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Tuesday, September 8, 2009

The reality of rationing

I came across this piece published a few months back in the NYT.

June 17, 2009
Economic Scene
Health Care Rationing Rhetoric Overlooks Reality
By DAVID LEONHARDT

Rationing.

More to the point: Rationing!

As in: Wait, are you talking about rationing medical care? Access to medical care is a fundamental right. And rationing sounds like something out of the Soviet Union. Or at least Canada.

The r-word has become a rejoinder to anyone who says that this country must reduce its runaway health spending, especially anyone who favors cutting back on treatments that don’t have scientific evidence behind them. You can expect to hear a lot more about rationing as health care becomes the dominant issue in Washington this summer.

Today, I want to try to explain why the case against rationing isn’t really a substantive argument. It’s a clever set of buzzwords that tries to hide the fact that societies must make choices.

In truth, rationing is an inescapable part of economic life. It is the process of allocating scarce resources. Even in the United States, the richest society in human history, we are constantly rationing. We ration spots in good public high schools. We ration lakefront homes. We ration the best cuts of steak and wild-caught salmon.

Health care, I realize, seems as if it should be different. But it isn’t. Already, we cannot afford every form of medical care that we might like. So we ration.....


This is only the introduction to this piece but it highlights the key point. Economics is by definition the study of the creation and allocation of scarce resources. While wishful thinking might lead us to want to believe that allocation of scarce resources should not play a role in delivery of health care, this is and always be just wishful thinking. We will always be faced with the difficult job of both creating and allocating scarce resources required for addressing the many needs and wants of health care.

What are the implications of such an obvious observation; that the basic laws of economics cannot be suspended when pondering how to organize and coordinate human activities surrounding health care delivery. There is an all too accepted standard proclamation relating to the markets and medicine is ""We just can't trust health care to markets". Given that health care requires coordination of human activities and the production and allocation of scarce resources, how do we go about suspending the most successful allocation scheme ever devised by humankind?

It might be reasonable to look for historical examples of alternative schemes for resource allocation which successfully used non-market based approaches to deal with large segments of the economy except for the fact that there are none. Purportedly successful state run command and control approaches to health care economies in other countries are all headed in the same direction toward bankruptcy and non-sustainability. Beyond obvious issues with fossilized and unresponsive bureaucracies, inadequate capital investments, and run away costs, virtually all successful examples have been present for the equivalent of an economic blink of an eye. They are based upon the same type of financial savvy and eye toward the future that marked Bernard Madoff's and Louis XIV's perspective toward the future...“Après moi le déluge”.

The default answer is to throw out the market, unquestionably the most successful resource allocation tool every adopted by man, when we deal with the health care economy. Why? There is no question that we can identify specific circumstances where markets do not work well in the health care environment. Perhaps it is not unreasonable to try to sequester these types of encounters and deal with them outside typical market based approach. What portion of present or proposed health encounters fall into this realm? What are the ramifications of moving and increasing portion of our economic activity into a non-market based allocation model, other than the guarantee of worsening mis-allocation of scarce resources and further compromise of generation of resources required to improve the human condition? I guess it is reassuring that so little is at stake when we commit to such a serious blunder.

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