Does Socialism Work? Nonprice Rationing

I am probably one of the few people you interact with who has a real interest in understanding nonprice rationing of health care.  In fact, I may be the only such person.

By "real interest" I mean a desire to understand nonmarket processes the same way economists understand markets – which means, to be able to explain the past and predict the future.

Most of what has been written about nonprice rationing of health care is descriptive, not analytical.  In fact, I don't believe anyone has developed a real theory about it.

What makes this so amazing is that almost nowhere in the developed world is health care really rationed by price. 

Here are five principles about nonmarket (socialist) systems that I offer without proof.

Principle No. 1:  Where excellence exists in socialist systems, it tends to be distributed randomly.

When the NCPA studied public education in Texas, we found excellent teachers, excellent campuses and excellent school districts.  But excellence was not correlated with spending, class size or any other objective variable.  I found the same pattern in socialist health care systems.  A hospital might have a modern laboratory side-by-side with an antiquated radiology department.  A team of top cardiac surgeons might be practicing in the same hospital with mediocre physicians in other specialties.

Since there is no financial reward for excellence and no financial penalty for mediocrity, excellence tends to be the result of the enthusiasm, energy and leadership of a few people scattered here and there.

Principle No. 2:  Access to excellence is not random.

Even though socialist systems are supposed to treat everyone alike, they rarely do.  Higher income people get more services and better services – usually in absolute terms, and certainly relative to their needs.

Have you ever heard of children of high-income parents attending a really rotten public school?  I haven't either.  Yet the children of poor parents routinely end up in bad schools.  The same pattern emerges in health care.  Those senior citizens who cash the largest Social Security checks are the ones who spend the most Medicare dollars – even though health needs are inversely correlated with income.  (More about this in a future Alert.)

You can even make an argument that in Britain, New Zealand and Canada socialized medicine has led to more inequality in health care than would have existed otherwise.

Principle No. 3:  The skills that allow people to be successful in a market system are the same skills that make them successful in a nonmarket system.

Granted, the skill sets do not perfectly overlap; but they are more similar than most people realize.  Think of life as posing a series of puzzles.  In a market economy, you have to figure out how to earn a high income in order to enjoy high consumption.  In a socialist system, you have to figure out how to overcome bureaucratic obstacles to achieve the same outcome.

Principle No. 4:  Diverse people tend to make triage decisions in the same way.

In a typical socialist health care system, rationing decisions are often made by doctors.  Suppose you were one of them:

  • If you had to choose between a young patient and a retiree, whose life would you save?
  • If you had to choose between a highly productive patient and one who is unproductive, whose life would you save?

If your choice is young over old and productive over nonproductive, you are like most other people.

Here is the Goodman theory of triage:  If you instructed doctors to make rationing decisions based only on the goal of maximizing GDP, their decisions would be very similar to the decisions they are making today.

Principle No. 5:  People at the bottom of the income ladder almost always do better in a market system.

If a doctor charges $120 an hour in a market-based health care system, all you have to do is come up with $120 (less than what smokers spend on cigarettes every month) to buy an hour of her time.  For $60, you can have half an hour.  For $30, you can have 15 minutes.

It doesn't matter who you know.  Or what you know.  Or whether you can even speak English.  But in Canada, where these other things matter a great deal, it is against the law to pay a doctor for her time!

Do the poor benefit from nonmarket redistribution?  Maybe.  But they would benefit tenfold more if they gained control of the dollars and could spend them in a real health care marketplace.

Comments (11)

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  1. Roger Beauchamp says:

    Well done!
    I have witnessed the community coming together to financially support a family who did not have the insurance or means to pay for a correctable birth defect or some other similar happening beyond their control. I have never witnessed any such action in support of a citizen who chose to smoke or abuse alcohol when they needed a transplant they were not prepared to pay for. Charity (public assistance) is the only area where others have a right to prioritize need.

  2. Rodney W. Nichols says:

    Lovely, clear, persuasive piece – well done. Thanks.

  3. Jerry Arnett says:

    Incredible ideas. Keep ’em coming. Thanks.

  4. Rob Rutledge says:

    The US is a closer model than most on using price to rationalize health care…and the results are as one would expect….excellent health care if you can afford it. 40M+ Americans have no insurance protection and thus have limited access to this superb system.

    The author’s example of “only” $120 an hour for access to a medical professional is a good one. While this may seem to be within reach of most people, how do these people deal with a $100K health care bill for a severe medical condition? Is a market price system appropriate for these folks?

  5. John Sanderson says:

    Great piece and I think your Principles 1-5 hit the nail on the head. I do, however, want to share some additional perspective to numbers 1 and
    2 based on my experience.

    My degree is in biology so my knowledge of economics is limited and I’m a long way from being an expert. However, I did enter the healthcare business in 1965; worked in and managed a hospital clinical laboratory for 10 years; was a hospital vice president for 20 years with duties that included contract management; designed and implemented a pilot consumer-driven health insurance plan; served as a medic in the Air Force; and am in the middle of my final edit of a book with the working title, “It’s all About Money! (How to Win the Healthcare War).” In short, I’ve experienced the “healthcare mess” from many perspectives and have formed opinions that I strongly believe but may not necessarily be able to prove.

    Principle #1 – I concur that excellence is the result of the enthusiasm, energy and leadership of a few people, and that they are scattered around. However, I do not believe the “scattering” is particularly random or related to the absence of financial penalty for mediocrity.

    When I entered the healthcare arena in the 1960s, a hospital could pretty much be all things to all people. By the early 70s, access to new and expensive technology like linear accelerators, chronic hemodialysis, CAT scanners, heart catheterization labs, etc. was being demanded by physicians, businesses, and individuals. I worked in a mission driven hospital and we targeted an operating margin of 3-5%.
    With that narrow margin, we had to make conscious choices regarding centers of excellence. We chose heart, cancer, and dialysis and knowingly relinquished excellence in orthopedics, pediatrics, neonatology and some other highly specialized services to competing institutions. Each institution then recruited and attracted physicians and ancillary personnel that were enthusiastic supporters of their centers of excellence be those services financial winners or losers.
    Ancillary services, lab, x-ray, etc. were developed to support the centers of excellence. Although I exited the hospital business in 1995 and know things have changed dramatically, I believe that some of what may be perceived today as “random scatter” may be the result of some conscious decisions made 3 decades or so ago.

    Principle #2 – I do not disagree, but I do know many high-income people who end up with mediocre or poor healthcare because they are hostage to a provider network (possibly the worst hoax perpetrated upon the American public since chlorophyll). During nearly 20 years of negotiating contracts with insurance companies, PPOs, HMOs, and other weird arrangements, none of the negotiations involved quality issues other than Joint Commission Accreditation – the only focus was on the percent of the discount.

    Thanks for the fine work you do at ncpa. jds

    John Sanderson
    Director of Development
    School of Mechanical Engineering
    Purdue University

  6. John Dewey says:

    Do 40 million Americans lack access to our health care system?

    In every one of the eight cities I’ve lived, non-profit hospitals were required by law to provide emergency health care to those who could not pay for it. In every one of those eight cities, free clinics dispensed medical care, including immunizations, free medicines, dialysis, prenatal care, and much more.

    Of those 40 million Americans who lack medical insurance, how many have purchased non-essential goods and services rather than medical insurance? Certainly the dozen adults I know who lack health insurance could have purchased and still had money left over for food, shelter, and minimal transportation.

  7. Stever Reeder says:

    I liked this article.

  8. Rob Rutledge says:

    In response to John Dewey’s comments:

    1. Is emergency care only appropriate health care?
    2. Why should society judge a person’s spending habits in order to receive health care?
    3. What about rural areas or the non eight cities where John has lived? Are these services available everywhere?

    The US health care system is a wonderful system for those that can afford it. For those who cannot, the system is highly inequitable.

  9. Phillip Gray says:

    I am a retired military man I served in 14 different countries while active duty most have had some form of social or universal medical care. Although some systems such as Canada’s and England’s support the author of the article I can offer many examples to the contrary.

    I can honestly say, after having suffered from End Stage Renal Disease; the care I received in Europe far exceeded that of the USA. Imagine hearing that from the average guy. I fall directly in the middle class cross section of America.

    I wonder if any of the people who commented including the author of the article lived under such a system and if the answer is no, then how can you offer a non-biased opinion.

    As far as the studies and analysis’ performed, many fall victum to the stroke of the pen, All educated people know the statistical outcome can be taylored to meet your needs by the method and fomula used. Instead of quoting theory and statistics I suggest you go and live it, then come back here and post an opinion.

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  11. Jack says:


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