Tuesday, July 21, 2015

The case for Universal Health Care is weak

by Jeffrey S. Hammer.

For years I’ve been saying “the ‘conventional wisdom’ in the field of international (or ‘global’) health is so weirdly innocent of elementary economics that no real economist who has thought about it at all could possibly support it.” By ‘conventional wisdom’ I’d include all unconditional talk of free curative primary care. Well, recent events have proved me as wrong as it is possible to be.

In a recent Lancet article (OK, that’s a clue), Dean Jamison (no surprise there) is lead author of a paper reporting on the conclusions of a committee chaired by Larry Summers that included Kenneth Arrow and George Akerlof.  It is the same old sh…stuff that unconditionally calls on every country, no matter what their circumstances, to commit to Universal Health Care where such a commitment must imply free curative primary care. It is no longer tenable for me to contend that no ‘real’ economist would say such a thing after thinking about it since we are now talking about two Nobel Prize winners and Summers after having being on a committee dealing with that very topic. So, the argument has to be made explicitly to let people think this through for themselves.

My argument can be boiled down into two parts which I will elaborate below. The first is “public policy – using the very scarce resources that poor countries have available - should first address those problems where market failures create the largest welfare losses. These losses include those resulting from an unfair distribution of income or well-being that a free market could produce.” That came straight out of the public economics (actually introductory) textbook I had as an undergraduate. Or, to quote Keynes: “The important thing for government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all.”

This could be simplified as “Do public goods before private goods.”

The second part of the argument could be simplified to “Do things you are capable of doing before trying things you’re not.

This is a minor, realistic, modification to public economics and is just to take the constraints on government policy seriously – both administrative and political – if such constraints will interfere with getting the policy done at all. Implementation matters. This is just common sense but it does involve some not-so-easy, if common, considerations. Politics is something I usually just rule out of bounds of my expertise but in justifying spending money (no matter how badly) in public health I regularly hear “oh, well, the money will come out of defense so it has no real opportunity cost.” No. It won’t. Or, you’d better be sure before you start.

On the administrative side: some policies are relatively easy – they can be done with the stroke of a pen or with easily written and monitored contracts. Monetary authorities can buy government bonds; most governments can get a road built (yeah, I know, that’s not always so straightforward either). Other policies are really hard. Monitoring CO2 emissions from fixed-point locations (let alone cars), identifying and updating lists of poor people, making sure school teachers are child-centric and, of course, making sure primary health care providers show up for work and apply some due diligence to their job. Some of these are really, really hard. Governments should know their own capabilities and promise those things they know they can follow through on before making promises that can’t be kept.

Good public policy has to make choices based on both considerations. Given different circumstances as far as the epidemiological profile of countries are concerned as well as substantial differences in the capacity of their governments (both of which – epidemiological profiles and government capacity - change), it is impossible to predict, before a careful analysis, which set of policies would be appropriate in which circumstance at any particular point in time. Some governments might be able to get regulation or infrastructure done well, others might have an advantage on health or education (Cuba or Iran come to mind). There is no reason to believe that all governments are equally well prepared to handle all possible public tasks. However, when “universal health care” is advocated irrespective of country circumstances, its very “universality” runs counter to this commonsensical approach.

From my perspective, two gigantic market failures characterise health markets (and problems) in poor countries. The first is the continued existence of communicable diseases many of which are combated by true public goods (or close enough). Traditional, 19th century public health problems of water, sanitation and pest (vector) control and a few immunisations were handled (or were acknowledged that they should be handled) by public authorities since the germ theory of disease was discovered. Many of these are still not done in poor countries (who now have a few more effective immunisations to work with).

I work a lot in India. Open defecation in India is a massive problem, currently being documented at length by researchers. Let me call attention to the Research Institute for Compassionate Economics in Delhi for this. The lack of sewers and sewage treatment in rapidly growing cities threatens the world with catastrophes that make Dickens’ London look benign. Can we pretend we don’t know what to do about this problem, at least in urban area? Can we pretend that money for such immediate demands will not be compromised if more money is to go to medical care? At least in some countries? Without being sure that there is no tradeoff with primary care in a country’s budget (I can attest there is such a tradeoff in India) – the “universal” part of universal health care is … irresponsible at best.

The second gigantic market failure in health is the universal (I admit – this one could be universal) failure of health insurance markets. This I learned from Professor Arrow in his 1963 paper. But what kind of health problem is most compromised when insurance markets fail, the inexpensive kind (handled in primary care centers) or the expensive kind (handled in hospitals)? I would leave this as a rhetorical question but in order to not be misinterpreted, the answer is “expensive”. (There is a specious argument going around that lots of badly diagnosed problems at primary centers lead to large overall expenditures. This is specious on the policy front since much of this mis-diagnosis is done at public facilities. At least in many countries I know of. In any case, this “depends” and needs to be examined in context before universal statements are made about it.)

So, on conventional economic grounds, there is a very good argument for government intervention on public goods and on the risk/ insurance/ hospital set of problems. Not prima facie on primary health care (medical, curative) that is implied by “universality”. Whether health care is particularly important for poor people (not from protection from risk – that falls into the insurance problem that everyone faces) must be evaluated against everything else governments might do to rectify an unfair distribution of income. Health care is not an obvious choice in comparison to food, for example, or unconditional cash transfers. I will elaborate in another post.

On grounds of the variable degree of difficulty of administering different public policies, this can’t be constant across countries and can’t be assumed to justify publicly provided or insured primary care. From evidence that money often fails to reach clinics (Gauthier and Wane) to absenteeism (Kremer et al, Chaudhury et al)) to poor quality care (Das and Hammer, Das et al) to substitution with large private sectors (sorry, cross effects, of prices or distance, of public and private sectors are really hard to pin down and largely unknown but often suspected to be large since people shop around for both (Filmer et al, Leonard)) makes the net impact of public efforts to provide primary care very doubtful in general and, in any case, questionable frequently enough to make advocacy of universal provision … irresponsible at best.

In future posts I will elaborate on the distributional effect of public spending on health, on the track record of primary care provision and on the challenges of correcting insurance market failures mostly from a public administration/ public capacity perspective. For now I just want to flag the point that advocacy of a single policy prescription for every country of something that is questionable for each of those countries is… irresponsible at best.

Please note: LaTeX mathematics works. This means that if you want to say $10 you have to say \$10.