Give Universal Healthcare a Chance?

As we all know, with legislation it is currently considering our federal government is seeking to extend healthcare benefits to all Americans while lowering direct healthcare costs for most us and the overall costs of the healthcare system. And why, many ask, shouldn't the government of the wealthiest, most advanced nation on the planet guarantee healthcare to its people? As Americans, we should all be entitled to adequate healthcare, regardless of our ability to pay, shouldn't we?

Ideally, the answer to the above questions is "well...yeah". The practicality of the idea is limited by the reality of basic economics, however.

In his book entitled (oddly enough) Basic Economics, Thomas Sowell tells us that an economy is simply a mechanism for distributing scarce resources. It's that little adjective right before "resources" that makes the idea of universal healthcare so difficult to realize. There's only so much healthcare to go around and dividing it up among several-hundred million people strewn across millions of square miles, making sure each person gets what he needs, is an incredibly difficult task.

The first clue that the idea of universal healthcare is fatally flawed is the fact that the stated goals of the legislation are contradictory, at least within a free-market system. Normally in a free-market, when demand outstrips supply, prices increase signalling the market that more resources are needed. When supply outstrips demand, prices drop, encouraging more folks to purchase the resource, consuming the excess and signalling the market to reduce production. In the case of the medical industry, an increase in number of patients results in higher costs for treatment which encourages more people to go to medical school, which increases the number of doctors to meet the needs of the patients. Prices stabilize as supply nears demand. If a city or region has too many doctors, prices drop causing fewer doctors to practice there and office visits cost less. This mechanism results in an amazingly efficient distribution of medical resources and drives competition and efficiency.

The legislation being proposed seeks to increase the number of potential patients and lower the direct cost of healthcare to most existing patients. If we believe our model above-and we have little reason not to-, this should result in increased demand, increased prices and, eventually more doctors. However, the other stated goal of the plan is to reduce the overall cost of healthcare. This must mean that the government, has found a way to sufficiently increase the efficiency of the system to handle the increased demand while reducing healthcare costs.

O.K. you can get up off the floor, stop laughing and clean the coffee off your keyboard. There is another option, of course. The government can accomplish its goals, at least in the short-term, by short-circuiting the supply/demand mechanism. It can do this by rationing services and imposing price caps on medical care and drugs. This only works in the short-term, of course, because capping prices means ultimately limiting supply, leading to more rationing leading to...well you get the picture. Ultimately, capping the amount of money companies can earn by developing and marketing drugs and equipment and that doctors can earn by practicing medicine results in fewer drugs, less equipment and fewer doctors. Pretty soon you have the kinds of waiting lists for medical treatment seen in other countries that have tried...universal...health...care. Hmmm. Interesting.

The truth of the matter is that universal healthcare is a nice ideal, but in practice, it just doesn't work. The best way to ensure the greatest number of Americans have access to the best healthcare is to allow the market to work.