On Universal Health Care & Health Care Rationing

Greg Mankiw offers a compelling story and an astute observation:

...Technological advance is making state-of-the-art health care increasingly expensive. In any kind of national health system, some treatments will, by simple cost-benefit calculation, be deemed too expensive to provide to all citizens. But does that mean those of above-average income should be excluded as well? Should they lose basic benefits if they choose to pay for these marginal services with their own money?

If you say yes to this last question, as the U.K. health service has, here is a related one: Should a parent who hires an after-school tutor for his child be barred from sending the child to the public schools?

Some people like to think of health care and education of basic human rights. Maybe they are. But they are also normal goods. That is, the income elasticity of demand is positive. It is hard to escape the conclusion that the right cost-benefit calculation for providing the good depends on the income of the consumer.

It's virtually inevitable that there will be some sort of rationing for expensive and complex health care procedures. No system of delivering health care -- either market-based or single-payer -- is likely to cover the vast expense required to extend the same, state-of-the-art care to all consumers.

Yet that rationing seems to be at the heart of many liberal complaints regarding our existing employer-based health care. If it will not be overcome -- or cannot be overcome except by denying such treatments to all -- then much of the impetus for universal health care is lost.

And while we're on the topic, go check out Mankiw's story. It involves an English cancer patient who's denied treatment that she can afford, and which the private market will offer. In such a case, where is the incentive to continue development of cutting-edge therapies and cures for a range of maladies? After all, if there's little chance of making a profit at it, why develop it?