Rationing vs. Economizing
Yesterday’s New York Times contained an op-ed by David Leonhardt responding to the criticism that Obama’s health care proposals would lead to rationing of health care:
[R]ationing is an inescapable part of economic life. It is the process of allocating scarce resources. Even in the United States, the richest society in human history, we are constantly rationing. We ration spots in good public high schools. We ration lakefront homes. We ration the best cuts of steak and wild-caught salmon.
Health care, I realize, seems as if it should be different. But it isn’t. Already, we cannot afford every form of medical care that we might like. So we ration.
Mr. Leonhardt’s problem here is that he falsely equates rationing with economizing. In the case of rationing, distribution of a particular good is limited by third parties according to some general formula or central plan. Economizing, by contrast, involves a person allocating their own limited resources in the way that seems best to them.
While both rationing and economizing can be used to keep health care costs under control, economizing is preferable to rationing for a couple of reasons. First, as I’ve noted previously, economizing has been shown in a variety of contexts to bring prices down over time, as producers have the incentive to appeal to the economizer by cutting costs and lowering prices. Rationing, by contrast, limits costs not by reducing the cost of any particular medical treatment or procedure, but by limiting the overall number of procedures performed.
Even apart from its beneficial dynamic effects, economizing is also preferable to rationing in that the burdens imposed by economizing are less acutely felt than are the burdens of rationing. Whether it’s a particularly American trait or part of human nature, people in this country really do not like the idea of third parties restricting their access to care. You can see this quite clearly in the brief flirtation the American health care system had with HMOs during the 1990s. HMOs worked by sometimes refusing doctor-recommended treatment, and in terms of holding down costs they worked remarkably well. Yet they quickly became so hated by the American people that the whole concept of HMO-as-cost-controlled had to be abandoned. By contrast, people with limited incomes have to economize they consumption of valued goods and services every day, and this economizing does not lead to the sort of rage that rationing engendered. Whether it is the added sense of control that economizing provides, or the added flexibility, or some other factor, the fact is that people generally do not view having to economizing their own purchases of a good or service with having their access to that good or service rationed from above. As such, it would seem that Mr. Leonhardt’s op-ed rests on a mistake.
(HT: Cafe Hayek)
“In the case of rationing, distribution of a particular good is limited by third parties according to some general formula or central plan. Economizing, by contrast, involves a person allocating their own limited resources in the way that seems best to them.”
Which of these is my insurance plan refusing to cover something?
It is perfectly normal to weigh whether I want that first of the season $25 a pound Copper River salmon versus hamburger at $1.85 a pound. The problem with rationing is you do not get a choice, you wait. It is often illegal to pay for a treatment you want in a government system (like the UK’s for example).
Of course, there is always the option of getting on an airplane and flying to Thailand for treatment. That is increasingly becoming an option for many (including underinsured people here who also have the money to pay for the private treatment).
It comes down eventually to a this question; “Who decides what I get?” If the answer to the question is either a Government Agency or HMO cost benefit analyst then your access is being rationed. If you are looking at the costs of doing something and are making the choices then it is economizing.
Generally rationing is where non-economic factors are used to determine distribution, most often because economic factors are not efficiently distributing goods. The most extreme example of this is potable water after a hurricane. To argue that economizing will solve situations better than rationing is to argue a rather basic assumption, namely that the good is economically responsive. If economizing were always better than rationing, we wouldn’t have air travel, railroads, the Internet, cell phones, or most any networked system. The bigger question is what one rations. Cancer treatments would be one way to do it, although no one does it except for EOL considerations. More often it is such things as hospital construction.
Joe, paying for treatment is not illegal in the UK. There are a number of private hospitals. True, you can’t slip the NHS doctor a tenner to see you first, but you can pay for private service.
Muskrat’s right. It’s Canada where you can’t pay for private care. But they’re trying to change that.
My bad. Canada. Of course, they come here to get around that.
Company decides I don’t get something covered == Company “economizing” which is good, but I’m being “rationed” which is bad. I decide not to pay out of pocket for this == I’m economizing, which is good.