Present in several health care debates is a fear that
universal coverage will result in the rationing of services. Although it is
true that government would ration health care under universal coverage, it is
also true that rationing would take place under a purely private system. Health
care is scarce, and therefore it is absolutely necessary that rationing take
place. There is, however, a distinct difference between the rationing that
would take place under a government-controlled system compared to a private one.
Individuals demanding health care under a private system
would ration by responding to market prices and limited incomes. Individuals demanding
health care under a government system would have no incentive to ration because
everything would be provided for "free." Regardless of structure of the health care
system, temporary shortages will emerge as the desires and health issues of
individuals change over time. The best health care system will alleviate these shortages
quickly and distribute the remaining scarce health care services to those who
desire them most.
Unfortunately, there is no individual or small group of
individuals who knows the desires of everyone. A system of universal coverage
addresses this problem by creating waiting lists or arbitrarily distributing
services to some at the expense of denying coverage to others. A private
system, on the other hand, uses prices to separate those who desire health care
services from those who do not.
For example, if a shortage arises for MRI scans, doctors can
raise the price. The increased price will alleviate the shortage by pricing
some individuals out of the market. The remaining individuals willing to pay
the higher price are those who desire the MRI scans most. Over time,
competition and the resulting innovation should lower prices and make health care
services more affordable for everyone.
So why doesn't our current health care system function like
the example above?
Although our health care system is among the freest in the
world, it still shares several undesirable traits with universal coverage. For
instance, our current system is heavily dominated by employer-paid health
insurance, which is the result of price controls placed on wages during WWII.
Its continued existence has been fueled by the federal tax code, which
encourages the insurance of routine health services and masks real costs,
resulting in high prices.
For instance, suppose the government encouraged grocery insurance.
Payment of an agreed upon monthly fee would enable you to buy anything you
wanted from the grocery store at no additional cost to yourself. This
hypothetical program would increase demand for groceries, especially expensive
groceries like steak or wine. Ultimately, grocery insurance would cause grocery
prices to rise, which would attract more people to buy grocery insurance. Low-income
earners would be hurt by grocery insurance as they would be unable to afford
the high prices of groceries. The poor conditions of low-income earners would
then attract politicians who exacerbate the problem by creating universal
This does not mean that all health insurance is bad. Insurance
is beneficial if it covers a significant risk that is a random occurrence with
a known low probability. In other words, there is a definite need for health
insurance to cover life's tragedies. When health insurance extends beyond the
realm of life's tragedies, it can be destructive to the economy.
If the objective of health care reform is to increase costs
and force future generations to bear the burden of massive debt, then the
proposal now before Congress is the best choice. If the objective of health care
reform is to lower costs and increase coverage, it is necessary to eliminate
insurance in areas where it is unneeded in order to utilize the efficient rationing
mechanism of market prices.
Kurt T. Bowhuis is a research intern with the Education
Policy Initiative at the Mackinac Center for Public Policy, a research and
educational institute headquartered in Midland, Mich. Permission to reprint in
whole or in part is hereby granted, provided that the author and the Center are