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Health Alert | Understanding How Bureaucratic Systems Work

John_GoodmanI am one of very few capitalists you know (probably the only one, actually) who is intensely interested in understanding who gets what under socialism. At the other end of the spectrum, almost every socialist I know is focused only on the idea of socialism and has very little interest in discovering how socialist systems actually function.

So, what you are about to read, I am afraid, is something you are unlikely to find in any other place.

Suppose the government nationalizes the school system and makes schooling available for free. Without knowing any institutional details, could you predict in advance which students will end up in the classroom of the best teacher? How about the worst teacher? And how will the other students be sorted in between?

I certainly could not predict with any accuracy. But I can almost guarantee you the students will not be distributed randomly. I can also almost guarantee you that the distribution will not be independent of the parents' income, wealth and social status.

Similarly, suppose the government nationalizes the health care system and makes medical services available for free. Without knowing any institutional details, could you predict in advance which patients will be seeing the best doctors and entering the best facilities? How about the worst doctors and the worst facilities?

Again, I can virtually guarantee you that the patients will not be distributed randomly and that the distribution will not be independent of income and social status.



 Brother Can You Spare a Dime

What brings all this to mind is a post by Uwe Reinhardt at the Health Affairs blog the other day:

In the ideal world envisaged by the policy-making elite left of center of the ideological spectrum, the individual's health care experience is independent of that individual's socio-economic class... Access to needed and locally available health care is viewed as an individual's inherent right... Rationing health care by income class has no place in this picture. Heavy government involvement to enforce the implied redistribution of income does.

Now, this is interesting on several levels, so let me make four quick points. (1) I am not aware of any serious proposal (as opposed to, say, daydreaming) made by anyone, anytime, anywhere, to make health care available to people in a way that is truly independent of socio-economic class; (2) I do not believe it is possible to design a system in which access to care is independent of socio-economic class; but even if I'm wrong about that (3) I am fairly confident that no country in the world is seriously trying to do it; and (4) there is nothing in the science of public choice which would lead me to believe that any country ever will do it.

Health care is a complex system in which 300 million potential patients, 800,000 doctors and countless other paramedical personnel interact in complicated ways. Government cannot possibly control, or even observe, most of what goes on. The best it can do is change a few parameters. But after they adjust, people will mainly pursue their own self interests just as they did before the change.

Economists have spent 200 years developing tools that enhance our ability to understand the complex system we call "the economy." But we have very few tools to understand complex bureaucratic systems - especially the health care system. So with humility, I will cautiously propose three principles:

  1. On the demand side, the same skills and attributes that allow people to do well in the marketplace also allow people to do well in bureaucratic systems. (The idea that the market favors one group of people and bureaucratic systems favor a completely different group is an illusion.)
  2. On the supply side, if providers cannot ration based on price, they will ration based on other considerations and these other considerations almost always will favor consumers with higher socio-economic status.
  3. Provided they have the money (or can make sacrifices to get the money) the price system is almost always better than bureaucratic systems for consumers with low socio-economic status.

Take the market for restaurants. A poor person in Dallas can have dinner at any of thousands of restaurants in the city without any bureaucratic hassle. Granted, he could drop a week's pay at some of the pricier establishments. But if he is willing to make the sacrifice, no bureaucratic obstacle stands in the way. Yet this same poor person is probably trapped in a Medicaid system in which about his only option is the Parkland Hospital emergency room or one of its satellite clinics. And his children are probably trapped in poor-performing public schools without any avenue of escape.

Think about that. In the capitalist restaurant sector, the individual has easy access to everything the market has to offer. But in the socialistic health and education systems (defended on the grounds that poor people need them), the individual has almost no choice whatsoever.

Here is the little understood (and surprising) bottom line: Markets do not empower rich people; they empower poor people. In a bureaucratic system, the rich person will find his way to top-notch doctors and he will find a way to enroll his children in one of the best schools. But a poor person almost never can be assured of these results unless he can pay with money.

Before I move to a consideration of the evidence, consider one more assertion Prof. Reinhardt makes about other developed countries:

All these nations have an escape valve for a small, moneyed minority who either buy private insurance or, in the case of the UK and Canada, travel outside their countries' borders to get health care either not available to them at all in their country or for which they must wait in a queue. But for the great bulk of the population in these countries - 90 percent or so - the health care experience of the individual is largely independent of their socio-economic status.

Now, if I had read only the literature on why there should be public education and had never taken a close look at how it actually works, I would be tempted to say the same thing about America's public schools. After all, about 10% buy private education and everybody else is part of the free system. Yet (as I hope everyone knows), public schools do not offer equal opportunities to all children. Nor does socialized medicine.

My foreign language limitations have constrained my ability to delve deeply into what's happening in a lot of European health systems. What I know most about are the English-speaking countries - Britain, Canada, New Zealand (socialist systems) and Australia (a mixed system).

Of these, Britain has made the greatest effort to find out who gets what from the health care system and why. In fact, contrary to my earlier assertion that socialists generally have very little interest in understanding how socialism actually works, the Brits seem to have an obsession about studying inequality of access to care. Here's what I wrote in Lives at Risk:

Britain's ministers of health have long assured Britons that they were leaving no stone unturned in a relentless quest to root out and eliminate inequalities in health care. But more than thirty years into the program (in the 1980s), an official task force (the Black Report) found little evidence that access to health care was any more equal than when the National Health Service was started. Almost twenty years later, a second task force (the Acheson Report) found evidence that access had become less equal in the years between the two studies.

Across a range of indices, NHS performance figures have consistently shown widening gaps between the best-performing and worst-performing hospitals and health authorities, as well as vastly different survival rates for different types of illness, depending on where patients live. The problem of unequal access is so well known in Britain that the press refers to the NHS as a "postcode lottery" in which a person's chances for timely, high-quality treatment depend on the neighborhood or "postcode" in which he or she lives.

"Generally speaking, the poorer you are and the more socially deprived your area, the worse your care and access is likely to be," says The Guardian, a staunch defender of socialized medicine. Scholarly studies of the issue have come to similar conclusions.

Now if I substituted "education" terms for "health" terms, I could leave all the other words pretty much the same and I believe I would have a very accurate description of the public school system in the United States and in the other four countries as well.

C'est la vie.

John C. Goodman is president and CEO of the National Center for Policy Analysis. The Wall Street Journal and the National Journal, among other publications, have called him the "Father of Health Savings Accounts," and the Media Research Center credits him, along with former Sen. Phil Gramm and columnist Bill Kristol with playing the pivotal role in the defeat of the Clinton Administration's plan to overhaul the U.S. health care system. He is also the Kellye Wright Fellow in health care. The mission of the Wright Fellowship is to promote a more patient-centered, consumer-driven health care system.

Dr. Goodman's health policy blog is the only right-of-center health care blog on the Internet. It is the only place where pro-free enterprise, private sector solutions to health care problems are routinely examined and debated by top health policy experts throughout the country-conservative, moderate and liberal.


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