Sunday, 1 August 2010

The Trouble with Healthcare

Both the US and the UK are preparing dramatic reforms to their respective healthcare systems. In the US, the role of the government is set to increase; in the UK the role of the free-market is being expanded.

Why is it so hard to design a healthcare system that works? Last week’s Economist ran thoughtful articles on both the UK and US reforms which highlight some of the problems. In a sentence...

“The demand for healthcare is always greater than the resources available.”

This problem applies to (almost) every industry, but is particularly troublesome for healthcare because rationing access to health services causes pain and mortality. Healthcare resources must be allocated somehow, and the main issue is whether free markets or government intervention is better. Unfortunately both of these paradigms lead to some perverse incentives.

Under the free market system, as exemplified by the US, there is an incentive for health insurers to try to minimise provision of treatments. The consequences of this are emotively depicted in Michael Moore’s superb film ‘Sicko’. Where treatment is provided, the patients typically demand the latest available procedures and medicines, which leads to extremely high expenditure. In addition, the paperwork and bureaucracy involved, not to mention the lawsuits, impose another heavy cost. Healthcare expenditure per capita in the USA is the highest in the OECD – but in international league tables the health outcomes are mediocre at best.

Compare this, then, to a government-run system such as the NHS. Centrally planned health care brings its own set of problems. Some are ethical, such as the rationing of expensive treatments and drugs, which is essential to keep costs down. This is one source of resistance to government planning in the US. Other problems are to do with incentives – as public sector employees, healthcare providers do not have the ‘profit motive’ to help stimulate efficiency. The government must design its own set of incentives that aim to maximise patient care at minimum cost, and then monitor performance; a set of tasks the government is not typically very good at.

Despite these pitfalls, the benefits of government-run medicine is borne out in the statistics: European countries have better health indicators and lower health expenditure than the US.

There is clearly some way to go before we find an optimal method of healthcare management. The reforms in the UK and the US are both trying to find some middle ground that gets ‘the best of both’ of the market based and publicly run systems. I can’t help feeling that some more fundamental paradigm-shift is required before we find a truly effective healthcare system.

1 comment:

  1. Yo, dude. Love the blog. I can see you think a lot, although clearly I'm too ill-informed on these subjects to be able to comment.

    Reminded me of something: I was talking to this crazily passionate guy today. He'd seen this one film, knew nothing else about the subject, but on the strength of it was convinced that western governments are engaged in a giant conspiracy against their own citizens. It's called Zeitgeist, apparently. Be fun to watch it with you sometime, if you're up for it? I'd like to see you criticise it and pick holes in its argument :)