Uneconomical Healthcare
by John Goodman
Issue 128 - March 25, 2009

Health policy wonks are a very strange breed. They don't look at the world the way rational economists do. Consider the following:

Case I: People pay for care with their own money, out of pocket, and health care is rationed by price.

Case II: The government taxes away health dollars, provides care free of charge and health care is rationed by waiting.

To keep things tidy, let's assume that everyone gets the same care in both cases. What do we think of these two alternatives?

To an economist, this is a no-brainer. Case I is far superior. Why? Let's say the value of care to the representative patient is $1,000 and that is also its cost. In Case I, the social cost and social benefit of the health care at the margin are the same. But in Case II, the patient must buy care with time as well as with taxes. Since the care is valued at $1,000, the patient will spend up to $1,000 in time to get it. This means paying twice: once with (taxed away) money and again with time.

So, is this the way most health policy analysts think about the problem? Not on your life.

Typical health policy wonks think rationing by price is abhorrent, even if people have money to pay for the care.

They think rationing by waiting, no matter how long the wait, is preferable. Choosing between health care and other uses of time is always better than choosing between health care and other uses of money.

They think all the people in Case I are "uninsured," no matter how much money they have.

They think all the people in Case II are "insured" (universal coverage), no matter how long they have to wait.

Of course, all this is hypothetical. Yet in the real world, U.S. patients are spending almost as much for their care in time costs as they are spending in out-of-pocket cash. And if the policy wonks have their way, things will get much worse. Most of them believe that "fully insured" Medicaid patients, waiting all day for care in an emergency room, are better off than an "underinsured" person with a high deductible private plan, buying care out of pocket at a walk-in or urgent care clinic with no wait at all.

Surely this state of mind should have its own name and its own diagnostic (DSM-IV) code. Let's call it the DMV Syndrome, in honor of the Department of Motor Vehicles.

John Goodman is President of the National Center for Policy Analysis