The impossibility of NOT rationing healthcare

The definition of healthcare rationing

Let’s be clear, first of all, on what we mean by rationing healthcare.  Many definitions have been used, and most talk blandly about such things as the allocation of scarce resources, or the fair distribution of available benefits or goods or commodities.  I object to such definitions on the grounds that they are misleadingly soothing. There is nothing pretty about rationing healthcare. Rationing is bad, and if we’ve got to do it we ought to face up to what we’re about. It might keep us more honest.

So here’s the definition I like:

To ration healthcare is to withhold at least some medical services from at least some individuals who would probably benefit from them, because we have decided not to buy those services for everybody who needs them.

This definition has the virtue of being straightforward.  Also, it puts the onus on us (since we’re the ones deciding not to buy the services) instead of on those nasty “scarce resources” themselves. That makes it more difficult for us to dance around the real issue, which is, if we decide we’ve got no choice but to ration healthcare, then we ought to feel obligated to do it in the least harmful way possible. 

Another advantage of this definition is that it gives us a starting point upon which we all can agree: The rationing of healthcare is undesirable, and so it should be undertaken only if there is no other alternative.

There is no other alternative. Unless we’re all willing and able to pay out of our own pockets for all of our own healthcare – a fiscal impossibility – rationing healthcare is an economic imperative.  There are two ways of explaining why rationing healthcare is unavoidable, a short way and a long way.   

The short explanation of why rationing is unavoidable

In any advanced society such as ours, where some sort of centralized funding agency creates a pool of money from which most of the healthcare bills are paid (whether that centralized funding is accomplished through a government agency like Medicare, or through a private agency like an HMO, or through some combination of these), even if that centralized funding agency is extremely large and powerful and coercive, there still will always be limits to how much money can be placed into the pool. On the other hand, the amount of money that could be conceivably spent to purchase all the potentially useful healthcare for every individual in the population is essentially limitless.  This means that, one way or another, somebody is not going to receive all the available healthcare that might be potentially useful to them.  Rationing is occurring. Q.E.D.

I personally find this explanation to be quite convincing. And if you do too, you can simply skip the rest of this section and move on to the next. But since rationing healthcare is such a horrific idea to contemplate, some of you who otherwise are entirely reasonable individuals might not have gotten “there” yet. If you are in this category, and a much more comprehensive proof of the unavoidability of healthcare rationing is necessary, read on. 

The long explanation 

The central issue is whether sufficient financial resources are available to allow us to avoid healthcare rationing.  In considering this issue, we should ask the most difficult question first – is there a limit to what we should be willing to spend on healthcare? 

How much should we spend on healthcare?

During the great healthcare debate of the first Clinton administration, it was generally held as abhorrent that healthcare was consuming 13% of the Gross Domestic Product (GDP). While there was great disagreement at the time as to whether the entire healthcare system should be managed by the government, I don’t remember much public disagreement at all on whether the total amount of spending was too high.  Clearly, said the consensus, it was.

On the other hand, many of my physician colleagues were saying in those days, as not-quite-disinterested observers whose incomes depended on society’s willingness to spend lots of money on healthcare, “Who says 13% is too high?  If not healthcare, what should we spend the money on?  Caribbean cruises?  Sports cars?  Why not spend 20 or 25% or even more of the GDP on healthcare?” 

I for one cannot blame my doctor friends for asking a question as reasonable-sounding as this one. The correct answer, however, is not the one they expected.  For there is indeed a fundamental limit on how much society should spend on healthcare.  We were exceeding that limit in 1994, and we’re certainly exceeding it now.

That limit is defined by a straightforward economic principle: When we are buying consumable products that we are consuming ourselves – products like Caribbean cruises, sports cars, ice cream and healthcare – we should spend no more than we are able to pay ourselves. 

There is no question that we’re spending more on our healthcare than individuals are able to pay, and have been for quite some time. In 2002, for instance, we spent an average of $5440 per year on healthcare for every man, woman and child in the United States.  This is far more than most Americans could comfortably handle themselves. 

More importantly, this amount is greater than we are able (or at least willing) to pay even on a collective basis.  Instead of paying for our healthcare as we go, we’re simply adding much of the cost to our huge federal deficit, both through Medicare and Medicaid expenditures, and by subsidizing “private” healthcare through tax deductions for insurance premiums. Thus have we arranged to pass on a huge and growing financial burden to our children, grandchildren and generations yet unborn, clearly in violation of the principle that those who consume products or services ought to pay for them.