Tuesday, March 2, 2010

Health Care Reform by James Gailbraith

Health care per se is not a market; if you draw a supply-and-demand diagram for health care there is no quantity to put on the horizontal axis and no price to record on the vertical axis.It is not a commodity that is bought and sold at a given price on an open market. Proposals to introduce market forces in health care are largely concerned not with the provision of health care itself but with the provision of health insurance.

The intrinsic costs of providing insurance are relatively low. There are no expensive inputs to purchase, no uncertainty of design or technology to be concerned with. The major inputs are personnel and computing capacity. There are few major issues of innovation; unlike the rapid changes characteristic of medical practice, the service of providing insurance to pay for them does not evolve rapidly. A successful private insurance company follows an ancient formula; it stratifies its clientele by risk class and charges premiums adapted to each class. The most successful companies are generally those that manage to exclude the riskiest clents.

Public universal health insurance schemes like Medicare do not evaluate risk. Since they are universal, they do not need to. Therefore, they save the major cost of providing private health care insurance. They pay their personnel at civil service salary scales and are under no obligation to return a dividend to shareholders or meet a target rate of return. Insurance in general is therefore intrinsically a service that the public sector can competently provide at lower cost than the private sector, and from the standpiont of an entire population, selective private provision of health insurance is invariably inferior to universal public provision.

Private health insurance companies would not exist except for their political capacity to forestall the creation of universal public systems, backed by their almost unlimited capacity to sow confusion among the general public over the basic economic facts. Liberals who support anything less than a common, public insurance pool have no argument. They are simply tugging their forelocks and bending their knee before the bastion of private power...not even offering another another glass of the proverbial liberal small beer.

The reliance on private insurers makes universal coverage unaffordable.


  1. The son of renowned liberal economist John Kenneth Galbraith and of Catherine (Kitty) Atwater Galbraith, he earned his BA, magna cum laude, from Harvard in 1974 and Ph.D from Yale in 1981, both in economics. From 1974 to 1975, Galbraith studied as a Marshall Scholar at King's College, Cambridge.

  2. I don't have access to Dean Baker's analysis which is just the detailed account leading to the same conclusion. When you crunch the numbers, if Americans could buy insurance in any one of the universal systems in Europe and get their treatment from them, the savings would be such that all uninsured Americans could be covered and receive individual rebates sufficient to provide a modestly luxurious yearly vacation which, in fact, Germans and French do enjoy under their systems.