Socialized Medicine

If I grant the benefit of the doubt to the supporters of socialized medicine, grant that they are not out to destroy freedom and health care but rather have a sincere desire to help the less well off, perhaps they will grant me that I am not a selfish, uncaring troglodyte but rather oppose socialized medicine, indeed socialism in any non-voluntary form, for other reasons. Perhaps they will make a good faith effort to understand my position. It is devoutly to be hoped, because this is not a matter of opinion. There is a right and there is a wrong, and by any reasonable measure, the outcomes of a system of socialized medicine are inferior to those of a fully capitalist system.

I very deliberately avoid saying free health care, as many are inclined to do, because there is no such thing as free health care. All health care must be paid for, although the manner in which it is paid for will greatly influence the outcomes in the system. I also do not call it universal health care, for reasons which will become apparent later. Furthermore, while I will cite examples from the US and Canada, as well as other nations, this essay is not meant to be a defense of the American system of health care. Far too many health care debates devolve into a Canada vs. US argument. My position is that the US health care system is deeply flawed; what I advocate is a capitalist system of health care, which the US has only in bits and pieces.

Let us begin with a quick look into economics, because it is on the rocks of this discipline that socialized medicine flounders. The good reader will note that air does not come with a price. The reason for this is that air is what economists call ‘superabundant’, i.e., there is more supply than demand. Everyone who wants air may breath it, as often and as much as desired, without inhibiting the rest of us from breathing it. But what happens when the demand for something outstrips its supply?

Let us say that there are ten individuals, and each individual desires an apple, but only five apples exist. In such a situation, it is unavoidable that rationing will occur; not every individual will get his desire filled. Perhaps only five will eat an apple, perhaps all ten will eat only half an apple, but it is not possible, under those constraints, to give each individual all of what he desires. But what form will this unavoidable rationing take? In inventing a rationing system, we are limited only by our creativity, but in a system where people are allowed to own property, and where all relationships are voluntary – a free market system, in other words – a general medium of exchange evolves. Called money, this medium allows for all goods to be measured against it, and this is called a price. It is price that, in a free society, rations goods and services on the market. Of course, in a small example like ours, it is quite possible that all ten will know and like each other, and therefore cooperate so that each will eat half an apple. This is a perfectly moral decision, but it is not a market decision. On the market, the price of apples will rise until only five are desired.

Notice that price, therefore, coordinates behavior between producers and consumers. The price rises until consumers reduce their consumption to the amount of apples in existence, but the price also encourages people to grow apples so that next time there will be more apples. This is part of how the market works: price coordinates behavior. Consider your own life. The last time you bought a sweater, did you take an inventory of how many sweaters were in existence, and did you then survey the entirety of the human population to see how many wanted a sweater, and did you determine how badly they wanted/needed the sweater before deciding whether it was appropriate for you to buy one? The question may seem absurd, but that is exactly the dilemma, along with a host of others, facing a socialized system of anything. The ability to centrally plan an economy continues to elude our species. In a decentralized system like the free market system, where individuals make their own decisions, one need only look at a price and decide whether it is worth purchasing. The price itself will guarantee, within a reasonable margin, that there is a sweater for everyone who both can and wants to purchase one.

If one looks at the US health care system, as well as the Canadian one, we can see the effects of interfering with market prices and the market method of payment. Roughly sketched, the US health care system is one where health care goods and services are largely privately produced for profit, but payment is usually made through a third party, be it government MedicAid or essentially private insurance (for our purposes, it is enough to note that this is the case without going into how such a system has come about). The Canadian system is one where each province funds the vast majority of its own health care system through taxes, sets budgets and price controls, and all health care producers and consumers must participate in the system. Given this, there are certain results we should expect to see, and we indeed do.

A man who spends his own money on an apple at the point of purchase experiences the loss of the dollar as well as the pleasure of the apple. Furthermore, he knows he may stop the loss of the dollar by ceasing to purchase apples. He must balance the quality of the apple against its price in deciding which apple to purchase. But consider a man with apple insurance. He is still interested in quality, but he has already paid his apple insurance; there is no longer any reason to forgo purchasing an apple unless he simply feels satiated. Furthermore, the cost of his apple insurance, if I may be permitted to keep it simple, will be the cost of all the apples that all the members of his insurance program purchase throughout the course of the year, divided by the number of members. If there are one thousand members and each purchases ten apples for a dollar each, each member must be charged at least ten dollars simply for the insurance company to recoup that particular cost. If our man decides to reduce his consumption to five apples per year, his apple insurance will now be nine dollars and ninety nine and a half cents. If we round up, he still pays the same for apple insurance, but has lost out on a few apples. In other words, he has no control over his costs, unless he chooses to forgo apple insurance, but he still controls his apple consumption.

We can see, therefore, that he has the same concerns about quality, but his concerns over costs are effectively zero. He will be more likely to choose higher quality, and therefore more expensive, apples. Since a good deal for him now merely represents the quality of the product, when he shops around it will not be to find a better price. With consumers less interested in price, producers are less constrained to hold down costs. We would therefore expect to see a high quality of apple and a lot of them, but high prices as well, even higher than the quality of the apples can account for. We would also expect to see more individuals purchasing apple insurance and then try to purchase more than their yearly premium would buy, thus putting at least some of the cost of their consumption on their fellow subscribers. Others would simply forget their apples and eat oranges instead. If the tax code encouraged employers to provide apple insurance in exchange for reduced salaries, the hold of the apple insurance on the country would further solidify.

Does the above situation not describe health care in the United States? The service is superior to what is found in the rest of the world and the outcomes are better too. For instance, cancer patients are more likely to survive in the US than in Canada, and far more likely than in Britain. The US beats all of Western Europe for outcomes in the vast majority of deadly diseases. We have a very high level of capitalization, and services can be provided in an expeditious manner. Rich and well connected foreigners come to the United States to get health care; there is no such outflux of rich Americans to foreign nations. But the cost is ungodly high. One study found health care costs for the uninsured were the number one cause of bankruptcy and house eviction. There is an outflux of poor and middle class Americans to places like India that offer cheaper, though somewhat inferior, services. There is also a keen interest in alternatives to traditional health care, some of which are nothing more than snake oil. None of this is surprising to those who understand economics.

But what if apples were paid for through taxes? What if apples were ‘privately’ produced but producers were put on a government budget and subject to government price controls? We can predict a similar flare up of demand, but in this instance the greater demand does not represent a potential profit for producers. They are constrained by a yearly budget. With demand increasing and a constraining budget, decisions must be made between providing apples and investing in capital to produce more apples, or to improve them. We would expect to see waiting lines for apples, but little capital investment in apples. We expect to see less fertilizer per apple tree and more apple trees. We would expect to see less care given to each apple in transport, less care given during cultivation, less of a lot of inputs which can lead to better apples but which are sacrificed in favor of getting more apple trees to try to meet demand for quantity. Apple consumers would still demand quality, but investments in quality, given the yearly budget, mean that fewer can consume apples. The price controls which act as a guard against the artificially inflated demand serve to reduce the incentive to increase supply.

Anyone with a passing acquaintance with Canadian health care can see the similarities between the example immediately above and the Canadian health care system. Waiting lines in Canada are typically in the realm of four months; some patients are put on blood thinners for years while they wait for a surgery; the Canadian Supreme Court has even admitted that many Canadians are dying in waiting lines – which gives the lie to any claim that socialized medicine is somehow ‘universal’ health care – and the Canadian health care system is undercapitalized. For instance, there is a PT scanner for every 1 million citizens in the US; in Canada, there are two in the entire country, along with one other that is available one day a week. The two fulltimers are in dire need of repairs. Liam Neeson’s wife needed four hours to get to a hospital in that undercapitalized system. Had she taken a fall in the US, a helicopter would have transferred her far more rapidly and she would have stood a better chance of surviving.

There are many other reasons to reject socialized medicine. Public Choice makes dire predictions for a system where faceless bureaucrats control the supply of health care, for instance, and these predictions have come true. There are moral reasons: why should any person, by threat of imprisonment, be forced into a system they do not wish to be a part of? Should not all relationships be voluntary? But for those who are unconvinced by any argument they consider impractical, the above should be enough to warn them away from socialized medicine. It leads to the deterioration of the industry, and there are inescapable economic reasons that no amount of wishful thinking and good intentions can overcome.

There is perhaps no better indictment of Canadian style health care than to look at their relatively unregulated Veterinary care and see how much cheaper, faster and better their pets are taken care of. Those who cheer Obama’s recent political accomplishment should reconsider their position.