Which part of health is a public good?

Here’s a speech by Roger Kilham where he disses the logic of economists that think the vast majority of health is a “public good” (that’s what they teach in Year 12 economics textbooks):

Let us consider the contribution of health economists. They say health is different. The health consumer, they tell us, is not rational. There is an information imbalance between the patient and the doctor, thus the doctor is able to induce demand. The health insurance market is distorted by moral hazard (if someone else is paying, the patient will demand as much expensive health care as he can get) and adverse selection (only the sick will want insurance). Therefore, they conclude that market failure is unavoidable and intervention is needed.

Is the health market different? Many Australians buy home computers or have their cars repaired. Information imbalance. But to my knowledge, no-one has contended that we need a Computercare or an Autocare scheme. Are consumers of cigarettes or TAB tickets rational? A German philosopher Von Mises once argued that all consumers are rational, ex ante. As health consumers, are Governments more rational, or less rational, than individuals?

He notes however, that supposed “market failure” is not the prime reason for intervention (each intervention generally equals more bureaucracy):

But market failure is not the prime justification for government intervention. Governments are actively pursuing financial, social and economic outcomes. For years, we heard the chant equity and access. Today, that chant has become equity, access, affordability, efficiency, quality, accountability. Each time a new word is added to the lexicon, I smell a problem.

But Kilham also says there are some good things to come out of public health:

Government intervention in health is not all bad. Public health produces some excellent work which has an enduring health dividend for the nation: immunisation, the work of the NHMRC, the setting of standards for drugs. We have probably all seen things which have been done very well, albeit sometimes rather expensively. By and large, this work is guided by the ethos of high quality rather than economy, and it has contributed to the overall excellence of the Australian health care system. In the past five years or so, as budgetary pressures have closed in, some very worthwhile public health activities appear to have been placed under threat while many of the useless things that governments do in health carry on regardless.

I think we can all agree that, within the health spectrum, there will always be some “public goods” that are most appropriately financed and provided by government.

But can we really all agree? Which part of health is a public good? The part in the quote above about setting drug standards would probably not have been supported by Milton Friedman, who advocated abolishing the US Food and Drug Administration. So which part is it? Is it the part where governments publicly fund research into a cure for AIDS or cancer? Can they do this and still abolish the National Health and Medical Research Council? Or can such research be left to the private profit motive too?

24 thoughts on “Which part of health is a public good?

  1. I particularly liked this quote from Kilham:

    “So the remedy for failed government intervention in health is more intervention. Intervention is self-propagating. Intervention is seriously addictive.

    How to kick the habit?

  2. On the matter of health, since we’ve just privatised (the already private) Medibank, when do you think we’ll get rid of the whole system? (ie. the PBS, Medicare, Therapeutic Goods Administration, ect)

    I’m sick of seeing my taxes being wasted to keep unproductive people alive.

  3. Your taxes don’t keep anyone alive. They subsidise trivial and cosmetic surgery at the expense of emergency and palliative healthcare.

    A nice try at parody, but you sir are a rank amateur and miss the point entirely.

    Your argument is nothing but the “won’t somebody please think of the children” line but rehashed, a pathetic attempt to make the person arguing against the wastefulness of Government look like they are arguing against the rights or existence of the group the service is delivered to.

  4. They subsidise trivial and cosmetic surgery at the expense of emergency and palliative healthcare.

    Actually, Medicare doesn’t cover cosmetic surgery. Cosmetic surgery is (comparatively) unregulated in comparison to mainstream medicine. But despite no mandatory standards or heavy-handed regulation, patient satisfaction is high and medical malpractice suits are not higher than average. We should look to this industry to see the positive effects of deregulating the rest of the medical sector.

  5. Although… Medicare covers part of the costs of some items related to cosmetic surgery (eg the initial consultation with the surgeon, some hospital costs). But generally it’s a very competitive and untainted by government regulation niche in health services.

  6. Graeme is right – the end result is a lot easier to identify than the path to reach it.

    How do you move to a market based system in which individuals make their own choices about health, with responsibility for the cost (via insurance) and with ample information to make an informed choice, when the starting position is a non-market system in almost every respect?

    As the Irish farmer said when asked for directions to Dublin, “I wouldn’t be starting from here.”

  7. We have that superannuation forced savings.

    We can allow people to pull their medical bills from there for the time being. And pull the 15% tax down to zero to bolster those funds.

    The next step is something that George Reisman mentions. Gifting public hospitals to well-known charities with a good track record. Start off giving them the full prior running costs and then start reducing it and let them handle things.

    With the older guys it amounts to increasing the legitimate retirement age 1 day every two.

    Sure people will be pissed off but it won’t kill anyone. Perhaps there are allowances we have to make for aboriginals and the prematurely sick.

    We want to get rid of any pharmaceuticals schemes but that might mean a higher retirement benefit for the over 80’s. But anything like that you want to rig up front with the increasing age cutoff of 1 day increase every 2 days that pass. Or perhaps a 1 day increase in every 3 days that passes.

  8. What about immunisation? Does the government have the right to universally force individuals to be vaccinated? Or subsidise the cost of vaccinations, but allowing individuals to choose?

  9. Hell they may have a right to do it.

    But does it make our stringent budget cutoff?

    Perhaps in an emergency it might.

    My company pays for my flu shots which means when I ring in sick I cannot use Flu as an excuse. So I figure they pay for themselves.

    Ultimately you give people back the income the government has stolen and they ought to be able to afford their own flu shots.

    But lets not discount this sort of action in a national emergency.

  10. We have that superannuation forced savings.

    Definitely need to get rid of the compulsion there.

    The idea we should be working off is Friedman’s, which is detailed in this article. By having compulsory* medical savings accounts as well as compulsory health insurance for (high risk & high expense) incidents people would be able to provide for the events depicted in movies like John Q. Catastrophic events, in other words. This is the major argument that has scared the public into accepting a socialist version of health, and these two reforms completely demolish that argument.

    Admittedly, we would be skewing savings towards medical expenses but I suppose this is a policy that could be reviewed later. It seems politically feasible though, which is a plus.

    * I personally question the need for compulsion, but I think it is reasonable in the short-term on political grounds as the alternative of more bureaucracy is much worse. It’s not as justifiable as, for example, compulsory third party insurance for motor vehicles (externalities and all) but it is not worse than the present system.

  11. Does the government have the right to universally force individuals to be vaccinated?

    The government has no “rights”. But by democratic choice we may want to voluntarily give up some of our individual rights to enable government to carry out core functions. Which rights we should give up are a matter for debate. Libertarians generally want to give up as few as possible.

    On immunisation – I don’t know enough to comment, but it seems to me that people shouldn’t be forced to do something unless there are significant third-party effects, and government intervening would (i) alleviate the problem better than private citizens (ii) not create other distortions that require more government intervention to fix.

    This may be the case in some developing nations where other policies have created unhygenic conditions that facilitate the spread of disease.

    Should people who have HIV/AIDS be required to report themselves to the Health Department?

  12. I sez:

    “We have that superannuation forced savings.”

    Sukrit sez:

    “Definitely need to get rid of the compulsion there.”

    Well for sure. But for the time being its a pretty convenient way to cover everybody under 60’s medical bills I would have thought.

    Lets not drop the context here. We are talking transitionary strategies.

  13. As I understand it, medical savings accounts are effectively the same thing as superannuation funds. But the money can only be spent on medical expenses. It’s a moderate libertarian approach to the emotionally charged health debate.

    Get rid of the requirement of not being able to withdraw from superannuation except in retirement and people can transfer their super money to their medical savings accounts, which can be dipped into for all sorts of medical expenses at any time.

    How much could we cut taxes by if we got rid of Medicare. Guesstimate?

  14. On second thoughts, here is the idea of medical savings account I am looking at. Someone tell me if I’m wrong:

    1. Governments would establish framework for non-compulsory medical savings accounts (with tax deductibility) for those no longer covered by Medicare.

    2. To take advantage of the tax benefits individuals would be compelled to purchase insurance with a high-front end deductible (to limit their costs to a maximum amount for catastrophic events).

    3. Compulsory superannuation contributions would be abolished and the whole super system gotten rid of and made voluntary.

    4. Those wanting a medical savings account but unable to afford the compulsory insurance will have their costs covered by government.

  15. In addition, these vouchers would be given on a sliding scale so the savings accounts would along with the vouchers from a system somewhat like the negative income tax.

    Australians complain about the costs of healthcare and a lack of funding but are unfortunately unaware of why it costs so much.

    A private, or public good cannot be cheap and high quality if:

    i) A cartel suppresses the supply of the most skilled employees/carers (doctors).

    ii) Insurance for the good is a protected industry, free from foreign competition (Health insurers must be domestic operators).

    iii) The supply of some treatments is unnecessarily restricted by licensing (needless prescriptions and chemist only medicine).

    iv) Rather than reimbursing people for taking out private insurance policies, the State subsidises the losses of those without insurance (Medicare).

  16. Thats all fine Sukrit.

    But what we want is to maintain a high tax free threshold.

    Set up the environment that encourages people to save (growth-deflation and no taxes on interest earnings….)

    And until thats on board have your scheme or some other scheme that makes sure that people aren’t put in the shit while all the changes are being made.

  17. Immunisation is interesting… it needs to reach a certain level to be effective. If one person gets immunised, then they’re “safe”. But if a lot of people get immunised, then it helps a lot more than just them, as it helps prevent the illness spreading to the wider community. If everybody except you gets immunised (and pays for it), then you would probably still get the benefit, without taking any of the risks (neither financial, nor medical in the terms of potential side-effects). As a result, you have kind of tragedy of commons scenario.

    I’ve always considered the “fear of immunisation” to be ill-founded – much like the fear of GM foods. Of course, the notion of “protecting people from themselves” goes against my values – so whilst I think there’s a case for funding in certain circumstances, I think people still need to have the freedom to decline (excepting national emergencies)

    I guess it’s a question of “User pays” vs “Benificiary pays” – the user of a service is not always the primary beneficiary.

  18. Well then they are probably justified. But the degree of compulsion and inefficiency of our health system belies such initiatives.

    It is not enough to say that there are net benefits. it needs to create a net benefit over what the private or voluntary result would be, in short, the optimal choice is not an opportunity cost to other potential solutions, and sub optimal solutions are an opportunity cost to at least one superior outcome.

    i) I never went to preschool and think the whole idea is bunk.

    ii) There is self selection-bias with respect to low income areas and victimless crimes – if drug laws were abolished, there would be far less criminals from urban areas.

    iii) Health insurance subsidisation would be better than loss subsidising as we do now.

    iv) Cutting regressive taxes would ameliorate much poverty

    Somewhat justifiable so far. Not bad research FF.

    v) “If California raised the minimum wage to $8 an hour, required employers to offer health insurance, and spent more on job training, the state would save nearly $5 billion by reducing the number of working poor families who need public health insurance, tax credits, and subsidized child care. (National Eco-nomic Development and Law Center, 2004)”


  19. Let’s face it, virtually every argument the socialists use for intervention is that it’s “for the greater good”. But 99.9% of the time, it simply isn’t true.

    The article quoted has a lot of figures that are suspect to say the least. In fact, it pretty much all sounds like bullshit.

    It’s like the anti-smoking argument… It is often claimed that the burden on the health system is actually more expensive than the revenue we get from taxing cigarettes. Given the level of tax, I find that hard to believe. But even if it’s true, that’s only because people have this notion that healthcare should be free for everybody.

    Take the following from the linked article:

    “Vaccinating children against measles, mumps, and rubella saves $16 for every $1 invested by reducing costs to treat these illnesses. (Centers for Disease Control, 1992)”

    If the above is true… surely this is an argument for the INDIVIDUAL to consider? Neither cost should be incurred by the government (though I’ll re-iterate my earlier comment about vaccines needing to have a certain take-up rate to be truly effective)

  20. “What about public health initiatives that are shown to provide massive savings in future health costs for very little outlay?

    Go here and scroll down to health (though you might be interested in the education section)”

    But then it would be in the interests of the company to pick it up. Or the parents to pick it up given that they are now getting a massive tax free threshold.

    Yes there is an externality argument here. But its better to save that for emergencies.

    In an emergency you might have 3-6 months of massive government action and then its back to your default libertarian position.

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