An error in economic reasoning that plagues the health care debate

Alex Adrianson takes note at the Heritage Foundation’s “Insider Online” blog that one of the problems with the health care reform debate involves a common error in economic reasoning from the political Left.

Some people see that countries with more government financing and more price controls spend a lower percentage of their gross domestic products on health care and they conclude that the United States should copy those countries’ health care systems. The “savings,” however, are an illusion, explains John Goodman:

While it is true that we spend more than other countries in an accounting sense, we actually use fewer real resources: fewer doctors, fewer nurses, fewer hospital beds, shorter lengths of stay, etc. That means that from an economist’s point of view, we aren’t necessarily spending more than other countries. […]

We can’t devote more real resources to non-health care unless we use fewer real resources in health care. But if we copy other countries, the resource flow will go in the opposite direction. That is, in order to have more doctors, nurses, hospital beds, etc., we will have to have fewer teachers, fewer roads, less R&D!

Real savings, says Goodman, are to be found in more competition, which can only happen when more patients spend more of their own money. We know competition can work in health care, because it already is. Consider cosmetic surgery and Lasik surgery, mostly paid for out-of-pocket by patients.

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