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Rethinking how we deliver medical care

Governor Ivey imposed a statewide mask mandate last week as Alabama’s intensive care units (ICUs) approached capacity.  We have experienced unprecedented restrictions on freedom to prevent COVID-19 from overwhelming our healthcare system.  The COVID pandemic will hopefully lead us to recognize that healthcare is an economic good.

Economists would identify a lack of hospital or ICU beds or ventilators as a shortage: the quantity people demand exceeds the supply.  Shortages occur occasionally in markets, like the recent toilet paper shortage.  Shortages can become permanent with government controls, as with apartments under rent control or basically everything in the former Soviet Union.

Shortages though do not normally lead to restrictions on freedom.  The toilet paper shortage and the 1970s gas shortages (due to government price controls) certainly affected our lives.  People curtailed driving, and long lines at gas stations were a pain.  Yet states did not close businesses or issue stay-at-home orders to limit driving.

Furthermore, no argument for freedom I know of says that people should be free only when certain goods are plentiful.  The Declaration of Independence and the Bill of Rights are not void when hospitals are full.  Yet in recent months, governments have prevented church services and funerals.

The difference stems, I think, from an economic confusion.  We view healthcare as an objective good, not in subjective terms as we do other goods and services.  The objective good fallacy rationalizes other government interventions into healthcare.

Subjectivity as used by economists means from the perspective and values of the subject (the consumer).  Goods have value because we will trade our time, effort, or money for them.  This makes voluntary exchange in markets possible.  Consumers’ willingness to give up things of value for food, clothing or televisions gives suppliers an incentive to produce them.

Economics does not try to explain why people value certain things.  And markets do not require justification of these values to anyone.

By contrast, we view healthcare objectively, or independent of subjects’ perceptions.  Healthcare has an objective element; life or death is an objective fact.  An elixir will not cure cancer just because we believe that it does.

This objective element, however, does not eliminate subjective value.  Whether a car provides transportation is objective.  The value people get from cars is largely subjective; driving a Corvette is not merely about getting from point A to point B.

The misperception that medical care is an objective good makes it seem like experts, namely doctors and bureaucrats, can efficiently ration it.  Doctors determine the medicine or treatment needed to restore a person’s health.  This illusion provides the rationale for Certificate of Need laws imposed by Alabama and other states.  Under these laws, healthcare providers must get permission from state regulators to open a new hospital or clinic; experts decide what we “need” to avoid wasteful excess capacity.  And objectivity means we must justify our desire for medicines to a doctor.

Shortages in markets are rare and short-lived, but capacity constraints affect many goods.  Airplanes and hotels have fixed numbers of seats and rooms and can sell out.  Markets manage such constraints through contracts.  If you arrive at a hotel without a reservation, you might be out of luck; non-refundable reservations will guarantee you a room.

Our expert-driven system treats hospitals and ventilators as open access resources.  This means that hospital beds are simply made available when someone is sick.  We do not rely on contracts to determine access in the event of crowding.

Concierge medicine illustrates how markets might handle access to equipment.  These doctors’ wealthy customers pay enough to ensure they have access to facilities when needed; I’m sure concierge doctors obtained ventilators as COVID-19 spread.  While we might view this as hoarding or preferential access, I see it as empowering customers over experts.

Healthcare officials trampled our freedom to prevent excess demand for ICU beds.  We would never consider stay-at-home orders to prevent the overcrowding of flights.  If we find restrictions on freedom due to healthcare shortages intolerable, we should start thinking about medicine as a subjective good.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

About Dan Sutter

I am the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University.

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