Health Care and Costs

Over at Just Left, Jordan made a comment on the future of health care in New Zealand. As always it was thoughtful and - more surprisingly - some of the responses he received were thoughtful too. Quite a few of them came from the 'privatise health care' school of thought of course. I offered my own comment too, which I've repeated here, in part to keep this blog active and in part because it summaries my own thoughts on the matter pretty well.

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A few of the elephants in the room:

1. Aging population: more people, living longer in the period of their life when they are most likely to encounter health problems. This means that, whether you run a private or public health care system, you are going to have to do one of two things in the near future: spend a lot more money on health care; or start rationing it (which, in effect, we already do through waiting lists).

2. New technology: as medical technology advances there is an ever expanding list of diseases that can be treated with new techniques. This is, of course, an excellent thing, with obvious personal, social and economic benefits. It also means that someone (the insurance policy holder, the government...) is going to have to spend more to pay for the aforementioned treatments.

3. Globalisation and, in particular, the globalisation of labour markets: To an extent nurses and doctors exist in a global rather than a national labour market. Meaning that the purchasers of their services - to an extent - have to compete with the World's wealthiest countries and what they can afford to pay. Now a raise in nurses' pay isn't a bad thing. In my opinion they are incredibly under-valued. But it does mean that the consumer (government or individuals) are going to have to pay more.

4. Past underspending: Throughout the 80s and 90s we underspent on health care, accumulating quite a deficit in terms of resources (buildings and the like). This means that we will have to spend significantly just to "break even" and thereafter start seeing improved outcomes. A case in point is the refurbishment of Wellington Hospital.

With regards to the private versus public health care debate:

1. The United States – one of the few developed countries with a mostly privatised health care system – spends a lot more per capita on health care than do European countries with similar (or better) quality state provided health care systems. [I can provide references for this if anyone is interested]. This is because markets in health care are dramatically different for markets in Hamburgers. In the case of the United States part of the problem is that marketised health care has created a vast – private – bureaucracy in which much time is wasted by insurance companies trying to avoid paying medical providers and so on. The US health system is also unable to benefit as easily from monopsony as are single provider systems (unlike Pharmac in New Zealand).

2. In general, markets in health are less desirable than markets in most other things; there are a variety of reasons for this including:

a. externalities (think epidemics);
b. the fact markets struggle when dealing with long-term risk;
c. the fact that, when it comes to choosing appropriate medical technologies and strategies, experts and planners can do a better job than consumers. This is because health is a complex business requiring specialist knowledge; unlike, say, taste in hamburgers.

d. Markets, when they function properly, optimise efficiency. They promise nothing when it comes to distribution. Or in other words, a purely market system, doesn’t guarantee provision of services or products to all. That’s fine when it comes to Hamburgers – I don’t think every New Zealander has the intrinsic right to eat McDonalds. But when it comes to health, in my opinion, every New Zealander does have the right to health care. This is a moral choice and others can disagree with me on the matter; but the point here is that it is a moral issue not an economic one. And if the New Zealand public feels similarly to me (and given that the two parties who were mostly likely to fully privatise health care, together, received about 2% of the vote in the last election I think it likely that they do) then you are going to require some form of government intervention in the system. Even in the United States, this takes place to an extent via Medicare (or Medicaid – I get the two confused). Unfortunately, however, because it’s tacked on to a market system, it takes place very inefficiently (for the reasons mentioned above).

For these and other reasons, I don’t think that privatised health care offers any solution to the problems confronting us in New Zealand.

The fact that privatisation is no panacea obviously doesn’t solve the dilemmas confronting public health provision in New Zealand (the elephants in the room above). In my mind, possible solutions are as follows:

1. Raising taxes (the trouble here is political palatability of course)
2. Seeking efficient (as opposed to ideologically driven) ways of running our health care system (it would be interesting to see what those European countries that provide very good health care efficiently do).
3. Moving the ambulance to the top of the cliff. Labour’s done some good stuff here like making primary health care affordable for some (why not all?) people (in the long run primary intervention is cheaper than secondary and tertiary); but there is a lot more that could be done. For example, when it comes to non communicable diseases (which are an increasing burden on our health care system), encouraging healthier diets and lifestyles might help (remove GST from fresh fruit and vegetables would be a good start).
4. Tackling inequality; as counter-intuitive as it sounds, there is a lot of evidence that high levels of inequality lead to worse health outcomes (see Richard Wilkinson’s work on this).