Is health care a public good?

by Jeoffry B. Gordon, MD, MPH

The public policy and current political action around changing the system overlooks two important technical fallacies:

(1) That health care is most efficiently distributed by a free market mechanism; and,
(2) That medical services are an ordinary commodity.

The commercial market model is a failing economic and public policy ideology used to rationalize and justify corporate control of the health care system to profit from the enterprise. Medical services are not an ordinary commodity but more like a “public good” which should be financed using a regulated public utility model.

A “public good” is a product or service which benefits everyone in the community. Public goods are characterized by: (1) value that has benefit to the community as a whole beyond any purchase price paid, (2) often requiring large initial investment costs that are generally too expensive for any individual or private corporation to afford and earn a reasonable return, (3) requiring a higher level of administration than any individual or company can arrange and (4) having value that accrues over time and is difficult to price properly. Public goods have “externalities,” that is, value that accrues to people who benefit by other’s consumption of them without paying for it themselves.

It is crucial to know the epidemiology of medical expenses. In fact, 1% of the total population consumes 25% of medical care (by cost), 5% of the population consumes 49% and 50% of the population consumes only 3% of medical care by cost. Since relatively few people incur rare, huge, often catastrophic costs on a largely unexpected basis, pooling of risk is necessary. And the bigger the insurance pool is, the better it functions economically.

By definition “public goods” are not well distributed by market mechanisms. Americans are very accepting of some public goods, i.e. police and fire departments, national military forces, the GPS system, water distribution and sewage treatment plants, education, radio frequencies and the internet. Looked at from an economic and a public policy perspective, health services are the epitome of a “public good.” This is what is meant by the phrase “Health Care is A Human Right!” Hospitals, ambulance systems, mosquito control, TB control, restaurant inspections, sanitation, and vaccines are all good examples.

When a person gets sick he or she functions poorly as a consumer. Often there is no opportunity to investigate or shop around for quality, never mind price. A seriously ill person has no price sensitivity – care is needed now and many patients will face even bankruptcy to get needed care in spite of looming bills. Even the most intelligent and computer literate sick patients are often seriously deficient in relevant knowledge both of disease states and who is well qualified to treat them.

Under our insurance system, the patient is rarely the consumer. Most purchasing decisions are made by a doctor acting as the patient’s surrogate. While one can discover a price for one item or service, it is totally impossible to have any sense of the ultimate charges for any significant package of medical services, so it is impossible to price shop even when there is time.

Furthermore, most doctors provide care with little or no knowledge of the patient’s actual purchasing power, with or without insurance. Finally, we all know that there is virtually no opportunity for service or product substitution. You had best get the right care the first time. If your care is inadequate you may be dead or disabled or in any case set back and it is heroic to seize the opportunity to identify and ‘consume’ alternative services. For all these not so subtle reasons, health care services do not belong in the commercial marketplace or the market must be significantly modified by non-market norms (values) and institutions (government or other public interest entities).

These economic concepts provide an important insight into why the last 40 years have failed to provide adequate medical services through a commercial market. Thus we can say that those contemporary proposed solutions for health reform which mandate (subsidized) buying into the fragmented commercial health insurance based system are likely to be intolerably expensive, economically inefficient, and, in the end, not solutions to the problem.

In my opinion the only real solution is a government run, universal care, single-payer, public utility type financing of medical services. This is not socialized medicine (like the VA system). The government will not own hospitals, nor put physicians on salary. I will have 10 per cent more time to see sick people. I will be able to lower my office overhead by 20 per cent. And no patient will be worrying about how they will pay for their care or medicines.

Jeoffry B. Gordon is a family physician.

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