Health Care a la Karl Marx

The latest general report from the World Health Organization is built on the faulty foundation that health care is a special economic activity requiring intense governmental involvement.

Despite what you may have thought following the fall of the former Soviet Union and the general discrediting of Marxism as a political philosophy, socialism is alive and well in at least one major international organization. The World Health Organization’s 215-page World Health Report 2000, released in June, is a catalog of advice to its 191 member states about the shortcomings of market mechanisms and the advantages of government central planning. The delivery of health care, it said, is a special case requiring the “continuous and permanent” responsibility of government. Not mentioned in the report was the disastrous performance of every socialist economy to date. Is health care so different that it defies everything we know about human behavior and economics?

Journalists and health-care experts have so far focused on the report’s rankings of health-system performance among the 191 countries. France was number one (followed by Italy, San Marino, Andorra, and Malta); Sierra Leone was last (preceded by the Democratic Republic of the Congo, the Central African Republic, and Myanmar). The United States was ranked 37th, bounded by Costa Rica and Slovenia. Cuba was ranked 39th, Mexico 61st, Canada 30th, and the United Kingdom 18th.

These rankings are a composite of other rankings: health status, responsiveness (the United States is ranked number one in the level of responsiveness), fairness in financial contribution, goal attainment, and health expenditures per capita. Rankings that measured “equality” of health care distribution received relatively heavy weighting, penalizing countries with more diverse populations or those that rely more on private insurance or direct payment by individuals. The many anomalies in the rankings, such as why Italy is number two and why the United States and Cuba are ranked almost equally, will keep pundits and experts busy for a long time.

But concentrating on the rankings diverts attention from a more fundamental problem with the report, unfortunately a problem common to health policy debates worldwide. Each of the six major chapters of the report exhibits a strong ideological preference for health systems that rely on direct government management, an emphasis on equality of delivery and financing, and an absence of direct payment for medical care. This despite the fact that WHO director-general Gro Harlem Brundtland says in her introduction that “our recommendations should be based on evidence rather than ideology.”

Ignoring the Benefits of the Market

The most serious shortcoming of the report is its failure to recognize the positive effects of market forces — the effects of competition, market prices, and especially consumer choice. Imagine for a moment that the collection of WHO bureaucrats, academic consultants, and government officials who compiled this report had their way fifty years ago. Suppose that health policy in each country had been run by informed and honest health ministers; that great emphasis had been placed on prevention and cost-effective medical services; that all people, regardless of income, had equal access to health professionals; that all health care was prefunded, so that no one paid directly at the time of service; and that the cost of the health-care system was financed by a fair and efficient system of taxes.

In such a system, after a period of adjustment, each country would have met the report’s standards for goodness (“the best attainable average level” of good health) and fairness (“the smallest feasible differences among individuals and groups”). Each country’s government would have met the report’s standard of stewardship (“the careful and responsible management of the well-being of the population”) thus maximizing the potential for using the existing body of knowledge to reduce the burden of disease and disability. What would today’s world be like if they had had their way?

Even assuming that politics would not have interfered with this happy state of affairs, it can safely be said that a large majority of the world’s population would not enjoy the level of health and longevity enjoyed today. With no prices, or even with suppressed ones, each consumer would have strong incentives to overuse the health-care system. Most care providers would have weak incentives to do everything patients and the health officials asked them to do. Highly motivated and committed providers might work hard but would soon wear themselves out. The health officials charged with rationing available resources would come under increased pressure to find more resources and to improve the fairness of the system. As the former Soviet Union eventually found out, running any economic system through central planning and rationing is most likely to be unstable. No country could afford enough health police to make everyone follow the rules.

But by far the most serious drawback of such a system is what it would do to medical progress. The state of health-care knowledge would have remained closer to that of 1950 than to that of 2000. Some progress might have been made through government-sponsored research, but the quantity of research, experimentation, and risk-taking done by profit-seeking companies would have been far less.

The basic incentive for providers and suppliers of medical products and services under a government-regulated rationing system is to satisfy those running the rationing system –satisfying consumers is of secondary importance. A market economy in which prices are determined by competitive forces rewards those who figure out more efficient ways to satisfy consumers — and it punishes those who ignore consumers. There is now a large literature identifying the forces of government regulation, tax policies, and cartelization that prevent health-care markets from meeting their competitive potential. A WHO agenda designed to correct these inefficiencies would be far more productive in improving the health of the world’s population than would the top-down rationing agenda proposed in this report.

There is ample evidence that citizens in all countries are willing to be taxed to take care of those who are truly helpless and in need of care: the disabled, the frail elderly, abandoned children, and the severely mentally ill. But taking care of these people, even if done through public institutions and programs, does not require the wholesale scrapping of market principles for the larger health-care sector.

The Challenge Ahead

Taking advantage of the new knowledge about the human genome and other medical innovations will require strong incentives for entrepreneurs to develop new products, educate providers and consumers, and get the new products into effective use. But not all new technologies will be cost effective. The challenge to competing health plans will be to decide when to replace an old technology with a new one. That kind of market discipline cannot be provided by health ministers, even with the best of intentions. Health care may be different from other markets, but it does not defy the laws of economics.

Robert B. Helms is a resident scholar and director of health policy studies at AEI. An earlier version of this article appeared in the Wall Street Journal Europe on June 29, 2000.

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