Economic reasons for public healthcare: A Theory

Is public healthcare more efficient in terms of allocation of resources?

Healthcare is a public good, and there are some reasons why it should be funded by public spending. Firstly doctors in a private system may have perverse incentives to increase costs over and above that which is necessary for patient care. This form of 'over-treating' could be either due to the profit motive in private clinics or at a systemic level, where instead of competing on price, treatments that are most costly become prevalent over equally-effective cheaper versions. These costs would ultimately result in higher insurance premiums or costs which are then passed on to patients.

This is a theory that can been seen in reality. Healthcare spending in the United States, which is supposedly exposed to competition, is vastly higher than any other country and makes up more than 16% of GDP. Are we too assume there are many more health problems in the USA as a percentage of population, or could privatisation play a role? Private systems may escalate costs where there are incentives to do so. A form of monopoly, as described by Adam Smith, can theoretically occur when pharmaceuticals exert power through promotional spending and influence on regulators.

Perceptions and actions of the economic actors also play a role. Cost does not equal quality, but patients and doctors could get duped into thinking a particular treatment is more effective when it is more costly. Especially when the potential for profit has led to increased promotional spending. The placebo effect can be effective and could be potentially manipulated. Privately-funded researchers also have an economic incentive to 'massage the figures' during trials.

Arguably this all depends on the actions of individuals and their motivations. There could be some evidence that doctors working in public system, where they are paid less, are likely to be motivated more by their social conscience than by a profit motive (or some combination of both). Choosing between treatments may not be clear-cut and there might be reasons for choosing particular treatments over another. It depends on motivations of actors, which we cannot easily discover. It could also lead to over-treatment of symptoms rather than causes, where there are incentives for increasing the numbers of patients return visits (and thus increasing business).

Extreme cases result in cases like Micheal Jackson's death, where a doctor trained in medicine was inventivised to over-medicate with powerful mind-altering drugs on a regular basis, and paid well to do so.

We could argue some of these criticisms apply to public systems too, mainly where medical research is privately financed. Especially this can occur when companies enforce long patents, a form of monopoly on intellectual property, which extract capital from medical products in the long term, rather than enabling generic versions to be developed. This is said to be justified by enabling companies to reap back their initial investment, but it might have been better to use public investments and patents for new medical research and innovations.

In the past, before healthcare was well-regulated by public bodies (and medicine was advanced) doctors often had a bad name as draining con artists, as described by Charles Dickens in the "Tale of Two Cities", where unscrupulous doctors would travel around selling dubious wares. Superstition was rife and it was difficult to find a good doctor. The best way to do this was by reputation. However, lack of public regulation or funding may lead us back to this.

David Cameron speaks of 'choice' but do really want to choose between doctors in a time of sickness? This might just add to stress. Choosing on price may lead to inequity in service and it's so hard to choose on 'quality' when there's no point of reference!

Competition on 'cosmetic' factors, like how good the hospital looks, won't necessarily lead to effective or efficient healthcare.

Infact having a 'marketplace' implies a variable service that, instead of leading to healthy competition, undermines trust (both for patients and between medical professionals!!).