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?