Epidemics and Public Goods

In a recent article about Ebola in the Wall Street Journal, Peter Piot, the Director of the London School of Tropical Medicine & Hygiene, referred to epidemics like Ebola as what economists refer to as a public good.  For most readers of the Wall Street Journal, I’d imagine that the economic definition of public good might be familiar.  It might not be for most of those interested in public health but without economics and business training. 

Public goods have two key characteristics: being non-excludable and non-rival.  Non-excludable means that it is impossible to keep someone from experiencing it.  Non-rival means that one person’s experiencing it doesn’t limit another person’s experience.  National defense has characteristics of a public good—everyone in a country experiences it and my enjoyment of the United States’ national defense does not limit anyone else’s experience.

So, an epidemic does have these characteristics—everyone gets to experience the risk and no one is excluded from the exposure to the risk.

While the epidemic has characteristics of a public good, some solutions do not have elements of public goods but instead have externalities.  For example, for a vaccine, if I get the dose no one else can have it.  But, when I get the dose, my protection also provides some amount of protection for those around me.

The funding of public goods comes at the public expense and there must be a way to determine how much of the public good the public desires.  Externalities imply that individuals will either overconsume (in the case of negative externalities) or underconsume (in the case of positive externalities like a vaccine) the good without some type of incentive or enforcement.   

Within national borders or provincial borders within a country, it is possible to have laws that encourage or require specific behaviors, to provide monetary incentives,  or to coordinate activity through a Department of Ministry of Health.  Economists would ask about the costs and benefits of such rules or coordinating efforts.  When the epidemic is within borders the power to regulate, incentivize, and enforce is clear. 

When the epidemic is actually an international pandemic the situation is more challenging.  There is no authority that has the same type of legislative role or public health coordinating role internationally as a government within a province or nation.  As a result, efforts at coordination are, of necessity, more voluntary. 

Given the risks of the emergence of new infectious diseases and the resurgence of old ones, this is a time to consider how best to develop international cooperation for to deal with future international epidemics.  Someone may find a way to provide incentives across countries that are enforceable and that lead to better coordination and appropriate amounts of action.  If not, this is an opportunity for those who want to conduct business (and run countries) with humanity in mind to think carefully about how to encourage stakeholders to act not just with local or national humanity in mind, but with all of humanity in mind. 

Affordable Care Act and Strains on the System

This has been an interesting week for issues surrounding health insurance for me.  I was surprised by the amount of the increase in my out-of-pocket premium each pay period for health insurance for 2015.  The explanation was not that all of my employer's health insurance premiums were going up so substantially.  Rather, the main issue was that with my raise, I passed a threshold that led to a higher out-of-pocket premium expectation.  Not completely unreasonable.  Just there.

Then, today, I saw an article in the Wall Street Journal.  The article talks about the link between the Affordable Care Act, expansion of Medicaid, and strains on the health care system.

This is not a completely unexpected result.  There may be other data that I have not seen that counter what I read in the article.  If so, I'd like to see them.

However, the key here is that the Affordable Care Act was designed primarily to do one thing--get more people insured.  At least that was my read of the act.  But I did not read every word, and apparently, at least some involved in designing it thought that the lack of transparency was a distinct political advantage.  (You can see a quote from a fellow health economist here.  The fact that anyone in my profession would make such a statement makes me sad.)

When more people get insured, it takes care of only one part of access--the affordability of care.  And the article in the WSJ even points out that in one state to make sure that new enrollees could be covered by Medicaid, it was necessary to tighten up the management of care for existing enrollees.  That leads to an interesting question about sustainability and the "social utility function."  Is it better to give excellent coverage to a smaller number or moderate coverage with lots of controls to a smaller number.

Additionally, the fact that only affordability changed is showing up in how long it takes people to get care sometimes.  And the waiting list is growing for others to get care as more people who were previously not using anything other than the ER engage in the system.  Predictable--totally.

What does this mean?  Was the Affordable Care Act bad?  That, I believe, still remains to be seen.  Was the law put in place without a holistic view of how to solve the problem of access to health care under budget constraints?  Yes.  Could the United States ever implement a holistic reform?  Not likely given the political environment.

So, while the Affordable Care Act may have solved some problems it has created others.  Does that mean it was worse than no legislation at all?  Hard to say.  Does it suggest there is room for improvement?  Yes.  Where will that improvement come from?  Likely from private sector innovation that finds a way to provide affordable access to care to keep a population healthier while making a profit.  The best way to have a healthy bottom line is to run a business in a healthy community.  This wraps all the incentives together nicely if someone or some organization can figure it out.