A Simple Error in Logic – Attack on Single Payer (Oct, 1961)
It’s pretty depressing to see that the same fallacies (or even worse) are being peddled by “free-market” health care promoters today as they were 50 years ago. Comparing free health care to free haircuts would only makes sense if failing to get a haircut killed you.
A Simple Error in Logic
by John and Sylvia Jewkes
The experience of Britons with their system of socialized medicine suggests that they were the victims of an illusion.
Professor and Mrs. Jewkes have been making a study, financed by Alfred P. Sloan Jr., of the British National Health Service. They have found that the N.H.S. grew out of three main arguments: first, the British medical system before 1939 was seriously defective and nothing short of a centrally controlled free system could provide appropriate remedies; second, increased expenditure on health services would be a sound economic investment because it would increase production; and third, social justice called for identical, and the best possible, medical services for each and every citizen. In a recently published pamphlet* the Jewkeses scrutinized the first of these arguments. (Subsequent pamphlets will deal with other aspects of the matter.) The British experience can be profitably studied in the U.S., where advocates of nationalized medicine sometimes present the same arguments. What follows is excerpted from the Jewkes study.
It is widely taken for granted that, but for the National Health Service, Britain would now enjoy much less satisfactory medical services than actually exist. What in fact would have been the state of affairs in the absence of the service? Speculation of this kind is naturally hazardous. But on occasions, and this seems to be one, it is the only way of testing a social experiment for success or failure.
To be more precise about which “might-have-been” is under discussion, it is conceivable that after the war Britain might have swept away completely public provision for, and public insurance against, needs in time of sickness. Conceivable but not very likely. The likelihood is that, if the National Health Service had not been created in its present form, the prewar National Health Insurance system would have been retained for the lower income groups and extended to cover dependents; that more easily accessible facilities for voluntary health in- surance would have become available for the rest of the community; and that the government would have assisted, in one way or another, voluntary health insurance, capital expenditure on hospitals, and medical training.
Since the end of the war the health of the British people has undoubtedly improved in many ways. It would, however, be a mistake to give the whole of the credit for this improvement to the medical services. It is the result, common to all Western countries, of broad improvements in the standards of living, of scientific advance (and many of the crucial discoveries have come from without the medical profession itself), of better education, and of improved facilities for communicating ideas.
It is reasonable to suppose that, even without a National Health Service, Britain would have enjoyed after 1948 medical services more ample and better distributed than those which existed before the war. All experience in Western countries suggests that, when general incomes rise, the community will spend increased sums on medical services (see “What the Doctor Can’t Order—But You Can,” Fortune, August, 1961).
It may be that the National Health Service, because of its form, has positively discouraged the allocation of resources to the purposes of medicine. This proposition will at first sight appear absurd (for surely, it will be said, more medical services will be used when they are free than when they have to be paid for directly in part or in full), and in any case it is likely to arouse a strong emotional resistance in many quarters. It is, however, by no means as fantastic as may at first sight appear.
Suppose haircuts were free To examine the subject first in general terms, if a government offers wholly free an unrestricted service (say, a free haircutting service for men or a free veterinary service for domestic animals) formerly bought in the market in the normal way, then it can be expected that the demand for this service, at the zero price, will increase. If, further, the government accepts the logical implication of its undertaking and expands the supply of the service to meet the enlarged demand, then the total consumption of the service will of course be greater than under the old conditions. The government, in order to provide the means to honor its obligations, will be compelled to increase taxation and thus impose upon consumers economies in other directions.
If, however, the government (either because of bad faith or because it has not foreseen that to lower the price will increase demand) does not or cannot increase the supply of the service, then there will be a shortage. The demand will be greater than the supply. The government may meet this situation in a number of ways: .
(a) It may organize a system of rationing. This is tantamount to a confession that the promise to supply an unrestricted service free is not being honored.
(b) It may impose prices for the service. This is a departure from the original scheme.
(c) It may do nothing about the shortage and allow it to find its own solution. The situation will then be one of “first come, first served”; queues will appear, the rationing will in fact be carried out by the process of compulsory waiting.
If there is no legal prohibition, an additional private supply is sooner or later likely to appear because of the shortage. Those consumers who go over to this private supply will be paying the full price for the service largely to avoid waiting; their choice is between the free public service with’ the inconvenience of waiting and the priced private service obtained promptly. They will be buying the convenience of not waiting.
Two critical changes have now occurred. First, there are two different qualities of service: the main difference between them is that one involves less waiting than the other. Second, everybody gets better service. As more people move over to the private supply, the pressure on the public supply is reduced and waiting there also becomes less. At some point is an equilibrium where the move over to the private supply will cease.
Total service could shrink Under these conditions—with a public supply and a private supply—will the total combined use of the service be greater or less than it was under the original conditions before the government embarked upon its scheme? Deductive reasoning cannot provide a final answer but it can perhaps, under simple assumptions, take us some way toward it. For example, at one extreme, the government might decide to arrange for a public supply equal to the supply under the original conditions. There would be a shortage (because the demand at zero price would have risen above the demand under the old conditions), and we can presume that some people would then have recourse to the private supply. So the total of the public and the private supply would be larger than the supply under the original conditions.
Suppose, however, the government decides to provide a public supply that is smaller than the original. Then, of course, there will be an acute shortage, waiting will be prolonged, and larger numbers of people will find it worth while to use the private supply. Will the total of the public and private supply now be less or greater than the original? We cannot know, but the following factors will help to determine the outcome: (a) To be sure, the more inconvenient the waiting inescapable with the public service, the stronger will be the disposition of people to go over to the private supply.
(b) But the greater the price to be paid for the private supply, the less will people be disposed to go over to it as against the free supply.
(c) There may also be at work elusive psychological factors. Thus, for example, if a large number of people know that although the public service is “free” yet it has to be paid for indirectly through taxation, then they may have strong objections to what they regard as “paying for the same service twice,” be reluctant to go over to the private supply, and be prepared to tolerate the public service, although it offers them, in effect, lower-quality treatment.
The presence of the free public service, therefore, tends to discourage the use of the private facilities. If the public supply provided by the government fell far short of the supply under the old conditions, it seems not impossible that the gap would not be wholly filled by the use of private facilities. In this case, a smaller total service, public and private, would be provided than under the original conditions.
More people in the waiting room To turn now to the question in the form that directly interests us. If the British Government were now to abolish wholly or partly the National Health Service and make a corresponding remission of taxation, would the increase in private expenditure on medicine be greater than, equal to, or less than the remitted taxation? There are many intractable complexities in trying to fit the facts regarding the National Health Service into the kind of analytical framework presented above. The nature of the demand for medical services is an extremely baffling one. But at this juncture the following points may be made.
When the National Health Service was started there can be no doubt that the demand for the free medical services expanded. There is no way of deciding how large this expansion was, because a part of it must have remained unsatisfied. In some cases, such as the supplying of appliances (spectacles, hearing aids, dentures, etc.), the expansion of demand, although not necessarily its full magnitude, was revealed by the fact that the supply could be and was increased to meet at least some part of the larger demand. In other cases, where the supply could not be suddenly increased, as in the matter of hospital accommodation, the expansion of demand was revealed by the appearance of large waiting lists (although it has to be kept in mind that waiting lists do not necessarily reveal the full extent of the unsatisfied demand since, where the supply is grossly inadequate, people simply cease to record their demand and thereby deflate the waiting lists). In still other cases the indicators of the expansion of demand were more elusive. They took the form of more people seeking treatment and more waiting, of longer hours of work by general practitioners, of more hurried medical examinations, of the increased frequency with which general practitioners sent patients to hospital.
It is equally clear that the government was taken by surprise at the high level of demand under the new conditions. No estimate made before 1948 had set the annual cost to the Exchequer of the National Health Service above about £170 million. The actual cost, at an annual rate, came out at £377 million for 1948-49 and £433 million for 1949-50.
The unexpected demand could not be met in full. Nor has any government since 1948 shown any intention of trying to meet it. The National Health Service made no organized provision for the quick expansion of medical facilities. Aneurin Bevan himself was soon urging restraint on the part of the public and deploring the cascades of medicine pouring down the throats of the people. Even so, it is now apparent that he was anxious to spend on a larger scale than some of his colleagues. Mr. (now Lord) Morrison has revealed that other Labor ministers believed at the time that “Nye Bevan is getting away with murder.” It was, of course, the clash between Bevan and his colleagues over this subject that subsequently led to his resignation.
All later governments have, in practice, rejected the principle of meeting the full demand for free services. They have gone about their task of restriction in different ways, some designed to limit the cost of the service, others to shift the burden: by imposing a ceiling on total expenditure, by severely restricting capital construction, by exacting charges, by retaining wholly free services only for special groups, by placing a larger proportion of the cost of medical services on social-security funds.
Price curbs didn’t help The steady and continuous struggle on the part of British governments to restrain the demand for medical services has led those who had assumed that the principle of “the best possible medical service free for all” meant literally what it said to complain of “the tyranny of the Exchequer.” Certainly the efforts on the part of successive governments to keep expenditures within what were deemed to be proper bounds, and at the same time avoid political unpopularity, have had some unfortunate long-period consequences—such as the virtual ban on the building of new hospitals for a decade, the abandonment of the plans for the building of health centers, the delays in increasing the remuneration of doctors as the cost of living rose, the relative starving of medical research, and the discouragement of progress in certain forms of medical education, particularly in the size and number of dental schools.
The struggle to keep down the cost of prescribed drugs is of special interest. The National Health Service originally provided all drugs completely free of charge. There is no other country in the Western world where this happens and it would be difficult to find a case anywhere, within compulsory or voluntary insurance schemes, where drugs are provided without important restrictive conditions. Every British government since 1948 has expressed special alarm at the steadily mounting cost of medicines under the National Health Service. Measure after measure has been imposed, committee after committee has reported for the purpose of curbing this form of expenditure. The government has exhorted the public to restrain its demand; it has set up and strengthened its investigating machinery in order to check excessive prescribing on the part of doctors (and, in the process, run the risk of interfering with professional independence and experiment); price curbs have been imposed upon manufacturers of pharmaceutical products to the point where research may have been discouraged. Meanwhile, the British people have been purchasing drugs on a large and increasing scale from their own pockets. In 1959 the cost of privately purchased pharmaceutical products was larger than that of drugs provided under the National Health Service. No British government, therefore, has met the full demand for free medical services.
How the N.H.S. may have hindered medicine There are two reasons for suggesting that the National Health Service has positively hindered the growth of British medical services.
First, medical services continue to be purchased privately. Not only are half the pharmaceutical products consumed purchased in this way, but there is some private practice among general medical practitioners. Perhaps most significant of all is the private expenditure for consultants’ services and private-hospital or nursing-home accommodation. There has been a rapid growth in recent years of voluntary health insurance to meet such costs. The total number of persons now covered is about one million and the subscription income, which has increased by about 180 per cent in the last six years, now totals at least £5 million. It cannot, of course, be assumed that the whole of this expenditure represents a net increase in private expenditure; but the greater part of it would seem to be such. This private expenditure grows because many people are ready to make sacrifices in other directions in order to enjoy prompt hospital and specialist treatment, free choice of consultant, and private accommodation.
If, then, there are considerable numbers of people who find the service so inadequate that they are prepared to make the double sacrifice of paying both for National Health Service facilities they do not use and for the private facilities they do, it is not unreasonable to assume that there are still larger numbers of people who are dissatisfied with the National Health Service but are not prepared to make the necessary sacrifices to improve upon it. The presence of the free service induces them to tolerate less adequate medical facilities than they might have bought in a free market.
The second reason for suggesting that the National Health Service has hindered the growth of medical services is that other countries, which have not made such extensive public provision for medical needs, have shown a better record than Great Britain. International comparisons of this kind are notoriously tricky but they are perhaps not wholly without significance. Taking into account everything that seems measurable, the presumption must be that the American achievement in this field since 1948 has outstripped the British. But it may well be objected that this comparison is hardly a fair one. The U.S. is by far the richer country, and has had to provide much new capital equipment, in the way of hospitals and the like, for a very rapidly growing population.
The Swiss did it better There is, however, another country, Switzerland, where medical costs are still to a great extent met privately and where the general standard of living and the rate of increase and the redistribution of population are more nearly similar to those found in Great Britain.
The costs of medical services in Switzerland are met from three sources:
(a) A large group of health-insurance associations (known as the Caisses-Maladie), which, for the most part, provide voluntary health insurance. Membership in a Caisse-Maladie provides fairly full coverage against domiciliary medical care and drugs for persons with low incomes. Better-off members may have to meet a part of their medical fees; the medical profession in Switzerland is independent, works largely on a fee-for-service system, and retains the right to charge high income groups larger fees than those allowed for by the Caisses-Maladie.
(b) The various governments of Switzerland—federal, cantonal, and communal—provide considerable subsidies to the medical system. The subsidy from the federal government is mainly devoted to preventive medicine and a relatively small grant to the funds of the Caisses-Maladie. The cantonal governments also make grants to the Caisses-Maladie but their big contribution is made to the hospitals. The contributions made by the Caisses-Maladie to the hospitals for the services provided for their members do not nearly cover the actual cost of these services.
(c) Payments made by private individuals. These are made up of charges incurred by members of the Caisses-Maladie for services not covered by their insurance policies; a compulsory contribution of all Caisses-Maladie patients, who are required by law to pay one-seventh of the cost of their medical services; and wholly private payments made for domiciliary or hospital care.
The growth of voluntary health insurance is perhaps the most striking feature of the Swiss system. About three-quarters of the total population are members of the Caisses-Maladie; and membership has increased by 50 per cent in the last ten years. It is not possible to give any exact calculation of the total cost of medical care in Switzerland, but a scrutiny of the figures suggests that in recent years perhaps one-third of the total funds emanate from various levels of government and two-thirds from private sources. The latter may be divided equally between the Caisses-Maladie and direct payments by private individuals.
When the medical systems of Switzerland and Great Britain are compared the following results emerge:
1) The number of doctors per 1,000 of the population is now probably slightly larger and has probably been increasing rather more rapidly in Switzerland than in Great Britain.
2) Since 1948 the Swiss have engaged in an extremely ambitious program of hospital renewal and modernization.
Per head of the population, their investment is four times greater than the comparable outlay of the British National Health Service in the same period. Waiting lists in Swiss hospitals are virtually nonexistent.
There is very wide agreement that Swiss medicine and medical care enjoy a high reputation throughout the world. Many patients travel from other countries to receive treatment there. The medical schools attract many foreign students; in recent years about 40 per cent of medical students in Swiss establishments have come from abroad. Visiting experts in numbers study the design and organization of their new hospitals. Their pharmaceutical industry has produced some outstanding new products in recent years.
In these circumstances, it would be idle to deny that what the British set out to achieve with a centralized state organization providing free medical services can be attained under a highly decentralized system with an independent medical profession in which voluntary insurance and private payments provide for the greater part of the costs and the national government intervenes only at certain strategic points.
Just a different way to pay History has not infrequently been falsified by those seeking to explain, or indeed defend, great social changes by picturing them as the inevitable reactions against ancient and intolerable evils. The apologists of the National Health Service have been tempted to disparage what went on before and thus to exaggerate the degree to which we have profited from the change. It is an unfortunate, although probably inescapable, consequence of “having medicine dragged into politics” that nearly everything connected with the subject comes to be discussed in terms of black and white. The belief that the National Health Service, even with its imperfections, has been directly and uniquely responsible for enormous advances upon the primitive conditions of prewar days is so much taken for granted that it comes almost as a surprise to discover that, in prewar days, the British often expressed pride in their medical services; at least some later observers thought the pride was justified.
The Deputy Chief Medical Officer of the Ministry of Health pointed out: “It is sometimes suggested . . . that the nature of the medical care available to our population changed abruptly in July, 1948. This is quite untrue, since a complete range of medical and allied services was available before the National Health Service was introduced. What the service did was to change the ways in which people would obtain and pay for the care that they needed. Indeed, one might almost say that the only services that were new on July 5, 1948, were the availability of specialists’ consultations in the patients’ own home, and home helps for households in which there was illness. Even these had been present to some extent before . . .”
If it be true that the British people embarked upon the experiment of the National Health Service in the belief that their existing medical facilities were noticeably inferior to those found in other countries, that British medicine had failed to provide widespread service in time of sickness to the whole community, and that administrative changes of themselves could produce miracles, then undoubtedly they were the victims of illusion. And, in turn, their rulers were in error if they supposed that people, left to their own devices, will never give high enough priority to medical advice and treatment and that, given this inherent defect in individual judgment, nothing short of central control and operation by government can put things right.
“An Uncomfortable Feeling”
John Jewkes is a professor of economic organization at Oxford, and a veteran investigator of the good and the bad in Britain’s economy. He has always maintained that those who advocate great increases in the economic functions and powers of spending of governments are the victims of a simple error in logic. They assume that governments are likely to act more wisely than the private individuals whose responsibilities are being usurped. This is fallacious, Jewkes thinks, because governments can be ignorant or unwise or mean or unscrupulous. “Governments tend to make big mistakes,” says Jewkes, “and not always in the same direction. Sometimes they will overspend and waste resources, sometimes they will underspend and starve important services. Nor are these mistakes improbable, because governments in these wider economic activities are without rational tests for determining the correct scale and direction of spending.” Jewkes comes to Princeton this fall as a visiting professor. On a previous trip to the U.S. he commented, “I always find an uncomfortable feeling that something is happening in American society which is familiar to me because it happened in Great Britain.”