Rationing Health Care
by John Goodman
Issue 99 - January 16, 2008

Most of what has been written about nonprice rationing of health care is descriptive, not analytical. In fact, I don't believe anyone has developed a real theory about it.

What makes this so amazing is that almost nowhere in the developed world is health care really rationed by price.

Here are five principles about nonmarket (socialist) systems that I offer without proof.

Principle No. 1: Where excellence exists in socialist systems, it tends to be distributed randomly.
When the NCPA studied public education in Texas, we found excellent teachers, excellent campuses and excellent school districts. But excellence was not correlated with spending, class size or any other objective variable. I found the same pattern in socialist health care systems. A hospital might have a modern laboratory side-by-side with an antiquated radiology department. A team of top cardiac surgeons might be practicing in the same hospital with mediocre physicians in other specialties.

Since there is no financial reward for excellence and no financial penalty for mediocrity, excellence tends to be the result of the enthusiasm, energy and leadership of a few people scattered here and there.

Principle No. 2: Access to excellence is not random.
Even though socialist systems are supposed to treat everyone alike, they rarely do. Higher income people get more services and better services - usually in absolute terms, and certainly relative to their needs.

Have you ever heard of children of high-income parents attending a really rotten public school? I haven't either. Yet the children of poor parents routinely end up in bad schools. The same pattern emerges in health care. Those senior citizens who cash the largest Social Security checks are the ones who spend the most Medicare dollars - even though health needs are inversely correlated with income.

You can even make an argument that in Britain, New Zealand and Canada socialized medicine has led to more inequality in health care than would have existed otherwise.

Principle No. 3: The skills that allow people to be successful in a market system are the same skills that make them successful in a nonmarket system.
Granted, the skill sets do not perfectly overlap; but they are more similar than most people realize. Think of life as posing a series of puzzles. In a market economy, you have to figure out how to earn a high income in order to enjoy high consumption. In a socialist system, you have to figure out how to overcome bureaucratic obstacles to achieve the same outcome.

Principle No. 4: Diverse people tend to make triage decisions in the same way.
In a typical socialist health care system, rationing decisions are often made by doctors. Suppose you were one of them:

If you had to choose between a young patient and a retiree, whose life would you save?

If you had to choose between a highly productive patient and one who is unproductive, whose life would you save?

If your choice is young over old and productive over nonproductive, you are like most other people.

Here is the Goodman theory of triage: If you instructed doctors to make rationing decisions based only on the goal of maximizing GDP, their decisions would be very similar to the decisions they are making today.

Principle No. 5: People at the bottom of the income ladder almost always do better in a market system.
If a doctor charges $120 an hour in a market-based health care system, all you have to do is come up with $120 (less than what smokers spend on cigarettes every month) to buy an hour of her time. For $60, you can have half an hour. For $30, you can have 15 minutes.

It doesn't matter who you know. Or what you know. Or whether you can even speak English. But in Canada, where these other things matter a great deal, it is against the law to pay a doctor for her time!

Do the poor benefit from nonmarket redistribution? Maybe. But they would benefit tenfold more if they gained control of the dollars and could spend them in a real health care marketplace.

John Goodman is President of the National Center for Policy Analysis.