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Friedrich Hayek on Universal Health Care
Posted by: McQ on Tuesday, January 02, 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.
 
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Previous Comments to this Post 

Comments
“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 place there is no turning back even if it is an outrageous mistake.
I don’t disagree here. If I had my druthers, I would prefer that we never came down this road and healthcare was a completely private enterprise. But I think the point missed here is that we have long ago past the point of no return. 65% of all healthcare expenditures in this country are passed through the government. 30% of all private health costs are administrative costs.

What this means to me is that we have defacto nationalized healthcare, the only real distinction being that although it has the all the tax costs of universal healthcare, it has few of the benefits. In other words, we are already paying more than every other nation in health expenditures, without actually providing the coverage.

I think it is not a stretch to make an analogy to public schools, many people pay for public schools and send their children to private schools. I think this would be the case with healthcare, the benefit in my opinion is that I think we already pay enough for our hybrid clusterfudge system as we would need to pay for a universal system.

There are other elements of the argument that I think are off the mark, but this is a good start.

By the way, from the perspective of global competetiveness, ask GM and Ford if they could better compete in the global marketplace if their employees were in the same kind of healthcare environment as their competitors.

Cap
 
Written By: Captin Sarcastic
URL: http://
But I think the point missed here is that we have long ago past the point of no return.
Well we have a very basic disagreement then. That doesn’t mean it may not eventually go there, but it will go with me fighting it every step of the way.
By the way, from the perspective of global competetiveness, ask GM and Ford if they could better compete in the global marketplace if their employees were in the same kind of healthcare environment as their competitors.
There’s no question they’d prefer dumping the cost of health care insurance from their side of the ledger, and, probably, don’t much care who picks it up.

That, however, doesn’t make the case for government picking it up. As I’ve pointed out before, there is nothing which requires government do so in order to remove it from the employer.
 
Written By: McQ
URL: http://www.qando.net/blog
Indeed. I propose an argument that operates at a more basic level, to counter the one Sarcastic offers:

Let’s imagine that the American worker, already grossly overtaxed, now has the additional burden of carrying everybody else’s health care. Given that we’re talking about government running it, it is by far the most inefficient process possible. IE; Healthcare costs, however divided, are going to go up.

Under such a circumstance, does anybody really think that people are going to have enough money left over to buy more Ford and GM automobiles?

We keep hearing from the left about how everything is a zero sum game. Well, is it or isn’t it? If it is a zero sum game, taking Healthcare money by force of the pockets of Americans, is not going to free up money to buy automobiles with.
 
Written By: Bithead
URL: http://
What this means to me is that we have defacto nationalized healthcare, the only real distinction being that although it has the all the tax costs of universal healthcare, it has few of the benefits.
Now, maybe it’s the libertarian in me, but I’m not seeing many benefits. And after thinking about this piece, I’m not real keen on finding out just how long it takes the state (in the general sense) to start (ab)using the medical knowledge it will thus acquire in such a scheme. I would think even lefties would get their panties in a wad over this, seeing as the people most likely to abuse this won’t necessarily care who you are.
By the way, from the perspective of global competetiveness, ask GM and Ford if they could better compete in the global marketplace if their employees were in the same kind of healthcare environment as their competitors.
Well, while I agree with McQ in that they would unquestioningly love to dump health care costs to anyone else, I would hazard a guess that they would much better compete if they did not have to deal with unions... or made better vehicles. But that’s another topic.
 
Written By: exanter
URL: http://
I have to partially agree with Sarcastic. We already have a defacto socialized system and that is part of the reasons costs have gone up so much.

The only system that makes sense is one which forces all workers into purchasing some sort of minimum coverage, but allows companies to compete and offer additional benifits. Then take the burden off of the employer completely (but he has to raise the pay of the employees by the concommitant savings.)

Then those who have no means have their premiums paid by the state, but this still would be cheaper than our present system, or full blown socialized medicine.

I know such a scheme would not be popular to libertarians, but we are not arguing whether we should have all that we want. We are instead arguing; what is the least harmful thing I can escape with?
 
Written By: kyle N
URL: http://impudent.blognation.us/blog
Kyle N,

I agree with you. While libertarians are right to work for greater liberty and freedom of choice, they are sometimes wrong about people not needing any help in making life decisions. (Or at least in convincing a majority of the public that this is true)

Empirical evidence shows that many employees don’t join their 401K plans often enough even though they are stupid not too, so now the move is on to make them opt-out rather than opt-in.

I suggest the same be done for healthcare in your plan: make it an opt-out bare bones plan for all workers.

This will have a benefit of also eliminating some of the left’s rhetoric about the greedy corporations, etc. Hey, if Joe opted out to save money that’s his choice and not Wal-Marts.

 
Written By: Harun
URL: http://
I’m not real keen on finding out just how long it takes the state (in the general sense) to start (ab)using the medical knowledge it will thus acquire in such a scheme. I would think even lefties would get their panties in a wad over this, seeing as the people most likely to abuse this won’t necessarily care who you are.
I would not support a plan that put individual medical information in the hands of the government, that is why I support a single payer or multipayer plan, where the government authorizes the payers, which would be not-for-profit corporation overseen, but not operated by the government.

In healthcare, we spend TWICE as much as Canada as a fraction of our respective GDP’s. if you think universal coverage for Americans needs to be MORE than twice what it costs for Canada or most other industrialized countries, I think you are wrong.

I think we spend twice what they spend because of our failure to either have universal healthcare or not, we have this in between system that costs more than any other option.

Cap

 
Written By: Captin Sarcastic
URL: http://
Just remember that the British system has brought us such travesties as hospitals being fined for providing service that is too efficient and patients having to choose which of their eyes will have sight and which will not because they will only cover treatment of one eye if you have macular degeneration. The Canadian system has brought us such insanity as waiting 16 weeks to see a specialist under your government insurance and being legally prevented from spending your own money to get treatment.

You may not like how much you have to pay in our hybrid system, but you can still choose to have sight in both your eyes.

And Cap, what on earth makes you think that a single payer system would somehow be proof against the intrusion of bureaucrats into your private data? The feds are the architects of the horribly flawed, and never enforced, HIPAA Privacy Rule.
 
Written By: Adam Selene
URL: http://www.thelibertypapers.org/
Also, the British labor party topped up the NHS, supposedly a once and for all push to get results that did not work. Now they are working on basically re-creating competition in their system.

Might it be wise to devolve this to the states so we can see what options there are and make sure any plan has a sunset clause in case of emergency?
 
Written By: Harun
URL: http://
Here’s a real dumb question:

If the suposed problem is the 40 million people who don’t have health isurance, with more than half of those people spending very short periods of time transitioning between jobs, and another big chunk of people who just don’t feel they need to pay for health insurance, why not just solve THAT very small problem with government instead of having the same people who gave us the freaking post office take over 1/7 of the American economy?

How come everything has be "universal"? Actually I know the answer but I want the leftists to step up and say it out loud.

If I need a heart bypass tomorrow I can get it in America. If I live in Canada I need to take a trip the United States and pay in cash for the same thing. Otherwise its a waiting list for me. Americans pay more for healthcare because we get more healthcare, in a more timely fashion (a key distinction) and with fewer restrictions than anywhere else in the world (the most key distinction). The key factor is choice. In America my choice of drugs for any given ailment is more than twice as large as the average Canadian and 3 times as large as the once prodigious pharmaceutical producing nation of Germany. The rest of the world has been free riding on the American consumer for decades but the only way to stop that is to punish ourselves and mankind by not paying for the pipeline any longer.

I shouldn’t pay more for that?

This is why Hillary care was soundly rejected 13 years ago, and why it will be soundly defeated again.

It wouldn’t cost very much to subsidize the health insurance of those who can’t afford it. NOBODY is talking about doing that. Why?

 
Written By: DS
URL: http://
It wouldn’t cost very much to subsidize the health insurance of those who can’t afford it. NOBODY is talking about doing that. Why?
Maybe you haven’t noticed, but with 65% of healthcare costs borne by the government (us taxpayers), a significant majority of healthcare costs in the US are subsidized.

The problem is that is that the manner of subsidation is less efficient than EITHER a universal coverage plan or a private healthcare market.

I think you recognize this, and prefer to improve the system by moving to a more private system, and if I believed that were possible, I would probably be supportive of this solution, but as I said before, I believe that we are past the point of no return on the socialization of healthcare in America, so our choices, in my opinion, are to fight to keep what we have (the ridiculously messy and expensive hybrid system) or just bite the bullet and go all the way to universal healthcare.

Hillarycare was soundly defeated 13 years ago.

When you consider the changes in healthcare costs in that time, you will see why it will win the next time around.

Cap
 
Written By: Captin Sarcastic
URL: http://
Well i think the inability to turn back is not a matter of any real hiderance to fix things if problems arose, but rahter an inability of the populace to want to give up its "free" healthcare. At this point there is no "point of no return" becuase in the mind of the populace we dont have a "free" system yet.
 
Written By: josh b
URL: http://
"I believe that we are past the point of no return on the socialization of healthcare in America, so our choices, in my opinion, are to fight to keep what we have (the ridiculously messy and expensive hybrid system) or just bite the bullet and go all the way to universal healthcare."

Americans sadly continue to limit their "choices" to slim or none. So, like choosing between Republicrat or Demonicpublican, we can either "choose" to keep our system the way it is OR make it worse! You do realize that if we had Universal Healthcare today, George W. Bush would be in charge of your healthcare. I have a problem with that. I wish we could have a choice to opt in or opt out. If you want Universal Healthcare, I think you should be able to have it. You pay the necessary tax increase and receive the increase in benefits. But once you sign up, there’s no going back. I would choose to pay private health insurance and receive my benefits from that. We both live happily ever after. There’s no more debate about forcing people into situations that they don’t believe in and don’t want to be a part of.

I’d be curious to know where the 65% healthcare subsidy is being referenced from. I don’t doubt that it’s true, I’m curious what the breakdown is. In any event, I suspect that 65% is going to healthcare providers, those greedy corporations, directed to them by our spineless "representatives" who are bribed by lobbyists, not to individuals who need coverage between jobs, can’t afford healthcare, or just don’t want to pay for health insurance.

When partisan politics enters the hospital, make sure the hospital the ambulance takes you to shares your ideology, because those same spineless bureaucrats who got us 65% of the way will have 100% discretion on when to pull your plug.



 
Written By: Nine Over
URL: http://
I wish we could have a choice to opt in or opt out. If you want Universal Healthcare, I think you should be able to have it.
You have an odd definition of "universal."
 
Written By: Terry
URL: http://
I wish there was some way to make the people who want to steal my money happy, without stealing my money. So by definition, are we covering every entity in the "universe"? Since you have your dictionary out, look up steal, because that’s what universal healthcare is.
 
Written By: Nine Over
URL: http://

 
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