Wednesday, February 11, 2009

Socialized Medicine--Is it all bad?

One of the big questions we face with the potential for health care reform in the United States is whether we will end up with "socialized medicine". Economists often try to be very precise in their language. Simply saying "socialized medicine" is difficult to interpret because the term alone is not terribly precise. What might socialized medicine mean?

Socialized medicine could mean a truly socialized system--all facilities would be owned by the government, all providers at all levels would be employed by the government, and all citizens would be insured by the government. Such a system would potentially have a lot of problems with setting the right incentives and a lot of people might be very unhappy--particularly changing from the current US system.

At other extreme we could have a completely private, for-profit market--including everyone being responsible for their own insurance or paying for their own care. We clearly are not willing to do that in the United States as we don't like to see people go without care when it is available.

The key is what to socialize. The VA system in the United States is close to a socialized system for those who are eligible to use it. There are many complaints about the system but it provides care for a large number of military veterans. The Medicare program socializes risk for the payment for some services for mostly older adults. Again, there are some complaints about the system, but it has helped to provide basic coverage for millions over the past 44 years.

So, moving ahead the question we face is how much more are we willing to make a government responsibility on behalf of society and how much are we willing to leave to the market. We may find that transferring a bit more of the responsibility for insurance and subsidization of care to the government is inevitable to make sure that everyone has insurance and that there is less variation in the types of programs to make it easier for providers to file claims. However, even that is not guaranteed. The government could do as little as mandating coverage and then finding a way to enforce that regulation.

The politics in the United States will almost certainly prevent us from ending up with a fully socialized system any time soon and no one has made that proposal any time recently. We as a society have to make a decision on just how much power to leave to individuals and individual organizations and how much more responsibility to give our government--that already has quite a bit in health care. When considering the debate from an economic perspective we need to be precise about how the proposed level of socialization and other change will change the incentives everyone in the system faces.

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