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.

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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 grocery insurance.

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 properly cited.