Reid Errs on International Health Comparisons

Tonight President Obama will renew his pitch for more political control of medicine. One important part of the debate is how the U.S. compares to other nations. Recently the Denver Post republished an article from the Washington Post by T. R. Reid on the matter.

As my dad and I have pointed out (and again), the U.S. outperforms various European nations by measures such as cancer survival and access to technology.

As is also well documented, nations with the most severe political controls of medicine ration care (see also Patient Power). To take just one recent example, see the following article in the British Telegraph: "Sentenced to death on the NHS: Patients with terminal illnesses are being made to die prematurely under an NHS scheme to help end their lives, leading doctors have warned."

However, the fundamental choice is not between the current American system and some system similar to that of some other nation. The fact is that American medicine is already mostly controlled by politicians, and in that respect it already resembles the politically controlled systems throughout Canada and Europe. To the degree that American medicine fails, it fails because politicians have mucked it up. Where health care in other nations succeeds, that is largely to the extent that it retains some elements of freedom and borrows the successes of American innovations.

Reid definitely comes at the matter with the presumption that it's the government's job to ensure "universal coverage." It is not. Rather, it is the government's job to protect individual rights, including rights to offer and purchase health care and insurance on a free market, by voluntary exchange. The fact that government has violated rather than protected our rights is what has created the medical mess in which we now live. (For a historical survey, see the article by Lin Zinser and Paul Hsieh.)

If government would protect our rights rather than interfere in medicine, health care would be better in quality, lower in cost, and widely accessible. It is ironically the political crusade for "universal coverage" and care that leads to skyrocketing costs, rationing, and widespread difficulties in getting good health care.

Part of Reid's confusion is to treat politically controlled insurance and health providers as "private." If politicians control something, it is not "private" in any meaningful sense, even if the ownership is nominally so.

With an eye toward Reid's mistaken premises, then, let's evaluate his arguments.

Reid helpfully concedes that U.S. health is hardly a free market:

In some ways, health care is less "socialized" overseas than in the United States. Almost all Americans sign up for government insurance (Medicare) at age 65. In Germany, Switzerland and the Netherlands, seniors stick with private insurance plans for life.

Meanwhile, the U.S. Department of Veterans Affairs is one of the planet's purest examples of government-run health care.

However, Reid seems to think this counts as a reason for expanding political controls in the U.S.

Reid grants that Canadian health features waiting lines. However, he claims, "studies by the Commonwealth Fund and others report that many nations -- Germany, Britain, Austria -- outperform the United States on measures such as waiting times for appointments and for elective surgeries."

Reid simply misstates the survey results.

Here's what the Commonwealth Fund actually says, contrary to Reid's summary: "The U.S. patients reported relatively longer waiting times for doctor appointments when they were sick, but relatively shorter waiting times to be seen at the emergency department, see a specialist, and have elective surgery."

The survey also notes that the difference is partly attributable to the fact that some Americans lack health insurance, and this is primarily a problem resulting from political controls of insurance, which drive up costs.

It would have been helpful had Reid pointed out some of the other findings of the survey.

On the matter of doctor visits, the question is "Waited 6 days or longer for a doctor appointment (last time sick or needed medical attention." Australia came in at 10 percent of surveyed "sicker adults," Canada at 36 percent, Germany at 13 percent, New Zealand at 3 percent, the UK at 15 percent, and the U.S. at 23 percent. Notice that this question pertains to a patient's scheduling of a doctor visit, not necessarily the availability of doctors.

On the question of waiting four or more hours in the emergency room, only Germany beats the U.S.

"Waited 4 weeks or longer to see a specialist?" The U.S. comes in at 23 percent, compared to 57 percent in Canada and 60 percent in the UK.

"Waited 4 months of longer for elective surgery?" The U.S. stands at 8 percent, while Canada is at 33 percent and the UK at 41 percent.

All that said, such surveys are inherently limited in reliability. For example, people in different cultures might have very different ideas about when a doctor's visit is "needed." And people are not likely to try to see a specialist or get elective surgery if they think their attempts will be fruitless, so the U.S. might perform even better than the survey results indicate.

But, again, it is not enough just to compare the U.S. against other nations. We have to get at the underlying causes of problems in the U.S. and abroad.

Writing for Reason, Shikha Dalmia points out:

The fact of the matter is that America's health care system is like a free market in the same way that Madonna is like a virgin -- i.e. in fiction only. If anything, the U.S. system has many more similarities than differences with France and Germany. [A]part from England, most European countries have a public-private blend, not unlike what we have in the U.S.

Dalmia points out that government pays for nearly half of all health care dollars in the U.S. and "directly covers about a third of all Americans through Medicare (the public program for the elderly) and Medicaid (the public program for the poor)." The U.S. also forces emergency rooms to provide care without compensation.

Dalmia adds, "This is not radically different from France, where the government offers everyone basic public coverage, of course -- but a whopping 90% of the French also buy supplemental private insurance to help pay for the 20% to 40% of their tab that the public plan doesn't cover."

Moreover, a significant minority of Germans "opt out of the public system altogether and rely solely on private coverage."

What about rationing? Dalmia points out:

Struggling with exploding costs, the French government has tried several times—only to back off in the face of a public outcry—to prod doctors into using only standardized treatments. In 1994, it started imposing fines of up to roughly $4,000 on doctors who deviated from "mandatory practice guidelines." It switched from this "sticks" to a "carrots" approach four years later, and tried handing bonuses to doctors who adhered to the guidelines.

Meanwhile, in Germany, "sickness funds" -- the equivalent of insurance companies—have imposed strict budgets on doctors for prescription drugs. Doctors who exceed their cap are simply denied reimbursement, something that forces them to prescribe less effective invasive procedures for problems that would have been better treated with drugs. But the most potent form of rationing in France and Germany—and indeed much of Europe -- is not overt but covert: delayed access to cutting-edge drugs and therapies that become available to American patients years in advance.

Cato's Michael Tanner has written both an op-ed and a longer policy paper about international comparisons. He points out:

Those countries with national health care systems that work better, such as France, the Netherlands and Switzerland, are successful to the degree that they incorporate market mechanisms such as competition, cost-consciousness, market prices, and consumer choice, and eschew centralized government control.

In France, for example, co-payments run between 10 and 40 percent, and physicians can balance bill over and above government reimbursement rates, something not allowed in the U.S. Medicare program. On average, French patients pay roughly as much out of pocket as do Americans. The Swiss government pays a smaller percentage of health care spending than does the U.S.

In his longer paper, Tanner goes into more detail on the health policies of particular countries.

Reid also argues that American insurance, which he laughably calls "free enterprise," has higher administrative overhead than other countries. I do not doubt that this is true despite the fact that Reid is probably ignoring the relevant administrative costs elsewhere (such as tax compliance). But this is only true because American politicians have totally screwed up the insurance market, turning insurance into expensive pre-paid health care. (See my article, "What is Health Insurance?"

Finally, Reid argues that it's "cruel" if politicians don't force insurers to ignore pre-existing conditions. I've addressed the matter in a first and second article. The upshot is that insurers and consumers have the right to enter voluntary contracts, and insurance controls create bad incentives and higher costs, leading to cries for more controls.

In general, Reid attempts to make his case by omitting the relevant facts.

Rationing IV: Politically-Controlled Insurance and Rationing

This is the fourth of a four-part series on rationing.
Rationing I: Price Distribution Is Not Rationing
Rationing II: The Definition and Application of Rationing
Rationing III: The Harm of Conflating Price Distribution with Rationing
Rationing IV: Politically-Controlled Insurance and Rationing

The Big Lie in the modern health policy debate is that the current system represents a free market and that our choice is between the status quo and more political controls. The modern system is emphatically not a free market, and advocates of liberty in medicine call for free-market reforms as the only just and practical alternative to existing and proposed political controls.

Not only do politicians spend nearly half of all health-care dollars today, but they extensively control the so-called "private" insurance market. Health care, and particularly health insurance, is already mostly controlled by politicians; proposed "reforms" such as those offered by Obama threaten merely to expand those controls.

Yet Obama repeated the lie, ironically, in the very sentence in which he accused his critics of lying. Obama said health policy "should be an honest debate, not one dominated by willful misrepresentations and outright distortions, spread by the very folks who would benefit the most by keeping things exactly as they are."

Obama steadfastly refuses to acknowledge those who seek to reform health care by restoring free markets and individual rights in medicine.

In today's mixed economy, health insurance companies are neither entirely private nor entirely controlled by politicians. Thus, health insurance is not characterized by the price distribution and firm contracts of a free market. It is characterized by political distortions. This significantly complicates the question of whether insurance companies ration care and whether this rationing is political in nature.

Before turning to particular claims about insurance rationing, it is useful to briefly review some of the major political distortions of the insurance market. (Many of these points are covered by Lin Zinser and Paul Hsieh.)

* Through tax policy, the federal government drives the expensive, non-portable, employer-paid insurance system.

* Because most people are locked into the insurance program offered by their job, there is very little market competition for health insurance.

* The federal government imposes various other controls restricting entry into the health insurance market.

* State controls also impede a competitive insurance market.

* Because of the tax distortions, employer-paid insurance has moved away from real insurance (see my previous article) and toward pre-paid health care, leading to exploding costs.

* Because politicians have driven "insurance" into pre-paid health care, today most people rely on a third party to pay for all or nearly all of their health expenses, rather than pay health providers directly for routine care.

* Federal and state politicians significantly control whom insurance companies must cover and which benefits they must finance. This again helps turn insurance into pre-paid health care, contributing to exploding costs.

* Because of political controls, some people wait to get insurance until they get sick, or they change to more costly insurance once they get sick. This drives up costs to insurance companies and premium payers.

* Because politicians have forced insurance into a pre-paid health model, insurance is increasingly used to pre-pay minor expenses but not cover (or not entirely cover) major ones. Thus, in some respects insurance has been turned on its head. Rather than cover only high-cost, unexpected costs, now insurance covers low-cost, routine care and not all emergency care.

* Because of ever-changing political controls at the state and federal level, insurance companies simply cannot offer long-term or stable insurance contracts. Stable contracts have effectively been outlawed. One result has been that insurance contracts have become partly vague and ambiguous. (See also my article on pre-existing conditions.)

* One consequence of the host of political controls on health insurance is that, to control skyrocketing and unpredictable costs, insurance companies have sometimes turned to capricious methods of rationing care. Insofar as they do so, they do so because they are, in effect, agents of political controls, not part of any free market.

Despite the fact that political controls have largely destroyed the free market in health insurance, Obama and his supporters use existing insurance as their foil to advocate more political controls.

Downplaying the many cases of overt political rationing of health care, such as Jacob Appel describes, and ignoring existing political controls on health insurance, Obama and his supporters pretend that the way to overcome the partial rationing of the mixed economy is to adopt the total rationing of politicized medicine.

Of course, Obama is coy about the rationing his proposals would entail. On June 24, Obama said, "Maybe you're better off not having the surgery, but taking the painkiller."

By August 11, Obama was pretending that everybody can get all the "free" health care they could possibly desire, an impossible promise. Yet, rather than outright deny the rationing of politicized medicine, Obama tried to turn the debate by tarring the status quo with rationing:

The underlying argument I think has to be addressed, and that is people's concern that if we are reforming the health care system to make it more efficient, which I think we have to do, the concern is that somehow that will mean rationing of care, right? -- that somehow some government bureaucrat out there will be saying, well, you can't have this test or you can't have this procedure because some bean-counter decides that this is not a good way to use our health care dollars. And this is a legitimate concern, so I just want to address this. ...

Another way of putting this is right now insurance companies are rationing care. They are basically telling you what's covered and what's not. They're telling you: We'll cover this drug, but we won't cover that drug; you can have this procedure, or, you can't have that procedure. So why is it that people would prefer having insurance companies make those decisions, rather than medical experts and doctors figuring out what are good deals for care and providing that information to you as a consumer and your doctor so you can make the decisions?

Here Obama conflates clear insurance agreements, by which consumers agree ahead of time which services insurers will cover, with arbitrary decisions by insurers to deny care in some cases. Thus, Obama attempts to treat any sort of distribution system, including the price distribution of a voluntary market, as "rationing." Only decisions that are ad hoc, and not specified by contract, plausibly count as rationing, and these are precisely the sorts of decisions driven by political controls.

An August 22 article by Michael Booth and Jennifer Brown of the Denver Post describes some examples of health-insurance rationing. The title of the article illustrates the strategy of Obama's "reformers:" "Health care reform advocates say insurance companies already ration coverage." The journalists write:

All health insurance plans, whether privately run for profit or financed by the government, rely on a structure where some services are not covered. From prescription drugs to experimental surgeries, patients face limits in a plan's fine print or from people paid to make choices in a process called "utilization review."

"No system is wealthy enough to pay for every single request that comes from doctors and hospitals," said Wendell Potter, a former national vice president with insurance giant Cigna who now argues in favor of sweeping reform.

"Insurance companies have corporate bureaucrats on staff who many times will deny coverage for something recommended by a doctor. It happens all the time, in the name of 'not medically necessary,' " Potter said.

The Denver Post article contains not a single mention of how existing political controls have fostered such problems, nor how true free-market reforms would restore competitiveness and accountability to health insurance companies. Instead, the "debate" is summarized as the (ill-defined) "rationing" of the status quo versus the rationing of Obamacare.

On a truly free market, health insurance companies would compete, in part, on clarity of contract (as Brian Schwartz suggested to me). Moreover, the government would resume its proper role of ensuring enforcement of contract and resolving contractual disputes.

However, on a free market, insurers and their clients have every right to voluntarily agree to terms. As with the fictitious Twentieth Century Motor Company, people could voluntarily agree to enter a system of rationing, such as one involving ad hoc decisions about medical necessity. Significantly, on a free market, people would also be free to exit such a system. No doubt practically everyone would prefer a stable, long-term, well-defined insurance contract -- if only insurance companies were free to offer one. Such contracts would involve no rationing when insurers declined to cover care explicitly not covered by the contract.

Today health rationing is carried out by government agencies that control vast tracts of health care. To a minor degree, it is carried out by insurers acting under severe political controls. A free market features no political rationing. Any rationing in a free market must involve people voluntarily entering into contracts that allow it, and in such cases people are free to exit the system.

The advocates of politicized health care ignore the nature of rationing. They try to turn any sort of distribution into "rationing," and they ignore the fact that existing rationing in health care is caused by political controls. Their goal is to promote the notion that health care is collectively owned by the nation and properly distributed by politicians, rather than owned by its producers and properly distributed through voluntary exchange.

Those who value their lives, their health, and their liberty won't let such "reformers" get away with their distortion of the language or their political take-over of health care.

Rationing III: The Harm of Conflating Price Distribution with Rationing

This is the third of a four-part series on rationing.
Rationing I: Price Distribution Is Not Rationing
Rationing II: The Definition and Application of Rationing
Rationing III: The Harm of Conflating Price Distribution with Rationing
Rationing IV: Politically-Controlled Insurance and Rationing

Whether price distribution counts as a type of rationing is not merely some semantic dispute. Conflating price distribution with political rationing obliterates the crucial distinctions between the two. A system of property rights and voluntary association is nothing like a system of political control of goods and services.

Price distribution on a free market rests on the right of producers to their property. If you produce something, using your own resources and in voluntary interaction with others, you have the right to exchange your product with others as you see fit. Generally on a free market people exchange goods and services using money as the intermediary, according to the principles of supply and demand.

Political rationing means that some governmental agency assumes command of some set of goods or services, in violation of the producer's rights to the product and of the consumer's rights to offer a voluntarily exchange. Rationing entails collectivism in ownership.

In her 1946 letter (see pages 320 to 327 of Letters of Ayn Rand), Rand writes, "Rationing IS coercion, that is, orders, and nothing else whatever. The essential distinction of a free market, as against any other kind of system, lies in the absence of coercion and in the method of exchange by voluntary choice" (page 322).

She continues:

If we accept the idea that a free pricing system is a form of rationing, the unavoidable logical implications and consequences are as follows: if a free pricing system is a form of rationing, then every person living under it has an equal claim upon and title to all the goods produced. (To ration means to share; a free pricing system is not based on the idea of sharing anything; a rationing system is.) But anyone can see that under a free pricing system everybody is not getting an equal share of everything. Therefore, this form of rationing is not working well or fairly. Why isn't it? Because the rationing is done by private persons in their own selfish interests. What is the solution? Another form of rationing -- which would be run by disinterested public servants for the common good of all.

Once the people's mind has reached this state of confusion, the rest is easy. The collectivists have won, because their basic premise has been accepted. ...

And here is the payoff: when the groundwork is ready, a collectivist says to the average American: "Don't fool yourself, brother. You've always lived under a system of rationing and always will. The only choice you have is this: Do you want to be rationed by selfish, greedy capitalists for their own private profit -- or would you rather be rationed by a public authority who will have no motive except your own good and the general welfare?" (page 323)

Either people have the right to control their produce and to make voluntary exchanges with others, or their property is collectively owned and rationed by politicians. That is the basic choice.

What is amazing is that 63 years ago Ayn Rand anticipated the precise nature of today's debate over rationing.

Read Rationing IV: Politically-Controlled Insurance and Rationing

Rationing II: The Definition and Application of Rationing

This is the second of a four-part series on rationing.
Rationing I: Price Distribution Is Not Rationing
Rationing II: The Definition and Application of Rationing
Rationing III: The Harm of Conflating Price Distribution with Rationing
Rationing IV: Politically-Controlled Insurance and Rationing

Rationing is defined by three essential characteristics. First, rationing means that some central authority distributes goods or services. Second, the property rights to the goods or services are usurped or not clearly defined. Third, under rationing recipients have some recognized claim to a portion of the goods or services. (Note: Diana Hsieh, Paul Hsieh, and Brian Scwhartz helped me to clarify my understanding of rationing.) A closer look at each condition clarifies the meaning of the term and its application to various examples.

Rationing involves some central authority. Price distribution does not. In the usual cases this is unambiguous.

What about a more complicated example of distribution under price ceilings that cause shortages? Under such circumstances, generally two outcomes follow. First, the quality of the price-controlled goods declines. Oxford's dictionary includes an example from 1892: "The most inferior goods in the market are called ration-tea and ration-sugar." Second, sellers who cannot sell goods or services at market rates must sell according to other criteria, and often this takes the form of personal favors or prejudices.

Ayn Rand discusses this example in her 1946 letter on rationing (see pages 320 to 327 of Letters of Ayn Rand). Rand argues that it is "counterfeiting" to claim that "apartments are not rented by harassed, hogtied landlords -- but are 'rationed by favoritism.' Implication: a landlord has no right to choose the tenants of his own property, if there are more than one applicant."

The essential difference between such non-price distribution under price controls and rationing is that no central authority is involved in the distribution. An authority is involved in setting the price controls, and that is what unjustly disrupts market prices, but price controls in themselves are not an example of rationing.

The second characteristic of rationing is that property rights to the goods or services are usurped or not clearly defined. Under price distribution of gasoline, the gas is owned by its producer (or, later, the retailer), and a consumer's money is owned by that consumer. The two parties may voluntarily agree to a mutually beneficial exchange. Under rationing, the gasoline is treated in part as the property of the government, which replaces voluntarily exchange with authoritarian distribution.

This point has important implications for health insurance. Insurance is a contract; its buyers agree to pay a regular premium in exchange for coverage under certain conditions. No insurance policy promises to pay for any conceivable health expense. For example, under my high-deductible policy, my insurance company is not "rationing" care by declining to pay expenses under my deductible.

A car insurance company might not cover damage caused to a policy holder's car if the damage was caused by his drunk driving. A home insurance company will not cover damage caused by the policy-holder's arson. None of this is rationing.

An insurance company, for instance, may decide in advance to cover established cancer treatments but not expensive, untried new therapies. A consumer who agrees to this policy may not properly complain about "rationing" when the insurance company declines to finance the sort of therapy that is explicitly not covered.

The problem arises when insurance contracts are vague and subject to arbitrary case-by-case evaluations, a problem that I'll return to in Part IV of this series.

Under political rationing, some authority must make ad hoc decisions about the distribution of goods or services. The rationed goods may be distributed equally among the population or according to individual cases. Yet even "equal distribution" requires considerable refinement by the authority. Does every citizen get the same number of gallons of gas? Every family (and what is the definition of a "family")? Every vehicle?

In the case of health care, obviously an equal distribution of resources would be senseless. Some people never get seriously sick, others incur modest health expenses, and others need (or want) extensive and expensive health services. Thus, simple ration cards for health care wouldn't work. Instead, some authority must decide who gets what care, based on criteria established by the authority. For example, health care might be rationed according to what is deemed medically essential or necessary. When the rationing authority fails to ration with sufficient stridency, waiting lines serve the function.

In her 1946 letter, Rand defines rationing as "to distribute... by the decision of an absolute authority, with the recipients having no choice whatever about what they receive; it also means that all the recipients involved have an equal claim to that which is being rationed, and are entitled to an equal share."

Rand's definition entails the three characteristics discussed above; however, her point about "an equal claim" needs refinement. With food or gasoline, each person might be rationed the exact same amount. However, the example of food illustrates the problem with assigning an "equal share." Should a three year old infant get the same food rations as a 250 pound, hard-working man? That would be ludicrous. Rationing, then, involves not literally equal shares, but shares considered equitable according to some criteria. A grown man gets more food than a small child. A sick person gets more health care than a healthy person.

In her novel Atlas Shrugged, Rand describes the collectivized distribution of the Twentieth Century Motor Company, which institutes the Marxist doctrine, "From each according to his ability, to each according to his need" (see page 661 of the hardback novel). One of the company's owners becomes its "Director of Distribution," who decides what everybody "needs," and whose "gauge was bootlicking." (page 667). However, insofar as the Director of Distribution attempts to distribute supplies according to need, she is rationing, though primarily on a case-by-case approach. Rand compares this system to the rationing of a global egalitarian system (page 669).

Nobably, employees of the company voluntarily remain in this system (though the best employees quickly leave). Thus, the rationing at Twentieth Century is crucially different from political rationing. Under political rationing, exit from the system is forbidden or forcibly restricted. One may join a commune that rations goods according to need, but so long as one joins voluntarily and remains free to leave, that is a fundamentally different situation than political rationing, which one is not free to exit. Political rationing is the major form and most important type of rationing.

While rationing involves an authority's ad hoc decisions, rationing does recognize that recipients have some recognized claim to a portion of the goods or services, the third characteristic of rationing. A king who arbitrarily hands out loot to his favorites acts too capriciously for his actions to be considered rationing, and at her worst the Twentieth Century's Director of Distribution resembled such a king.

The requirement of a recognized claim shows that charity does not count as rationing. A food bank that restricts recipients to a certain amount of food is not "rationing," for the recipient has no inherent claim to the food.

Food stamps (which are actually debit cards now) forcibly redistribute wealth. However, if its recipients are otherwise considered akin to the recipients of charity, then food stamps do not "ration" food by limiting the amount of handout that recipients get or the type of food that recipients may buy through the program.

Does rationing apply to a recent case from Oregon? ABC News reported last year:

The news from Barbara Wagner's doctor was bad, but the rejection letter from her insurance company was crushing.

The 64-year-old Oregon woman, whose lung cancer had been in remission, learned the disease had returned and would likely kill her. Her last hope was a $4,000-a-month drug that her doctor prescribed for her, but the insurance company refused to pay.

What the Oregon Health Plan did agree to cover, however, were drugs for a physician-assisted death. Those drugs would cost about $50.

Jon Caldara characterized this as an example not only of rationing but of a "death panel."

The problem with ABC's account is that it counts the Oregon Health Plan as just another "insurance company." It is not:

The Oregon Health Plan (OHP) is a state program of health care for people with low incomes. This health care includes services for medical care, dental care, mental health and substance abuse treatment. Depending on which benefit package you are found eligible for, OHP benefits may... [r]equire you to pay a monthly premium for your OHP coverage... Some adult clients are required to make a monthly payment for health coverage. (pages 1 and 9)

So did Wagner pay anything for her insurance premium? That is unclear. If she did, then she had some claim to the benefits. If not, then she was like a recipient of food stamps.

If, in a free market, Wagner had sought out voluntary charity, we would not call it "rationing" if the charity did not fund every conceivable treatment for her. No charity can afford to fund every conceivable request of every possible recipient. The difference between a charity and political rationing is that the charity has rightful control over its resources, whereas under political rationing the recipients have some sort of claim to an equitable portion of the goods or services in question.

Notably, if people are forced to pay tax dollars to support a program that provides benefits, then any government restriction of those benefits with respect to those paying the taxes counts as political rationing.

Read Rationing III: The Harm of Conflating Price Distribution with Rationing

Rationing I: Price Distribution Is Not Rationing

This is the first of a four-part series on rationing.
Rationing I: Price Distribution Is Not Rationing
Rationing II: The Definition and Application of Rationing
Rationing III: The Harm of Conflating Price Distribution with Rationing
Rationing IV: Politically-Controlled Insurance and Rationing

That the political health "reform" endorsed by Barack Obama and his supporters would entail rationing is indisputable. It is simply impossible to expand subsidized care and contain costs without rationing. For more on this point, see my article in the Colorado Springs Gazette, John Stossel's article, or Martin Feldstein's piece in the Wall Street Journal. No serious supporter of politicized "universal" health care denies this, and various supporters openly brag about the fact as a virtue of their proposals.

In response to the criticism about rationing, advocates of politicized medicine routinely reply that the market also "rations" health care, so the debate is merely about which form of rationing is best. Many critics of Obamacare agree to the terms of that debate and proceed to argue that political rationing is worse than market "rationing."

But obtaining goods and services on an open market via the price system of supply and demand is not rationing at all. Claims that it is distort the language and obscure crucial distinctions between political rationing and market distribution.

Peter Singer is among those explicitly calling for health rationing. As Don Watkins reviews, Singer writes for the July 15 New York Times:

Health care is a scarce resource, and all scarce resources are rationed in one way or another. In the United States, most health care is privately financed, and so most rationing is by price: you get what you, or your employer, can afford to insure you for. But our current system of employer-financed health insurance exists only because the federal government encouraged it by making the premiums tax deductible. That is, in effect, a more than $200 billion government subsidy for health care. In the public sector, primarily Medicare, Medicaid and hospital emergency rooms, health care is rationed by long waits, high patient copayment requirements, low payments to doctors that discourage some from serving public patients and limits on payments to hospitals.

On this point the Cato Institute's Jim Harper quite agrees:

Health care is a scarce good, so it will always be rationed. The core question is whether government should take the dominant role in health care rationing over from insurance companies, or whether reform should restore rationing decisions to patients advised by doctors.

(See my July 12 article for an additional example and my preliminary reply.)

Price Distribution Versus Political Rationing

Let us begin by distinguishing clear cases of price distribution and political rationing. Suppose you walk into a department store and pay $20 for a pair of jeans. If the jeans had cost only $10 per pair, you would have purchased two or three pair, but instead you limit your purchase to one pair. If the jeans had cost $40, you wouldn't have purchased the jeans. Is that "rationing?" No. It is simply a consumer deciding which goods to buy, and in what quantities, according to price and ability and willingness to pay.

It is obviously true that the more money you make (meaning the more wealth you produce), the more goods and services you can afford to purchase. The wealthy may shop at high-end stores; I do a lot of my shopping at Target and thrift stores. So a free market definitely entails a method of distributing goods and services, and this involves a person's market wage rate as well as a person's shopping preferences. Put another way, market distribution of goods and services depends on the supply and demand of labor as well as of goods and services.

In no way does price distribution constitute "rationing." In contrast with the authoritarian distribution of political rationing, price distribution rests fundamentally on the rights of individuals to control their own resources and trade voluntarily with others.

Contrast the market system for distributing jeans with political rationing. What would rationing of jeans look like? One possible impetus for the rationing of jeans would be price controls. Let's say politicians declared that jeans could not be sold for more than $10 per pair. The obvious result would be a shortage of jeans; amount demanded would jump and supply would fall. So politicians might issue ration cards for jeans; say, one pair per family or person.

Let us turn to the example of gasoline. True, the supply of gasoline is artificially suppressed by anti-productivity "environmentalist" controls. But gasoline is not rationed; consumers choose how much of it to buy depending on its price and their preferences and willingness and ability to pay. If you find gas to be too expensive, you cut back on your driving.

Contrast the price distribution of gasoline with rationing. Last year I found my great-grandmother's gasoline ration card from World War II.







Here is part of the text:

Each coupon is good for ONE "A" UNIT of gasoline. The number of gallons which each coupon gives you the right to buy will depend upon the demands of the war program; therefore, the value of the unit may be changed. Any change in value will be publicly announced by the OPA [Office of Price Administration].

Do not loosen or tear coupons from the book. Detached coupons must not be honored by the dealer. When buying gasoline, hand the book to the dealer to remove coupons. He must remove enough coupons to cover the number of gallons of gasoline purchased... The dealer is permitted to deliver gasoline only into the tank of the vehicle described on the front over of this book, unless bulk transfer has been authorized by the War Price and Rationing Board.

WARNING

1. Persons who do not observe the rationing rules and regulations of the Office of Price Administration may be punished by as much as 10 YEARS IMPRISONMENT OR $10,000 FINE, OR BOTH, and are subject to such other penalties as may be prescribed by law.

2. Gasoline obtained by use of this book must not be taken out of the fuel tank of the vehicle described on the front cover.

Those who would conflate political rationing with market pricing simply are not paying attention to the real and vast differences between the two.

Read Rationing II: The Definition and Application of Rationing