Is health care special? – The New York Times
Uwe E. Reinhardt is professor of economics at Princeton. He has some financial interests in the domain of health.
In a recent episode of the TV show “Raw Nerve”, the host William shatner, of “Star Trek” fame, had this exchange with Rush limbaugh:
Shatner: âHere’s my premise, and you agree or disagree. If you have the money, you will receive health care. If you don’t have the money, it’s more difficult.
Limbaugh: âIf you have the money, you’re going to have a beach house. If you don’t have the money, you’re going to live in a bungalow somewhere.
Shatner: âYes, but we are talking about health care. “
Limbaugh: âWhat’s the difference? “
Shatner: âThe difference is that we are talking about health care, not a house or a bungalow. “
Limbaugh: âNo. No. You assume that there is a morally superior aspect to health care than to a home. â¦ “
Shatner: âNo, I’m not moral at all. I want to keep the topic, for now, on the issue of health care. “
One has to wonder if the doctors, nurses and other workers working day and night in health care – not to mention the doctors and helicopter pilots who risk their lives to help the injured – see their work and its product exactly. as Mr. Limbaugh puts it.
It is further questioned whether families with a member who has cancer are likely to view going without health care as the moral equivalent of going without a beach house.
But setting aside speculation about the moral dimensions of healthcare that providers and their patients – or, for that matter, readers of this article – might consider, it should be noted that economists, too, have been concerned. Long pondered the question of whether health care stands out from other goods and services traded in the market.
In raising this question, economists have been less concerned with whether health care has moral aspects than with the methodological question of whether the standard tools of neoclassical economics – especially what economists call “l ‘normative economics’ or ‘welfare economics’ – can be applied. to health care too.
By ‘normative economics’, economists mean prescriptive analysis, that is, advice on what decision-makers should do to improve human well-being. It is distinct from âpositive economics,â which simply seeks to describe the behavior of individual actors and health care institutions and to predict how they would be likely to respond to changes in economic incentives.
The question of what makes health care special, if at all, was first explored extensively by Nobel Laureate in Economics Kenneth Arrow in his still widely celebrated 1963 article, “Uncertainty and economics of health care welfare. “(For a collection of scientific essays celebrating and re-examining Professor Arrow’s article nearly 40 years after its publication, see The Journal of Health Politics, Policy and Law, October 2001.)
Professor Arrow had been commissioned to write the article by the Ford Foundation, who felt that economists, both theorists and empirical researchers, should be more engaged than they were then with the problems of the growing healthcare sector.
To establish a standard against which to compare the health care sector, Professor Arrow first explained the basis on which economists view a perfectly competitive market for a good or service as “maximizing human well-being,” an outcome that economists describe as âefficientâ.
The crucial characteristics of a perfectly competitive market are (1) that all the dimensions of the quality of the good or the service exchanged in this market are understood with precision by the buyer and the seller; (2) that potential buyers have full transparency on the price they will have to pay per unit of this good or service; (3) that it is easy and relatively inexpensive for potential sellers to enter and exit this market; (4) and that there are so many potential buyers and sellers that none can individually affect the market price of the thing being traded.
If these and other conditions are met, Professor Arrow explained, then for any given initial distribution of income and wealth, this market will be established at a single equilibrium, that is, a state of which no buyer or potential seller would not want to go out. This balance has important attributes.
First, in what Professor Arrow calls the First optimality theorem of the welfare economy, we can show that in this equilibrium, the good or the service exchanged is distributed among the buyers in such a way that it would be impossible, by a reallocation, to make someone happier without making someone else less happy.
This is an allowance that economists call Pareto efficient, in honor of the Italian industrialist, economist and philosopher Vilfredo Pareto (1848-1923), who first proposed this criterion.
For any given initial distribution of income and wealth, economists state that the associated Pareto-efficient allocation of the thing produced and traded is “optimizing welfare” – hence the term “welfare economics” for this type of analysis.
Second, and this is very important, in what Arrow calls the Second optimality theorem, he explains that if, for ethical reasons, the company wishes to distribute a good or service (for example, education or health care or food or beach houses) among people in a particular way – like egalitarian principles – it is not necessary for the government to be directly involved in the production or distribution of this good or service. The desired distribution could be achieved by redistributing income and wealth among citizens in a way that would lead the perfectly competitive private market to achieve the desired distribution of the good or service among people. Better yet, it would do so in the way of maximizing welfare predicted by the First Optimality Theorem.
It’s easy to see why Professor Arrow’s article has ignited the imaginations of generations of economists around the world with their argument that public health policy should be strictly limited to making the healthcare market perfectly competitive, then to redistribute the income – perhaps through taxes – from vouchers funded to help subsidize the purchase by the poorest people of the health care they need – in order to achieve the distributive ethic that society wishes to impose on health care. This free market approach would automatically take care of any moral aspect that society wishes to attribute to health care.
After establishing this normative benchmark, Professor Arrow explored in the rest of his article how close the healthcare market actually comes to the characteristics of a perfectly competitive standard. In my next article, I will discuss Professor Arrow’s conclusion.