services, including health care. Unfortunately, their analysis has significant bias, as they begin with the assumption that government-run programs are inherently corrupt.
Transparency International is an organization that measures the level of government corruption in all the countries of the world. This source was required to examine the claims of Gupta and Davoodi. It was found that in the West there is very little government corruption. While the U.S. has…
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