Part 1. Health Care: Public or Private Good?

Part 1

This post is the first one written during the Covid-19 pandemic. We salute those in the healthcare industry who are fighting the virus on the frontlines. Nevertheless, FVHCTI will continue to advocate changes to the way we are currently organizing and financing healthcare services. This crisis ought to bring home to all the message that healthcare is a vital, public service that must be configured in such a way as to deliver high quality services at prices that organizations and families can afford.

Anyone knows that when you discover you are going in the wrong direction the fastest way home is to turn around. Well, we have been going in the wrong direction with respect to our health care system for many years. The Covid-19 crisis offers an opportunity to correct the fundamental mistake we have made and create and follow a sustainable path.

What is that fundamental mistake? Let’s start at the beginning; else, if we make a mistake here, we will start out in the wrong direction. Economies produce two major types of goods and services: private and public. Two key characteristics of goods and services are “rivalry” and “excludability”. These two features determine whether or not a product should be private (produced by markets) or public (arranged for by governments). Let’s consider a couple of examples. National defense is a purely public good. It is neither rivalrous (use by one person does not prevent another from using it) nor excludable (impossible or costly to prevent another from using it). How about pizza? It is both rivalrous (my eating a piece prevents you from eating the same piece) and excludable (others can be barred from consuming it). One is a purely public good and the other a purely private one.

Let’s take some examples closer to home: (1) fire and police protection, and (2) public education. In most cases our society has determined that these services are non-rivalrous (my using the service shouldn't prevent you from using it) and non-excludable (we don’t exclude anyone from using the service). There have been some variations with public education in recent years which continue to create debate, but we could say that our society has determined that K-12 education is neither excludable nor rivalrous.

Now let’s consider healthcare services. Let’s start with public law that prevents any hospital from denying emergency care to anyone irrespective of ability to pay. At least for emergency care, our society has determined (key words!!) that these services are to be non-rivalrous and non-excludable (a public good). What about non-emergency care? In 1965 the Congress passed Medicare (Title 18 of the Social Security Act) and Medicaid (Title 19). These laws were intended to assure care for people over the age of 65 and for those in poverty. Prior to Social Security in 1934 and Medicare in 1965 most seniors lived in poverty and only about half had some form of health insurance (hospital or professional). So, for those in these three circumstances, (ER, over 65, or poor) the United States has intended to make healthcare a public good (non-excludable and non-rivalrous).

What about the rest of the population? That is the for next post.