Free Markets, Free People

Health Care Blast From The Past – Hayek Has His Say

Here’s a post I did in January of 2007. It is very appropriate now that the health care reform business is well afoot.

So here’s ” Friedrich Hayek on Universal Health Care“, January 2, 2007:

As the 110th Congress prepares to convene and the run for the ’08 presidential nominations begins in earnest, we’re seeing far more appeals from the left, both from politicians, bloggers and opinion makers to address the supposed “health care problem”.

The appeals range from governmentally run universal health care to single-payer (again government) health insurance. The reasons given are also varied from the emotional “for the children” rhetoric favored by some to the technical “it would be more efficient and less costly” sobriquet.

Reading through Friedrich Hayek’s monumental “The Constitution of Liberty” again over the holidays, I revisited his discussion of the topic. And, willing to risk boring you out of you skull I thought I’d share it with you. Fair warning: Long post follows.

One of the most important thoughts he has on the subject gets to the crux of designing a system which would supposedly provide equal care to all. Health care cannot really be quantified and thereby presents peculiar problems which must be understood:

“They result from the fact that the problem of “need” cannot be treated as though it were the same for all who satisfy certain objective criteria, such as age: each case of need raises problems of urgency and importance which have to be balanced against the cost of meeting it, problems which must be decided either by the individual or for him by somebody else.”

And therein lies the great dilemma and the greatest threat to liberty. Because in a state run scheme it is the latter which will, indeed must, prevail.

He approaches the topic of health insurance and “free health care” by saying:

“But there are strong arguments against a single scheme of state insurance; and there seems to be an overwhelming case against free health service for all. From what we have seen of such schemes, it is probable that their inexpediency will become evident in the countries that have adopted them, although political circumstances make it unlikely that they can ever be abandoned, not that they have been adopted. One of the strongest arguments against them is, indeed, that their introduction is the kind of politically irrevocable measure that will have to be continued, whether it proves a mistake or not.”

That line is one of the most important points about this entire debate and one of the major reasons that many, especially among libertarians and fiscal and small government conservatives, resist the implementation of such a plan. Witness Medicare, Medicaid and Social Security. Once it is in place there is no turning back even if it is an outrageous mistake.

Fine, you say, but other than resisting it, to this point, because it may turn into an expensive and inefficient debacle, what can you offer to at least lend credence to an argument against such a system?

Fair question. And for that, I offer Hayek’s argument, an argument that is well reasoned, not emotional, and provides some unique insights.

He begins his critique by pointing out that the case for free health service is based on two fundamental misconceptions:

“They are, first, the belief that medical needs are usually of an objectively ascertainable character and as such that they can and ought to be fully met in every case without regard to economic considerations, and, second, that this is economically possible because an improved medical service normally results in a restoration of economic effectiveness or earning power and so pays for itself.”

But, as he argues, both miss the mark because they mistake the nature of the problem involved in decisions concerning “the preservation of health and life”:

“There is no objective standard for judging how much care and effort are required in a particular case; also, as medicine advances, it becomes more and more clear that there is no limit to the amount that might profitably be spent in order to do all that is objectively possible.”

Now make sure you’re clear on his point here. He’s not claiming it is profitable (or rational) to spend what is necessary to do all that is objectively possible. He’s arguing that if you agree that even marginal improvement, no matter how small, is “good” (“no objective standard”) then there is no limit as to how much you can spend for marginal improvement. Without an objective standard for making judgments as to how much care and effort are enough care and effort, the want is infinite.

He continues:

“Moreover, it is also not true that, in our individual valuation, all that might yet be done to secure health and life has absolute priority over other needs. As in all other decisions in which we have to deal not with certainties but with probabilities and chances. We constantly take risks and decide on the basis of economic considerations whether a particular precaution is worthwhile, i.e., by balancing the risk against other needs. Even the richest man will normally not do all that medical knowledge makes possible to preserve his health, perhaps because other concerns compete for his time and energy. Somebody must always decide whether an additional effort and additional outlay of resources are called for. The real issue is whether the individual concerned is to have a say and be able, by an additional sacrifice, to get more attention or whether this decision is to be made for him by somebody else. Though we all dislike the fact that we have to balance immaterial values like health and life against material advantages and wish that the choice were unnecessary, we all do have to make the choice because of facts we cannot alter.”

The fundamental issue he confronts here is the right of individual choice and the attack on that right which programs such as “free health care” pose. In essence individual choice is, at some point, overruled by collective choice. As Hayek implies in his discussion of “objective standards” and the real lack of them in judgments of how much care and effort are required in a particular case, those sorts of standards must be part and parcel to any “free health service”. Infinite need/want meets finite fiscal and physical resources in such a system, and consequently some method of defining the limits of “health care” within those fiscal and physical constraints must, of necessity, be made. Individual choice then is reduced to those standards and the freedom to pursue “additional sacrifice” in terms of spending more on your health is removed from your array of choices.

Even when such “objective determinably standards” are outlined, they prove not to be well considered or, as Hayek says, have any “relation to reality:”

“The conception that there is a an objectively determinable standard of medical services which can and ought to be provided for all, a conception which underlies the Beveridge scheme and the whole British National Health Service, has no relation to reality. In a field that is undergoing as rapid change as medicine is today, it can, at most, be the bad average standard of service that can be provided equally for all. But since in every progressive field what is objectively possible to provide for all depends on what has already been provided for some, the effect of making it too expensive foremost to get better than average service, must, before long, be that this average will be lower than it otherwise would be.”

Why the US continues to be the gold-standard for the most progressive and best medical care available instead of the British National Health Service is to be found in that paragraph. When their health is involved, people will rarely, if ever, chose the “bad average standard of service” over one which provides them the opportunity to access the best and most progressive. Health care, as provided by any universal scheme can, at best, only offer that “bad average standard of service”.

Hayek then addresses another part of the base misconceptions he identifies above:

“The problems raised by a free health service are made even more difficult by the fact that the progress of medicine tends to increase its efforts not mainly toward restoring working capacity but toward the alleviation of suffering and the prolongation of life; these, of course, cannot be justified on economic but only on humanitarian grounds. Yet, while the task of combating the serious diseases which befall and disable some in manhood is a relatively limited one, the task of slowing down the chronic process which must bring about the ultimate decay of us all is unlimited. The latter presents a problem which can, under no conceivable condition, be solved by an unlimited provision of medical facilities and which therefore must continue to present a painful choice between competing aims. Under a system of state medicine this choice will have to be imposed by authority upon individuals. It may seem harsh, but it is probably in the interest of all that under a free system those with full earning capacity should often be rapidly cured of temporary and not dangerous disablement at the expense of some neglect of the aged and mortally ill. Where systems of state medicine operate, we generally find that those who could be promptly restored to full activity have to wait for long periods because all the hospital facilities are taken up by the people who will never again contribute to the needs of the rest.”

Or who are presently too young to contribute.

What Hayek says, without saying it, is even in a system of “free health service”, there must and will be a system of rationing. Of course one of the main objections to our present system is we ration health care by price. But it doesn’t matter as the nature of health care, unlimited need meets limited means, requires it in every scenario imaginable short of a magic solution of some sort.

If we deal just in the economics of such a system, that which makes the most sense is to give priority of treatment to those who can recover quickly and contribute. That wouldn’t be the retired and children. Or stay at home moms. And those, usually, are the ones first identified as needing this sort of a system. But they are the very reason such systems fail to deliver on the promises made.

Hayek hints that such a system has an outside chance of working if it focuses on “restoring working capacity” and not much else. If and when it becomes focused on the “alleviation of suffering and the prolongation of life”, economic justification is impossible because the need/want for that is unlimited.

Such a system that gives priority to restoring those able to work productively would give further priority to treatment of the immediate problem and not necessarily the treatment of the chronic problem, if there is one – not if it wished to remain economically viable.

Thus far then, with such a system we’re reduced to a “bad average standard of service” which will, in some way, be rationed and in which individual choice will be abridged.

Last point, and privacy advocates should zero in on this:

“There are so many serious problems raised by the nationalization of medicine that we cannot mention even all of the more important ones. But there is one the gravity of which the public has scarcely yet perceived and which is likely to be of the greatest importance. This is the inevitable transformation of doctors, who have been members of a free profession primarily responsible to their patients, into paid servants of the state, officials who are necessarily subject instruction by authority and who must be released from the duty of secrecy so far as authority is concerned. The most dangerous aspect of the new development may well prove to be that, at a time when the increase in medical knowledge tends to confer more and more power over the minds of men to those who possess it, they should be made dependent on a unified organization under a single direction and be guided by the same reasons of state that generally govern policy. A system that gives the indispensable helper of the individual, who is at the same time an agent of the state, an insight into the other’s most intimate concerns and creates conditions in which he must reveal this knowledge to a superior and use it for the purposes determined by authority opens frightening prospects. The manner in which state medicine has been used in Russia as an instrument of industrial discipline gives us a foretaste of the uses to which such a system can be put.”

Now scoff if you wish, but that is the inherent risk any such system has because of its very nature. Such access to information is ripe for abuse, and, as Hayek notes, the fundamental change in the relationship of the doctor to the patient in this scheme makes such a risk of abuse more likely instead of less. The authority in this process is no longer the patient for whom the doctor used to work, but the entity which instructs the doctor on what he can or can’t do and pays him for the service. And the authority which makes such decisions must and will have access to all the information necessary to make them. What was once privileged information shared between doctor and patient would become shared information within the bureaucracy with possible potential abusive uses of which Hayek reminds us. Some may see those abuses as far fetched. I see their potential as a logical result of the system. One of the arguments we constantly make about corruption in the Congress is that the problem is systemic. It comes from the very nature of the institution its structure. This system is of similar construct and cannot help, at some time, becoming corrupt. Such corruption would most likely see the information within its databases used for purposes other than the treatment of patients.

An example? How hard do you suppose it would be to sort all the new mothers out of the population and offer them a choice of limited future service or complying with a government mandate that they see a doctor regularly? Some might argue that’s actually good. Ok, how about obese people? Alcoholics? Drug users?

Oh, wait, couldn’t the list of drug users be used for other purposes?

Yes. And so could a lot of other lists.

While all the lure of “free” health care sounds wonderful, especially to those who may not have access to health care at the moment, it is an emotional appeal which ignores the huge down-side such a program imposes on a society. No one argues that the system we have is perfect, and it certainly isn’t the least expensive, but, it appears it is the most responsive and provides access for most to the best and most innovative medicine available. There are some obvious things which could be done to improve it (remove health insurance from the realm of the employer, for one). But given the power of Hayek’s arguments, it should be a little more clear that putting our health care into the hands of the government is not one of them.

~McQ

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15 Responses to Health Care Blast From The Past – Hayek Has His Say

  • Hnhhhh…just imagine the list of drug users being used to assist the never ending War on Drugs.
    Hmmmmmm, nah………..
     
     

  • Our president has said that health care is a drag on the economy, and something which — were we to reform it — would help lead us out of the recession.  Pelosi stated on Sunday that the health bill is essentially another stimulus plan.
    What I’m reading above paints a different picture:  The current system is a boon to productive members of society, and works to put them back to work as quickly as possible.  On the contrary, gov’t run health sacrifices this aspect in favor of treating the non-productive (or less productive.)
    It would seem that gov’t run health care would then do the exact opposite of what Pres. Obama and Pelosi have said; it would in fact double-penalize the very people who fuel the engine of our economy:  First by increased taxes, second by denying them the swift and expert care they would otherwise be able to provide themselves in a privatized system.

  • “The problems raised by a free health service are made even more difficult by the fact that the progress of medicine tends to increase its efforts not mainly toward restoring working capacity but toward the alleviation of suffering and the prolongation of life; these, of course, cannot be justified on economic but only on humanitarian grounds.”

    This is, I think, the elephant in the room: the enormous costs to the health care system caused by the elderly and, to a lesser extent, unhealthy infants and people with certain chronic diseases or genetic disorders. We’ve collectively decided that it is the “right” thing to do to make every effort to prolong their lives even though this can be tremendously expensive and may AT BEST only give them another few years of a miserable existence (I suspect that many people have experience with watching a parent or grandparent being kept barely alive by a bank of machines and a team of dedicated, skillful, humanitarian doctors and nurses… and feeling guilty because they wondered if they weren’t actually prolonging a loved one’s agony rather than saving his life).

    Friends of mine who have experience with the Canadian system say that it’s pretty good for emergency treatment, i.e. things that GENERALLY “contribute toward restoring working capacity”. For alleviating suffering and prolonging life, it’s not so hot. This is the implicit choice that must be faced regarding “universal” health care: what do we want it to DO? If it’s merely keep citizens healthy enough to be productive, then this can be done fairly cheaply (in money; not sure how to quantify the costs to our collective humanity of deliberately letting the elderly, chronically ill, or genetically imperfect die). If, however, we want to keep the goals of our current system, which prolongs life and eases suffering, then that’s going to cost A LOT.

    Take your pick: your wallet… or your grandmother.

    On the other hand, given how reliable a voting block the elderly tend to be, I can see the system actually FAVORING them. This is partly why Medicare and Social Security costs have ballooned: our population is aging, and politicians are willing (even eager) to buy those voters by giving them as many benefits as possible.

    Take your pick: your granmother… or you.

    • I hear a lot of talk about this, but I haven’t seen any hard numbers.  Does anyone really know how much is spent to prolong life, at what ages, and with what outcomes?  A lot of people, for example, undergo expensive cancer treatments and then live a long time after that.  How much money is really spent in those cases where no significant benefit is gained?  I’m skeptical that we have hospitals full of 80 year olds in constant suffering and just being kept alive by expensive processes.  But I have no idea.

      • The figure I hear is 80+% of all health care costs are incurred during the last 6 months of life. Makes sense.

        But you manage to hit heavily on one of Hayek’s points when you ask:

        How much money is really spent in those cases where no significant benefit is gained?

        What objective standard do you use to measure “significant benefit” and should it by your call or the call of the person who stands to benefit, even if marginally?

        • “What objective standard do you use to measure “significant benefit” and should it by your call or the call of the person who stands to benefit, even if marginally?”
          I don’t know, but it’s certainly no small problem that someone can spend nearly limitlessly (subject to insurance limits) for their own benefit, no matter how small.  Maybe insurance needs to be priced better.  I just don’t know.  It would be interesting to see how things shake out without all the current government interference.

      • Grimshaw – “Does anyone really know how much is spent to prolong life, at what ages, and with what outcomes?”

        Good question.

        This is from the Social Security Administration (edited; link below):

        AGE TOTAL MEDICAL EXPENDITURES

        75 $2799

        “Those expenditures reflect only a small part of the total cost, since most care for persons covered by those programs is paid for by employers, Medicare, and Medicaid… On average, it is reasonable to assume that health care benefits for employees aged 55 to 64 will cost more than twice as much as those for employees aged 25 to 34.”

        https://www.ssa.gov/policy/docs/ssb/v63n4/v63n4p47.pdf

        DHS has this (2006):

        “Five percent of the population accounts for almost half (49 percent) of total health care expenses.” (page 1)

        “The elderly (age 65 and over) made up around 13 percent of the U.S. population in 2002, but they consumed 36 percent of total U.S. personal health care expenses. The average health care expense in 2002 was $11,089 per year for elderly people but only $3,352 per year for working-age people (ages 19-64).” (page 3)

        “The elderly and disabled, who constituted around 25 percent of the Medicaid population, accounted for about 70 percent of Medicaid spending on services in 2003. People with disabilities accounted for 43 percent of Medicaid spending and the elderly for 26 percent. The remaining 75 percent of the Medicaid population, who were not elderly or disabled, accounted for only 30 percent of spending.” (page 8)

        http://www.ahrq.gov/research/ria19/expendria.pdf

        Pretty much in line with what I believe is conventional wisdom.

  • Don’t these same arguments apply to the current setup we have for health insurance?  Almost no one actually can choose “additional sacrafice”… it is all dependent on the insurance company and plan your current employer happened to pick.

    • I think it would help quite a bit if one could choose a plan where you can select, line by line, what extraordinary measures you want covered, and by extension, the cost of the insurance.  Then individuals could control the costs.  But of course, there will be those detractors who think this is unfair, that the rich can afford the extraordinary measures that no one else can.

    • One of the current suggestions out there – one this blog has been pushing for years – is get insurance out from under employers into a national pool, remove the mandates and let people buy insurance across state lines, something the law now prevents. If the best insurance for you is in NJ and you live in GA, you should be able to buy it. Remove the mandates and you can literally tailor the insurance to whatever you’re willing to “sacrifice” in relation to cost.

  • Ah National Health care, run by the government.  (Mmmmmmmm! Just smell the scent of the clean fresh Moon Ponies and Unicorns that are bringing it to you, all bedecked with gayly covered ribbons tied neatly in their manes and tails).  It will be ideal for almost everyone.  Whatever it is you’re worried about won’t be a problem, because it’ll be better than the evil insurance plans currently run by the free market and big business (brought to you in dirty stinky buses with grafitti all over their sides,  spewing diesel soot and odor all over your nice clean sheets hanging on the clothesline).

    • gayly covered = gayly colored – and I’m probably a homophobe for using the the word gayly in it’s longstanding traditional sense as opposed to it’s more recently appropriated context.

  • As Bruce highlighted above, I think this is the most significant sentence in the entire diatribe:

    The real issue is whether the individual concerned is to have a say and be able, by an additional sacrifice, to get more attention or whether this decision is to be made for him by somebody else.

    And the most important part of that sentence is “by an additional sacrifice“.  The only way that “additional sacrifice” — i.e.  anything within personal control — will play a part in the health care of an individual is if the individual has the ability to make a choice.

    In a national — i.e. risk-sharing throughout the community — system, the individual choice is subrogated to that of the collective.  Therefore, rationing under such system is left to hands of those who, with what must be hoped is perfect Solomonic judgment, decide what care one will get regardless of the individual ability, need, sacrifice or will to pay for such care.  In a system responsive to individual choice, one has at least the ability to effect the desired outcome through, as Hayek terms it, “an additional sacrifice” where the marginal utility of the care paid for matches the marginal benefit received.  Without that individual utility at work (and at risk!), a vast system intended to benefit myriad needs will be controlled and determined by a precious few.

    That, in my mind, is the argument against rationing according to government dictat versus through pricing.  At least with a pricing model resources can be rearranged and dedicated towards individual needs and wants.  In a community system, the economic idea of “intensity” is entirely lost, and the product (health care) is doled out based on the whims of those far removed from the actual desire or need.  As with any other centrally-planned economic system, it will be destined to fail.