Health Care Economics 101

When it comes to health care, everyone can’t have everything right away. But we can make smarter choices that don’t leave anyone out in the cold.
Health care economics, by Ken Fabert

Photo by Ken Fabert.

In a utopian health system, recipients of health care would enjoy no limitations on the three corners of the health system resource distribution triangle pictured on the right. Everyone would be able to get everything—right away.

But of the three corners of this utopian health system, real world economics only allows you to have two of the three. Different systems make different choices:

  • In the U.S., for example, if you happen to be a hyper-compensated corporate CEO, you can get anything you want immediately. But obviously this isn’t available to everyone. In fact, until only very recently, the U.S. seems to have consciously and comfortably chosen not to attempt to provide health care for all.
  • In another system, such as New Zealand’s, just about everyone can get everything—but it’s definitely not available “right now.”
  • Developing countries like Vietnam offer everyone a modicum of immediate care, but there are significant limitations on what is available.
  • The final permutation of this health system resource triangle is what’s found in much of the impoverished world: Very little is available to anyone, ever.

I can think of no health system that even attempts to attain all three aspects of this triangle. And when you reflect on it, only the goal of providing care for everyone is without pitfalls.

Take, for example, the immediate provision of care. I know of a patient in New Zealand who had deteriorating cardiac function due to a heart valve problem. For her to obtain even basic diagnostic studies—such as an echocardiogram and consultation with a heart surgeon—meant delay. During this time, aggressive medical therapy (medicines) was undertaken and the patient was monitored closely. Over time, she responded well to medication and improved significantly, to the extent that surgical heart valve replacement was no longer necessary. In the U.S., I’m certain that this patient would have undergone open-heart surgery and valve replacement sooner rather than later. And it may still come to that in this patient’s case—but it can be done in a measured, deliberate fashion. I am also convinced that had the medical therapy failed, there would have been enough elasticity in the system to move forward urgently with surgery. Sometimes “immediate,” while quite seductive, is not always the best approach. I frequently tell patients that time is a powerful diagnostic tool, but for it to have its full impact there must be open lines of communication, a trusting physician-patient relationship, and easy access for repeated reassessment.

Relying solely on market principles to make choices about a system so inherently bound up in human rights and ethics makes little sense.

“Everything” can also have hidden costs. CT scanning, for instance, has become the standard in many emergency departments in the United States for assessing a multitude of problems, such as abdominal pain and head trauma. There is now a growing awareness, however, that the significant amount of radiation delivered during CT scanning actually has significant carcinogenic potential. Well-studied assessment and risk stratification tools, such as physical examination, are often very much underutilized because of the clinician’s perceived lack of time and, increasingly, lack of understanding of or training in basic bedside assessment.

The underlying principle behind the inability of any health system to satisfy all three corners of the resource triangle has to do with the fundamental driver of all economic activity: scarcity. Ultimately, resources are scarce and economic and ethical decisions must be made by any society as to how these resources will be allocated.

Just as important in the health arena is the fact that demand for health services is what economists would term “inelastic”—something that someone cannot forgo without significant adverse impact as price increases. This would include items like food and, of course, health care. A person with a burst appendix or the parent of a child with meningitis is simply not in a position to be concerned about price or, for that matter, quality comparisons in the way that the proponents of market-based health care seem to think.

Health Care Options at a Glance
From single-payer to buy-in.

The reality is that every society makes choices about their health system and the inevitable compromises that must be made. Relying solely on market principles to make choices about a system so inherently bound up in issues of ethics and human rights simply makes no sense—unless, perhaps, you are a shareholder in a for-profit health insurance corporation. Economically rational solutions, such as a single-payer health plan, have been systematically thwarted in the U.S.—and this betrays the extent to which the decision-making and implementation processes have been hijacked by a self-interested elite.

The recently enacted Obama reforms seem to have been a political necessity in the face of vicious right-wing attempts to destroy both the reforms and his very presidency. I fervently hope in the four years that will elapse before implementation of much of this legislation, there will be a more thorough, intelligent, dispassionate, and successful national dialogue about real changes that will benefit those who are still being left out of the lower right-hand corner of the triangle. We can do with less (maybe even stay healthier), and we don’t need everything right away, but the ethical and economic imperative to cover everyone will be the cornerstone of any meaningful reform.

: After 28 years as a primary care physician in the U.S., Dr. Ken Fabert traveled to New Zealand to see what it's like to work within a single-payer system.


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