The Agenda

Health Care is Divisible

Over at NRO’s Critical Condition, I posted a lengthy critique of Ken Arrow’s thesis that health care is fundamentally different from other sectors of the economy, and therefore incompatible with free-market principles.

Ezra Klein mistakenly cites the points of agreement between another writer and me (i.e., the ways in which free-market sectors of the economy are similar to health care) as describing why health care is different. Klein then goes on to say:

First, if you don’t get good health care, you might die. That makes it hard for individuals to say no to things, it makes it hard for insurers to resist the backlash that comes when they say no to things, and it makes it hard for government to say no to things. And second, most health-care costs are subsidized by a third-party (employers for most of us, taxpayers for seniors and the poor), which means the people receiving the benefit aren’t feeling the cost.

Klein’s second point was addressed in my earlier post, and also in Arrow’s original paper: third-party payment is a significant distortion, one that we would do well to reduce. Unfortunately, PPACA makes this problem worse.

That brings us back to the point that Klein and other liberal writers raise: health care is different because it involves life and death decisions. Yes, that is an unusual feature of some elements of health care, but not all: indeed, not most. For example: going to the dentist is rarely a life-or-death decision. Getting a hip replacement isn’t a life-or-death decision. Using a branded blood pressure drug, instead of an older generic one, is rarely a life-or-death decision. Getting an allergy shot to get through the spring pollen season is rarely a life-or-death decision.

A patient diagnosed with hormone-resistant prostate cancer, for which there is no cure, is going to die no matter what. Should that patient be given a $90,000 therapy that might extend his life by an average of four months? This, too, is not a life-or-death decision. It’s a death-or-death decision.

It turns out that the true range of life or death decisions in health care is rather narrow. If a poor woman gets hit by a bus and is sent to the ER, we all agree that America should come together and pay for that woman’s care: and, in fact, we do pay for it. If a physician makes a mistake, causing a patient to die or suffer disability, we have malpractice litigation for that—i.e., this is a problem upon which government-subsidized health care has no impact.

It would benefit those who believe that health care is incompatible with the free market to refine their arguments. A stronger liberal argument for socialized medicine would be: let’s let the free market reign in those areas of health care that are most like the rest of the market economy (i.e., non-catastrophic and elective care), and instead focus on socializing the aspects of the system that are most unlike the rest of the economy (i.e., catastrophic care).

Such an argument would begin to converge with conservative calls for consumer-driven health plans. CDHPs seek to achieve something quite similar to what I describe above: they put cash, in the form of tax-free health savings accounts, in the hands of individuals to pay for routine health expenses, while still insuring against catastrophic illness or injury. CDHPs continue to be refined, and are prevented from innovating further by unwise regulation, but they represent the best attempt thus far to segregate the most market-oriented aspects of health care from the least market-oriented. I would welcome liberal thoughts on how to achieve the same.

Avik Roy — Avik Roy is the President of the Foundation for Research on Equal Opportunity (, a non-partisan, non-profit think tank.

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