To be sustainable, Universal Health Care requires rationing

Critics of the Patient Protection and Affordable Care Act (ACA) claim that it does not do enough to control costs, particularly costs of government health care entitlements. This criticism is not entirely justified. The Affordable Care Act includes several provisions for controlling health care costs. Those provisions to control costs will probably not be fully implemented because of a fundamental contradiction between the healthcare system many Americans want and economic reality.

One of the most important steps taken to control costs was the inclusion of a plan to create an Independent Payment Advisory Board (IPAB), which is to consist of fifteen full-time members appointed for staggered six-year terms. The IPAB must provide a report to Congress about how to hold Medicare spending within legislated limits. Congress is given a strict timetable within which it must consider the board’s recommendations and vote on them or come up with alternatives that achieve comparable savings.

If all low and moderate income Americans are going to enjoy access to subsidized health care as envisioned by the ACA, then the government needs an organization like the IPAB to control costs. Without such an organization or if Congress does not give it enough power, Medicare costs will continue to rise to unsustainable levels. A similar approach is needed to control Medicaid costs.

It is doubtful that politicians would give the IPAB enough power to control costs like many of its proponents intended. Politicians in both parties are calling for repealing or weakening the IPAB. This is because to be successful the board must make some tough choices to limit the most costly and least effective kinds of care. Most likely, this would require some method of rationing health care, although officially the IPAB is forbidden to make recommendations that would result in “rationing”, raise premiums or increase the share of health care costs borne by patients. Few Americans would tolerate having their freedom to consume as much health care as they want restricted by rationing.

Those who support “universal health care” without also recognizing the need to use some method to ration health care are living in a dream world. In practice, universal health care requires that no one is denied access to basic health care because he or she cannot afford to pay the cost of that care. This means that prices will not be used to ration care. Because health care is a scarce good, some other rationing criterion must be used instead of prices. In some countries, such as the United Kingdom, health care is rationed by having people wait their turns, with the result that some illnesses become untreatable before the patient can get the necessary treatment. For example, because of delays for colon cancer treatment in Britain, twenty percent of the cases considered curable at the time of diagnosis become incurable by the time of treatment.

Many Americans want the benefits of a free market system and the benefits of government subsidized “universal” health care at the same time. In a free market, anyone can consume as much health care as he or she is willing to pay for. When it subsidizes health care, government enables people to consume more health care than they are willing to pay for. Hence, health care costs continue to rise until government can no longer afford to pay it share. Even without health care reform, the cost of government health care entitlements including Medicare, Medicaid, and the Children’s Health Insurance Program are rising to unsustainable levels.

If the federal and state governments are going to continue to be able to meet their financial obligations, government spending must be brought under control. If current trends continue, the Congressional Budget Office estimates that by the middle of this century, spending for health care entitlements will be more than half of all spending by the federal government. Thus controlling government spending requires reducing government spending on health care. This means that politicians must either abandon the attempt to guarantee universal access to health care for Americans as exemplified by the ACA or grant an organization like the IPAB the powers necessary to control health care costs. This would most likely involve some method of rationing health care. Expanding access to health care without cost control will hasten the bankruptcy of the US government. If that happens, many fewer people will have access to health care than was the case even before Congress passed the ACA.

Unfortunately, Americans value their freedom too much too permit a government agency to have the power necessary to control health care costs. Thus if the ACA’s provisions to expand access to health care survive, the US government will likely face a sovereign debt crisis making it difficult for the government to afford providing even basic services without tax increases that would severely hinder incentives to invest and hire people.