Scarcity is an economic reality that requires individuals to make choices after weighing the expected costs and benefits of their options. No matter how loud the supporters of a larger involvement of the government in healthcare, for the sake of equality in treatment, scream, it will not be overcome by their demands. An attempt to ignore physical reality by trying to create equality in healthcare can only be achieved by uniting us all under the lowest common denominator.
Fortunately, through our use of technology and the cost-saving benefits of economies of scale, humans have been able to reduce relative scarcity over time. The process, however, by which this relative abundance is achieved, comes at the cost of large initial inequality. As a new product is increasingly consumed by those whose economic choices enable them to cover the high initial costs of accessing the innovation, it tends to be produced in larger quantities and at lower costs to the benefit of the masses. The same process applies to most innovation in health care.
Innovation in health care entails high intial costs that make new treatments immensely expensive. The question we face is not whether everyone should be able to get the new treatment, but whether we will be able to tolerate the initial inequality in accessing the treatment long enough for it to become available in larger quantities to the rest of us. The alternative to this initial inequality is not equality, but the end to medical innovation.
Gregory Mankiw explains “Why Health Care Will Never Be Equal” with the following hypothetical scenario:
Imagine that someone invented a pill […] Every day that you take the [pill], you will not die, get sick, or even age. Absolutely guaranteed. The catch? A year’s supply costs $150,000. Anyone who is able to afford this new treatment can live forever. Certainly, Bill Gates can afford it. Most likely, thousands of upper-income Americans would gladly shell out $150,000 a year for immortality. Most Americans, however, would not be so lucky. Because the price of these new pills well exceeds average income, it would be impossible to provide them for everyone, even if all the economy’s resources were devoted to producing [these] tablets. So here is the hard question: How should we, as a society, decide who gets the benefits of this medical breakthrough? Are we going to be health care egalitarians and try to prohibit Bill Gates from using his wealth to outlive Joe Sixpack? Or are we going to learn to live (and die) with vast differences in health outcomes? Is there a middle way?
Mankiw points out that the big question in this healthcare debate, given the constraints of scarcity which prevent us from gaining equal access to expensive treatments, is: Who is to choose who gets the expensive treatments, and by what right?
The push for universal coverage is based on the appealing premise that everyone should have access to the best health care possible whenever they need it. That soft-hearted aspiration, however, runs into the hardheaded reality that state-of-the-art health care is increasingly expensive. At some point, someone in the system has to say there are some things we will not pay for. The big question is, who? The government? Insurance companies? Or consumers themselves? And should the answer necessarily be the same for everyone?
Inequality in economic resources is a natural but not altogether attractive feature of a free society. As health care becomes an ever larger share of the economy, we will have no choice but to struggle with the questions of how far we should allow such inequality to extend and what restrictions on our liberty we should endure in the name of fairness.
I say that there is another, much more devastating consequence from allowing even more government into the health care market: A reduction in the innovation and distribution of potentially life-saving innovation. What the supporters of more government in health care don’t seem to realize is that innovation and cost-reducing efficiency is created by the market, not by the government. By attempting to restrain the health care market even further, our access to life-saving devices will be restrained even further, too.