Why Socialized Healthcare Will Not Work
One of the big missions of the current administration is to usher in nationalized healthcare. Recently, many corporations have come to the fold and are endorsing such a policy in order to relieve the burden or providing coverage to their employees. More specific to my area of southeastern Michigan, this issues surfaces all the time.
The automakers want to shed these costs to become competitive. The UAW does not want to have to fund and maintain its VEBA. And furthermore, you have the Detroit underclass and greater Detroit blue-collar contingent who are feeling the burden of a poor Michigan economy - job losses, declining housing prices, etc. - who would also like to offload their healthcare costs. Thus, for many politicians (mostly liberal, but I am sure there are a few conservatives as well), socialized medicine appears to be an easy way to pander for votes.
Sadly, socialized medicine will not work. Please allow me a brief hypothetical, and then I will make the corollary.
Imagine that you own a sushi bar. One day, members of congress pass legislation that forces you to provide free sushi to whoever wants it - under the auspices that the government will pay for it. All the sushi lovers in your market hear the news, and rush to your sushi bar. Next thing you know, the line is out the door, and around the block. What do you do?
Option 1: You could decide that instead of making normal sized rolls, you could cut every piece of every roll into 2 pieces… or 3 pieces… or as many pieces as necessary in order to supply the demand for sushi that is around the block. You could decide that instead of offering a whole menu, to offer only tuna rolls. Both results, while seemingly different, are at their core, similar: the change in consistency of the product to increase supply.
Option 2: You see the huge line out the door and around the block, and tell the government. They pay you more money in order to hire more staff, get a larger building, and make more sushi to supply demand. Another instance of this situation is when an entrepreneur sees the line out the door and decides that he too will open up a sushi bar. These two are the same because whether the government is funding one restaurant for the entire market, or two restaurants, the same amount of money is being spent.
Option 3: You decide that the quality of your sushi is too important to you, but you are not going to break the law by charging for sushi. Thus your only option is to limit how many customers can come to your establishment at any one time.
Now let's analyze these three outcomes. The first outcome has the restaurant changing the consistency of its product - either by segmenting it, or specializing in just one type that it can make more of efficiently - to supply the increased demand. I would argue that this has the result of decreasing customer utility. Both serving a customer a fraction of a single roll, providing only one type of roll, or a combination of the two certainly makes customers worse off when they had to pay full price but got as much or what they wanted.
The second outcome is largely untenable because the government cannot borrow or tax an infinite amount of money. This results in a limit to how much sushi the government can subsidize, so as long as the growth in demand does not outstrip the growth in government revenue, it is theoretically possible.
The third outcome is really quite practical. It would be the easiest to implement as far as a restaurant is concerned. All they would have to do is accept, say, the first 100 people. Or on certain days, only people that fit this, this, and that criteria could be served. Looking back at history, we see this methodology has already been done during the gasoline crises of the 1970s, when only people with license plates ending in odd numbers could fill up on days x and y, while those that ended in even numbers could fill up on days z and a.
Based on my hypothetical, you can probably see where I am going with this. Just replace sushi with healthcare, and you see why socialized healthcare will not work. Outcome one - the dilution/standardization of supply - will only work if you wish to diminish healthcare quality. Healthcare covers thousands of different procedures and processes that cannot be split up or standardized. One cannot have half a CAT-scan just as much as you cannot standardize every chemotherapy cocktail without jeopardizing quality.
The second outcome is only possible if the growth in demand does not increase, or government revenues do not decrease. Both these are determined by many factors, including population and demographic dynamics - which effect the demand for healthcare and the tax base to pay for it. Given the fact that there is always inflation, and the population will either increase (currently in the U.S.) or decrease (Japan and Europe) going into the future, it appears inevitable that demand will always increase, or that the tax base to support the system will eventually be too small. As such, I believe this outcome to be untenable.
The third option - limiting supply - is really the only tenable option if maintaining quality is a primary goal. However, this has a nasty effect of forcing people to wait for crucial care, and the potential for casualties. You see this happen in Canada, Britain, France, and numerous other countries with fully socialized healthcare. It is why cities like Detroit, Cleveland, and Buffalo have burgeoning healthcare sectors, because legions of Canadians who are waiting for hip replacement or other types of treatments are crossing the border in droves.
In reality, socialized healthcare will not work. The government will have to limit what it supplies, the amount of supply, or borrow/tax itself to oblivion. Now, as for how we can fix our current system. I sadly will have to leave that for another day.
The automakers want to shed these costs to become competitive. The UAW does not want to have to fund and maintain its VEBA. And furthermore, you have the Detroit underclass and greater Detroit blue-collar contingent who are feeling the burden of a poor Michigan economy - job losses, declining housing prices, etc. - who would also like to offload their healthcare costs. Thus, for many politicians (mostly liberal, but I am sure there are a few conservatives as well), socialized medicine appears to be an easy way to pander for votes.
Sadly, socialized medicine will not work. Please allow me a brief hypothetical, and then I will make the corollary.
Imagine that you own a sushi bar. One day, members of congress pass legislation that forces you to provide free sushi to whoever wants it - under the auspices that the government will pay for it. All the sushi lovers in your market hear the news, and rush to your sushi bar. Next thing you know, the line is out the door, and around the block. What do you do?
Option 1: You could decide that instead of making normal sized rolls, you could cut every piece of every roll into 2 pieces… or 3 pieces… or as many pieces as necessary in order to supply the demand for sushi that is around the block. You could decide that instead of offering a whole menu, to offer only tuna rolls. Both results, while seemingly different, are at their core, similar: the change in consistency of the product to increase supply.
Option 2: You see the huge line out the door and around the block, and tell the government. They pay you more money in order to hire more staff, get a larger building, and make more sushi to supply demand. Another instance of this situation is when an entrepreneur sees the line out the door and decides that he too will open up a sushi bar. These two are the same because whether the government is funding one restaurant for the entire market, or two restaurants, the same amount of money is being spent.
Option 3: You decide that the quality of your sushi is too important to you, but you are not going to break the law by charging for sushi. Thus your only option is to limit how many customers can come to your establishment at any one time.
Now let's analyze these three outcomes. The first outcome has the restaurant changing the consistency of its product - either by segmenting it, or specializing in just one type that it can make more of efficiently - to supply the increased demand. I would argue that this has the result of decreasing customer utility. Both serving a customer a fraction of a single roll, providing only one type of roll, or a combination of the two certainly makes customers worse off when they had to pay full price but got as much or what they wanted.
The second outcome is largely untenable because the government cannot borrow or tax an infinite amount of money. This results in a limit to how much sushi the government can subsidize, so as long as the growth in demand does not outstrip the growth in government revenue, it is theoretically possible.
The third outcome is really quite practical. It would be the easiest to implement as far as a restaurant is concerned. All they would have to do is accept, say, the first 100 people. Or on certain days, only people that fit this, this, and that criteria could be served. Looking back at history, we see this methodology has already been done during the gasoline crises of the 1970s, when only people with license plates ending in odd numbers could fill up on days x and y, while those that ended in even numbers could fill up on days z and a.
Based on my hypothetical, you can probably see where I am going with this. Just replace sushi with healthcare, and you see why socialized healthcare will not work. Outcome one - the dilution/standardization of supply - will only work if you wish to diminish healthcare quality. Healthcare covers thousands of different procedures and processes that cannot be split up or standardized. One cannot have half a CAT-scan just as much as you cannot standardize every chemotherapy cocktail without jeopardizing quality.
The second outcome is only possible if the growth in demand does not increase, or government revenues do not decrease. Both these are determined by many factors, including population and demographic dynamics - which effect the demand for healthcare and the tax base to pay for it. Given the fact that there is always inflation, and the population will either increase (currently in the U.S.) or decrease (Japan and Europe) going into the future, it appears inevitable that demand will always increase, or that the tax base to support the system will eventually be too small. As such, I believe this outcome to be untenable.
The third option - limiting supply - is really the only tenable option if maintaining quality is a primary goal. However, this has a nasty effect of forcing people to wait for crucial care, and the potential for casualties. You see this happen in Canada, Britain, France, and numerous other countries with fully socialized healthcare. It is why cities like Detroit, Cleveland, and Buffalo have burgeoning healthcare sectors, because legions of Canadians who are waiting for hip replacement or other types of treatments are crossing the border in droves.
In reality, socialized healthcare will not work. The government will have to limit what it supplies, the amount of supply, or borrow/tax itself to oblivion. Now, as for how we can fix our current system. I sadly will have to leave that for another day.
posted by Jon B. @ 12:56 PM
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