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Rhetoric vs. Reality in the Health Care Debate

Is it "rationing" when consumers decide how to spend their own money?

Ronald Bailey
June 23, 2009

Last week, the Democratic leadership in the House of Representatives unveiled their discussion draft of a sweeping bill to reform America's health care system. The bill would create health insurance exchanges and a government insurance scheme, require insurers to sell insurance no matter a purchaser's health status, set minimum benefit standards, subsidize insurance purchases to families up to 400 percent of the federal poverty level ($43,000 for an individual or $88,000 for a family of four), mandate that all Americans carry health insurance, and impose price controls on what doctors and hospitals may charge. The Democratic leadership hasn't the faintest idea what its reform proposals will cost.

The draft bill also would establish a public-private Health Benefits Advisory Committee to recommend covered benefits and an essential benefits package. This is the only section of the bill that mentions the word "rationing." It declares that "the Committee shall take into account innovation in health care and ensure that essential benefits coverage does not lead to rationing of health care." Of course, it would be helpful to know what the bill means by "rationing."

Earlier in the week, New York Times economic columnist David Leonhardt set out to explain what rationing is. First, let's acknowledge that Leonhardt does identify many dysfunctional aspects of our current health care system, including how we reimburse primary care physicians and specialists.

But in the article, Leonhardt claims that "health care rationing rhetoric overlooks reality." Leonhardt asserts that health care is already being "rationed." Since this is so, those who warn against proposed government health care rationing, according to Leonhardt, are either confused or liars. Such people, Leonhardt explains, are deploying "a clever set of buzzwords that tries to hide the fact that societies must make choices." The phrase "societies must make choices" is the first hint of how confused Leonhardt is about the concept of rationing. Rationing is all about who gets to make those choices.

Leonhardt goes on to cite what he thinks are three supposedly telling examples of rationing. "We ration spots in good public high schools. We ration lakefront homes. We ration the best cuts of steak and wild-caught salmon," he writes. Which one of those examples doesn't fit? Figuring this out is another key to Leonhardt's misunderstanding of the debate over health care rationing.

Next up he cites the dictum of one of capitalism's great defenders, economist Milton Friedman: "There is no such thing as a free lunch." True. But Leonhardt follows up this insight by writing: "The choice isn't between rationing and not rationing. It's between rationing well and rationing badly." Does Leonhardt think that lakefront homes are rationed badly? Steaks? Or for that matter clothing, restaurant meals, shoes, cars, computers, or airline tickets?

Moving beyond lakefront homes and steaks, Leonhardt eventually gives readers three examples of current health care "rationing." The first example is that employers are forced to decide between paying higher wages or providing higher health care benefits to their employees. He notes that the tradeoff between wages and benefits is often "invisible" to employees and thus it appears to them that their compensation is not increasing much.

Of course, the way to avoid this kind of "rationing" would be to just pay the employees all their money and let them buy their own health insurance. Thus health insurance would become "rationed" just the same way that we ration cars and cellular telephones. Allowing consumer choices in health insurance and health care will also help drive down prices and increase the range of health insurance products in just the same way consumer choice operates in other areas of our economy.

The current provision of medical care to the uninsured is Leonhardt's second example of rationing. This example is closer to the mark since health care for the uninsured is already mandated and/or paid for (Medicaid and SCHIP) by federal and state governments. He notes the poor quality of care that such people receive without musing for a moment that such poor government-funded care might be a harbinger for what "universal" health care would become.

Leonhardt's third alleged example of current health care rationing is the "failure to provide certain types of care, even to people with health insurance." The fact that certain health insurance policies chosen by individuals and/or their employers don't cover certain treatments is no more "rationing" than it is when people choose not to eat a USDA prime steak or pay tuition for a private college education.

On the other hand, Leonhardt is right to say that our dysfunctional health care system misses opportunities to offer good treatments to people in need. The current system misses those opportunities, in part, because there is so little competition and thus very little incentive for health care providers to supply information to consumers. Consumers can competently choose between complicated computer technologies and evaluate automobile performance because competitors are motivated to supply consumers with relevant information. The same kind of competitive dynamic could work with the provision of health care and health insurance.

So if Leonhardt gets it so wrong, what is rationing? Leonhardt is correct when he writes, "In truth, rationing is an inescapable part of economic life. It is the process of allocating scarce resources." The crucial question that Leonhardt misses is that "rationing" depends on who is allocating the scarce resources. It's not rationing if an individual decides to spend his money on a 16-ounce steak—but it is rationing if he can only purchase a USDA prime rib eye when he has a coupon issued from a government agency. In other words, true rationing occurs when individuals are forbidden from spending their money on products or services they want to buy.

Imperfect as private health insurance markets are, if a customer doesn't like the decisions made by Blue Cross Blue Shield, Kaiser Permanente, or Golden Rule insurance bureaucrats, he can look elsewhere for his health insurance coverage. But if the government health care scheme becomes a monopoly, when the bureaucrats at the new Health Benefits Advisory Committee decide that a treatment should be withheld, that treatment will be withheld. That's rationing.

"Americans should get the first chance to limit their own health spending," Rep. Jim Cooper (D-Tenn.) observed recently. "Once they learn the true cost of what they are buying, share a larger portion of the cost, and can judge the benefits—if any—of treatment options, then they will choose more wisely than the government." He's right. Congress should think about "rationing" health insurance and health care the old-fashioned way—through the market.

Ronald Bailey is Reason magazine's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books. This column first appeared at Reason.com.


Ronald Bailey is Science Correspondent


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