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Published in the Financial Times on July 2, 2007
Stephen Cecchetti
Professor at the Brandeis International Business School |
A future of public healthcare for all
Economists believe in markets. Market-determined prices allocate scarce resources efficiently, encouraging individuals to put them to their best possible uses. This improves the welfare of everyone. But there are times when private markets break down, and insurance is one of them. When markets fail, the government inevitably has to step in to provide insurance. The future is one in which healthcare will fall into this same category. Even in countries like the US, the government, not the market, will ultimately control the level and cost of the medical care we will receive.
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A single-payer, publicly run health-care system is the inevitable consequence of the nearly continuous scientific revolution in molecular genetics that began a half century ago. One day it is James Watson, one of the discoverers of the structure of DNA, being handed the complete genetic code inside his own cells. The next day researchers tie yet another chronic disease to the presence of specific patterns on individual chromosomes. Then, a few days after that, we find out that scientists are learning to make stem cells from skin cells.
The time is fast approaching when we will have an inexpensive test that is capable of revealing a person's genetic propensity to contract a broad array of chronic diseases. That means that we will be able accurately to assess the cost of treatment over their lifetime.
I grant that there are a number of things about my medical future that I would rather not know. For example, I am not anxious to learn about my genetic predisposition to develop Alzheimer's disease or my propensity to contract heart disease or type two diabetes.
While I may shy away from knowing the details, I am interested in the medical equivalent of my credit score - call this my "health score". Without revealing the specifics of any future diseases I am likely to contract, a health score will summarise my overall healthcare risks. Each year, with new information on my weight, blood pressure and the like, my score will be refined.
The fact that we will all have health scores has profound implications for insurance; or, more accurately, for the failure of market-based insurance. If I have the information revealing that I am likely to be healthy, living a long life with a low cost of medical care, then I am going to forgo insurance for everything except treatments arising from accidents that are completely unforecastable.
Alternatively, if my insurance company can obtain my health score, then, in the same way that lenders use my credit score to calibrate the interest rate they might offer on a loan, they will adjust my health insurance premium based on their precise estimate of the cost of my future medical care. And, importantly, a clever insurance company that is precluded from learning my health score directly will find a pricing scheme that leads me to reveal it to them through the choices that I make.
The fact that private insurers can accurately compute customer premiums to reflect expected future payouts means that the insurance market will break down. Insurance is about shifting risk, pooling large groups of undifferentiated individuals. When either the insurer or the insured can forecast future events, accurately distinguishing one person from another, the rationale for insurance disappears.
In thinking about the provision of medical care, it is important to realise that we view it differently from other goods and services. When it comes to housing, cars, vacations and the like we are fairly tolerant of disparities between rich and poor. Our focus is on equal opportunities, not on equal outcomes.
Granted, Americans accept greater inequality than the citizens of many other countries do. Not so for healthcare. Members of wealthy societies share the view that their members are entitled to high-quality medical care. Social justice demands that the rich and poor among us all receive roughly comparable treatment.
Over the past decade there have been several attempts to reform the American healthcare system. The US spends nearly 15.5 per cent of gross domestic product on medical care, roughly 50 per cent more than countries such as France, Germany and the Netherlands. And, as measured by life expectancy and infant mortality, Americans' health outcomes are worse than those in much of the industrialised world. Something has to change. But change is politically and socially difficult, so in designing the new system we should make changes that are likely to last.
Looking into the future, we see that technology will force private health insurance to disappear at the same time that the social pressure to provide equal access to care will remain. This makes it inevitable that healthcare systems everywhere will provide universal coverage and be publicly run. Governments will replace markets, ensuring that the poor and uninsurable receive medical treatment at the same time that the healthy are forced to participate in a comprehensive system.
Unfortunately, we shall be forced to restrict access to the most expensive treatments, but even so everyone is going to receive adequate healthcare. The operation replacing my disintegrating brain and overworked liver with the new ones grown from my skin cells may not be covered; but then again, maybe it will.
Regardless, I am off to my wine cellar to ponder the best way to design a publicly run, single-payer healthcare system.
Stephen G. Cecchetti is Professor of International Economics and Finance, Brandeis University, and Research Associate, National Bureau of Economic Research. He is a regular contributor to the Financial Times.
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