Rationing exists

Uwe Reinhardt has a great post up at Economix talking about Rep. Ryan’s health care plan, and its ability to curb spending. Go read it. I want to focus on one aspect.

The most common argument against government funded health care is that it will lead to “rationing”. I have always found this a mystifying response, because health care is rationed right now – by cost. Uwe puts it better than I could, though:

For reasons that escape me, many Americans do not regard rationing scarce resources through the marketplace, by price and ability to pay, as rationing at all, reserving that term for government withholding of marginally beneficial procedures, based on formal cost-effectiveness analysis.

I do beg to differ. In their well-known textbook “Microeconomics,” Michael L. Katz of Harvard and Harvey S. Rosen of Princeton, put it thus:

Prices ration scarce resources. If bread were free, a huge quantity of it would be demanded. Because the resources used to produce bread are scarce, the actual amount of bread has to be rationed among its potential users. Not everyone can have all the bread that they could possibly want. The bread must be rationed somehow; the price system accomplishes this in the following way: Everyone who is willing to pay the equilibrium price gets the good, and everyone who does not, does not.

That states the matter succinctly, although the authors could have been more precise by writing “willing and able to pay” rather than just “willing to pay.”

For the record, I don’t understand people’s blanket opposition to cost-effectiveness research either. I recognize that it can make people uneasy to assign utility values to lives (even children’s, where I’ve done some of the work), but when you are dealing with a resource that’s not unlimited, it’s scarce by definition; it’s going to be rationed in some way. Better to do it out in the open, in a public and accountable way, than to pretend it’s not happening at all.

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