Allocation and Rationing


In the renewed discussion of “death panels” for government-controlled health care, some ask how the government distribution of scarce medical resources is really any different from the private sector doing so.  Either way, you’ve got a small group of people – politicians or insurance company executives – deciding who receives treatment.  Under a free-market system, rich people get the best treatments, because they can afford to pay for them.  How is that “better” than allowing wise politicians to design a system that will distribute these resources as equitably as possible?

What we are discussing is the difference between allocation and rationing.  The difference between them is freedom, and it is the reason why allocation works, while rationing always fails over the long term.

Health care is a relatively scarce resource, because it’s highly labor-intensive.  Most hospitals will tell you they don’t have enough doctors.  Nurses and physicians work grueling hours to keep up with the demand for their services.  Prescription drugs require huge investments in time and money to create and test.

Furthermore, this labor is very difficult to produce, because training for a medical degree requires years of expensive education, along with relatively rare talents.  Not just anyone could become a good doctor or nurse, even if medical training was offered for free.  Of course, it wouldn’t really be “free” – it would be rationed, because medical training is, itself, a scarce and labor-intensive resource.  You can’t become a cardiac surgeon by watching a series of educational DVDs.

When a politician tells you he wants to give you something for “free,” he really means it will be rationed.  The currency of the State is compulsion – it has no other resource.  Its money is extracted from taxpayers by force.  Its mandates are implemented by force.  The use of force to control distribution of a limited resource is rationing.  It can be prettied up with flowery language and high minded promises – and of course a stiff measure of hatred for those who resist having their resources taken away to fulfill the promises of the State – but its nature does not change.

The use of force to distribute any resource inevitably causes the supply to contract.  We’ve already seen this with ObamaCare, as countless insurance policies have been canceled by employers or providers, and benefits have been restricted.  There is no incentive to produce greater amounts of a resource the State controls through compulsion.  That’s why everything politicians give away for “free” inevitably becomes more expensive.

Few people will subject themselves to extensive training and crushing student loans to achieve medical degrees that essentially turn them into state employees, captured within a system controlled by political whim.  A recent report from The Physician’s Foundation showed 74% of doctors polled were considering restrictions on their practice over the next three years due to ObamaCare, while 40% were making plans to drop out of private practice altogether.  Those grim numbers only describe the effect of rationing on the existing supply of medicine.  The tidal effect of fewer medical students will be devastating in years to come.

Rationing also generates avoidance behavior, most notably the rise of black markets.  As the rationing system fails due to increasing demand and collapsing supply, the government must deploy more force to keep it running, and this creates greater incentives for black market activity.  In the end, top-shelf health care will be restricted to an even smaller group of wealthy patients who can afford to escape the system… and, of course, the political elite, who will receive unlimited amounts of high-quality care.

In contrast, allocation through market forces reduces cost and increases availability, because competition compels the increase of supply.  When demand is high, bringing more of the product to market forces competitors to lower their prices.  That’s why ObamaCare is such an utter failure, compared to even the highly distorted insurance market it was supposed to “fix.”  The problems with that market were its anti-competitive elements, such as forbidding insurance companies to compete across state lines, and malpractice costs due to the politically shielded legal industry. 

Freedom is a crucial component of prosperity, which flourishes nowhere in its absence.  Voluntary cooperation, in response to free-market incentives, is the only way to reduce cost and increase supply.  The government cannot compel either of those things to happen, although sometimes it can pretend otherwise for a little while, through massive and inefficient spending of compulsory taxes.

If you want more access to health care, you need more doctors.  You get more doctors by increasing the incentives to become one, and reducing the cost of opening a practice.  When demand is high, supply is eager to rise and meet it.  In a free society, if there aren’t enough doctors to handle the number of patients, the market will inevitably produce more doctors.  Obama-style socialism can only exert force to suppress demand, by convening “death panels” of one kind or another.  Comparing allocation to rationing by looking only at who receives a scarce resource is a mistake.  It’s also very important to look at who provides it, and what motivates them to do so.