The freaky economics of socialist healthcare in Britain

Below is an excerpt from Think Like A Freak, by Steven Levitt and Stephen Dubner.

Shortly after the publication of Superfreakonomics [2009], while on a book tour in England, we were invited to meet David Cameron, [the Leader of the Conservative Party] who would soon become prime minister of the UK. Mr Cameron burst through the door. “All right,” he boomed, “where are the clever people?” He wore crisp white shirtsleeves, his trademark purple tie, and an air of irrepressible optimism. As we chatted, it became instantly clear why he was projected to become the next prime minister. Everything about him radiated competence and confidence…

Cameron said the biggest problem he would inherit as prime minister was a gravely ill economy. The UK, along with the rest of the world, was still in the grip of a crushing recession. The mood, from pensioners to students to industry titans, was morose; the national debt was enormous and climbing. Upon taking office, Cameron told us, he would need to make broad and deep cuts. But, he added, there were a few precious rights that he would protect at any cost.

Like what? we asked. “Well, the National Health Service,” he said, eyes alight with pride. This made sense. The NHS provides cradle-to-grave health care for every Briton, most of it free at point of use. One former chancellor of the exchequer called the NHS “the closest thing the English have to a religion”, which is doubly interesting since England does have an actual religion. There was just one problem: UK healthcare costs had more than doubled over the previous 10 years and were expected to keep rising.

Levitt & Dubner incorrectly implied that Britain’s rising healthcare costs caused of the enormous growth of its government debt in 2008-9, but they were wrong.  All rich nations had seen similar increases in healthcare costs during the previous decade and government debt in Britain had been fairly steady (as a fraction of GDP) until the Great Recession of 2008 when all rich nations saw their government debts grow enormously regardless of their healthcare financing system.  Furthermore, Britain’s government spent less on healthcare per capita than America’s government, so their healthcare system couldn’t have caused a bigger government debt problem.

Although we didn’t know it at the time, Cameron’s devotion to the NHS was based in part on an intense personal experience. His eldest child, Ivan, was born with a rare neurological disorder called Ohtahara syndrome. It is marked by frequent, violent seizures. As a result, the Cameron family had become all too familiar with NHS nurses, doctors, ambulances and hospitals. “When your family relies on the NHS all the time, day after day, night after night, you really know just how precious it is,” he once told the Conservative party’s annual conference. Ivan died in early 2009, a few months short of his 7th birthday.

So perhaps it was no surprise that Cameron, even as head of a party that embraced fiscal austerity, should view the NHS as sacrosanct…

But that didn’t mean it made practical sense. While the goal of free, unlimited, lifetime health care is laudable, the economics are tricky. We now pointed this out, as respectfully as possible, to the presumptive prime minister.

Because there is so much emotion attached to healthcare, it can be hard to see that it is, by and large, like any other part of the economy. But under a set-up like the UK’s, healthcare is virtually the only part of the economy where individuals can go out and get nearly any service they need and pay close to zero, whether the actual cost of the procedure is £100 or £100,000.

What’s wrong with that? When people don’t pay the true cost of something, they tend to consume it inefficiently.

Think of the last time you sat down at an all-you-can-eat restaurant. How likely were you to eat a bit more than normal? The same thing happens if healthcare is distributed in a similar fashion: people consume more of it than if they were charged the sticker price. This means the “worried well” crowd out the truly sick, waiting times increase for everyone and a massive share of the costs goes to the final months of elderly patients’ lives, often without much real advantage.

This sort of overconsumption can be more easily tolerated when healthcare is only a small part of the economy. But with healthcare costs approaching 10% of GDP in the UK – and nearly double that in the United States – you have to seriously rethink how it is provided and paid for.

We tried to make our point with a thought experiment. We suggested to Mr Cameron that he consider a similar policy in a different arena. What if, for instance, every Briton were also entitled to a free, unlimited, lifetime supply of transportation? That is, what if everyone were allowed to go down to the car dealership whenever they wanted and pick out any new model, free of charge, and drive it home?

We expected him to light up and say: “Well, yes, that’d be patently absurd – there’d be no reason to maintain your old car, and everyone’s incentives would be skewed. I see your point about all this free healthcare we’re doling out!” But he said no such thing. In fact, he didn’t say anything at all. The smile did not leave David Cameron’s face, but it did leave his eyes. Maybe our story hadn’t come out as we’d intended. Or maybe it did and that was the problem. In any case, he offered a quick handshake and hurried off.

Britain has one of the most socialist healthcare systems in the world. Assignment:

1. Why do the authors say that socialist healthcare in Britain is a problem for the British economy?
2. Would healthcare be less of a burden on the British economy (& easier to afford) if they adopted America’s healthcare system, the least socialist of any rich nation?  Note that although the above excerpt presents some statistics in a misleading way, it does gives a statistic that pretty definitively answers this question, and many other data series could also help answer it.
3. Are the authors correct that “healthcare [is] like any other part of the economy” such as “an all-you-can-eat restaurant”?  Is Britain’s NHS health system just like an “unlimited, lifetime supply of transportation [in which] everyone were allowed to go down to the car dealership whenever they wanted and pick out any new model, free of charge”?