privatisation

Galmay

Hi I was just wondering if someone more knowledgable than me on economics could take some time to explain the theories behind the PD argument of privately provided healthcare.
Is it shown to work? Can it work in Ireland? What problems can it pose in the long term? etc

thanks

The_Minister

Firstly, it's not actually privitisation. Not in the real sense of the world.

An example:
Privitisation - Selling off the ESB.
Not Privitisation - Allowing private energy companies to produce energy, but keeping the ESB involved and public.

Mary Harney's plans match the second example more closely.
No public hospital has been made private, and spending and the scope of the public service have actually increased under her. If she were privitising the health service, the opposite would be the case.



Now I'm going to try and explain why private healthcare is not just nessacey - it is inevitable. This is based on the most basic medical care scenario. In real life people choose private health care for numerous reasons, most often comfort (private room/food etc) or speed of access, or to get a more expensive but more effective/less uncomfortable treatment), but I am going to use a life or death scenario, just to explain why there will always be some kind of private system.
This is not an explanation of Harney's policies in particular.

I may not explain this well, so other people please chip in.

First, some assumptions:
1. Resources are limited (Most people accept that).
2. The government does not control all resources (ditto, except the Communists).
3. Not all resources are spent on health, and to spend all resources on health would be undesireable (people also want education, social welfare, roads etc).
The 3 assumptions above mean that there is a cut-off point to healthcare - after a certain amount, the government has no more to spend. It can borrow against future resources, but it will have to pay that back, so it is unlikely to, unless it has no choice, because it is tying its hands in the future.

4. All lives are equal to the public health service.
This means that there must be a cut-off point for an individuals health care. For instance, if you spend €1,000,000 curing me of a fatal disease, but that money spent elsewhere would save maybe a hundred lives, then you should spend it to save the hundred (assuming that the health service cannot afford €1,000,000 per patient). If all lives are equal, and there is insufficient resources to cure both groups, then 100>1, ergo you save the 100.

5. This is the hard one. The public health service is concerned with saving lives all across society, not just those that it treats. Its goal should be to maximise the number of lives saved in society.

Now, the above assumptions, all of which are true in all Western countries, mean that a private service is inevitable. Why?
If there is a cutoff point for treatment, or (more realistically, a cutoff point from the best possible treatment), then there will be some people who will fall outside the the cutoff point, who will have their own resources, enough to purchase the treatment.
They have two choices:
1. They can choose to die.
2. They can go to a doctor with their resources, and purchase the treatment from them directly.

Even in countries where they made private healthcare illegal, there was still private healthcare, since people had nothing to lose by defying the government, and using their own resources to get the treatment.
This alone means that there will always be a private service.
Add to that that people are willing to pay extra for the private room and food, it is unlikely that any society could ever have no private healthcare.
Some argue that this healthcare should be banned as it is unequal, but in a free and liberal country, if private citizens want to pay extra to have better healthcare at no expense to the State, can they be forbidden?


The arguement that people use for having both a public and private system, is that if people go private, then less people are using the public system, so the resources in the public system are more concentrated. Harny herself said yesterday that (really rough quote) "The rich can look after there own healthcare, it is the disadvantaged who the state needs to watch over". The basic idea is that the government should focus on minding the "poor" directly, and allowing the "rich" (which is really anyone of middle income or higher), to use their own resources to decide their own healthcare.
This should, economically speaking, lead to more lives being saved among both the "well-off" (again middle-income rather than millionaires), because they can purchase super-fancy healthcare/ different treatment/extra face-time with doctors/ different food etc., while the "less well-off" benefit because they get more resources/ get to use facilities purchased by private individuals/ get to benefit from new techniques that are only developed due to private money*.

*For instance the author Terry Pratchett dumped €1,000,000 into research into his rare neurological illness recently - any benefit from that will be shared among all people with the disease.

The above is a crash course in some ideas in Health economics.. It is by no means exhaustive, nor does it even begin to cover the complexities of private versus public issues. There are whole journals dedicated to that.
The basic point that I am making is that a purely public system (which some people are calling for), is unworkable, retrograde, and would cause more people to die.

Now, onto Harney.
What she is doing is far, far too complicated to be talked about in generalities, so you will need to clarify what it is you are asking for:
Now, let's see,
The first thing to understand is that the public and private systems in Ireland before Harney were hopelessly intertwined. In St. Vincents Hospital in Dublin, every ward has one private room, and there is an entire private ward. This situation existed before Harney arrived.
Harney has claimed that by allowing and facilitating private hospitals to set-up, she can move the private beds in public hospitals to the private hospitals, thereby making the public hospitals able to claim those beds, increasing the number of public beds faster than extending existing hospitals would do. Technically this is Nationalisation, not privitisation, but I wouldn't point that out around any Progressive Democrats or Sinn Feiners:D
The second thing to understand is that healthcare in Ireland for a long time was run on local needs not national needs. Hospitals were built in local areas, in order to get votes (governments of every hue were guilty of this), and our health system is horrifically distorted because of this, cancer services being a great example. If our health system had been run from a national perspective since the foundation of the State, then she would not have to do alot of what she is doing.

nesf

There's a simple conundrum in Irish politics at the moment. The Irish people seem to, at once, demand low taxes and universal healthcare, excellent public transport etc etc. They've consistently voted against any party promising better services in exchange for higher taxes for the past few elections until we've reached a point where the Labour party is proposing what would have been considered right wing policy only 20 years ago.

Public/Private partnership is one way (not the only way) of providing more services than the state can afford to provide on it's own. Essentially what Harney was and is proposing is freeing up public beds by building a private hospital on site. Now there are two key advantages to this approach, a) we get a net gain in public beds at low expense and b) all the doctors who do do private work can simply walk across to the buildings next door rather than travel across the city, reducing their time loss and increasing the amount of time they are able to practice medicine in.

Now, many people have serious ideological issues with any private element being present in the health service and I can accept that, however; the reality is, unless the Irish people are willing to pay higher taxes and/or willing to break the health unions (which would be no mean feat) private healthcare is necessary to fill the void left by insufficient public provision of services.




In the long term, it might work or it might not. If we moved to a fully public system we could buy the buildings off the private companies (which would be expensive but hospitals are never going to be "cheap" anyway). Personally I'd have no issue with a fully public health system, I'll end up paying for it either way, if you are in the upper tax bracket you're either going to have VHI/Bupa etc or pay a tax to cover the costs of the healthcare system. There's little escape for consumers really, especially as they get older/start having kids.

Ekancone

The_Minister wrote: »

Now I'm going to try and explain why private healthcare is not just nessacey - it is inevitable.

How do you expect the health insurance market to exist once we have the technology to accurately predict a persons likelihood of being ill in the future?

nesf

daithifleming wrote: »

How do you expect the health insurance market to exist once we have the technology to accurately predict a persons likelihood of being ill in the future?

I'd say it'd come down to whether community rating was still enforced in this country or to what extent the law protects privacy on our genetic information. It's a tricky and developing topic.

There was an interesting step forward in this direction in the US recently: http://www.economist.com/world/na/displaystory.cfm?story_id=11293939

Ekancone

nesf wrote: »

I'd say it'd come down to whether community rating was still enforced in this country or to what extent the law protects privacy on our genetic information. It's a tricky and developing topic.

But surely those who know that they are more likely to remain healthy throughout their lives would be less willing to buy health (not accident) insurance?

nesf

daithifleming wrote: »

But surely those who know that they are more likely to remain healthy throughout their lives would be less willing to buy health (not accident) insurance?

Well you have analogous pressure at the moment with people delaying buying health insurance until later in age since the chance of needing it is quite low in your 20's and early 30's which leads to the issues VHI were having with them inheriting a much older subscriber base and a distortion of the costs associated with it. Self selection is damaging with health insurance on both sides of the equation because companies suffer from having to take on the people with the worse health but a lot of people would also misjudge themselves as being healthy when they weren't and lack health insurance if given the choice.

Personally I'd be in favour of compulsory health insurance for people above a certain income level, you'd get some welfare loss because people who are healthy are forced to take it out but I think that'd be offset by the lower price level across the board that it would bring. You could make a very basic level of health insurance (emergency care only, say) compulsory and leave people pay up to a higher level or similar. There was also some scheme of a kind of health pension fund that you'd pay into that was implemented in Hong Kong or Singapore (I can't remember which one) where you'd have the option of taking money out of the fund to pay for medical care or not with a healthy interest rate attached to it where you could bequeath the money to someone else on your death which was an approach that appealed to me. Families could pool resources for medical care with the healthier/luckier ones leaving more to their siblings/kids/parents if they had issues etc.

The thing is, you could then allow competition at hospital level into the system, as everyone would be covered by health insurance and so on which might be useful.

Ekancone

nesf wrote: »

Well you have analogous pressure at the moment with people delaying buying health insurance until later in age since the chance of needing it is quite low in your 20's and early 30's which leads to the issues VHI were having with them inheriting a much older subscriber base and a distortion of the costs associated with it. Self selection is damaging with health insurance on both sides of the equation because companies suffer from having to take on the people with the worse health but a lot of people would also misjudge themselves as being healthy when they weren't and lack health insurance if given the choice.

Which goes back to the assertion that private healthcare is inevitable. I would argue that it isn't because of the market failure that will result from greater information about potential future health being available in the not too distant future.

nesf

daithifleming wrote: »

Which goes back to the assertion that private healthcare is inevitable. I would argue that it isn't because of the market failure that will result from greater information about potential future health being available in the not too distant future.

My point is that you can avoid the market failure by a) introducing compulsory health insurance for all regardless of genetic information and b) potentially allowing competition at a services level where hospitals/clinics/whatever compete for Government contracts for various services or something if it was thought that it could reduce inefficiency in the service.

a) does incur a welfare loss as a price for avoiding the market failure though.

Ekancone

nesf wrote: »

My point is that you can avoid the market failure by a) introducing compulsory health insurance for all regardless of genetic information and b) potentially allowing competition at a services level where hospitals/clinics/whatever compete for Government contracts for various services or something if it was thought that it could reduce inefficiency in the service.

a) does incur a welfare loss as a price for avoiding the market failure though.

Im agreeing with you, but I was challenging the 'inevitability' of this all happening.

nesf

daithifleming wrote: »

Im agreeing with you, but I was challenging the 'inevitability' of this all happening.

Well, I think The Minister might have been getting at our preference for low tax bands making it inevitable that we need to have some degree of private medical care, or at least that's how I'd interpret it.

The_Minister

As long as there is unequal division of resources, and limits on government money, then there will be private healthcare. It may occur for reasons of comfort, speed, or quality, but there will always be private healthcare, unless, the wealth became centralised enough for the state to have more resources to spend on health then any individual, ie. the state pays so much that there is no way that the individual can purchase better healthcare.

Don't forget that:
1, no technology will ever be certain, because while genes affect ones likelihood of getting a disease, they do not guarentee it.

2, Lifestyle is the single biggest factor in healthcare, and has a far bigger effect than genes, again making prediction extremely difficult.

3, The vast majority of your healthcare expenses are already spent in your last year of life, yet people of all ages still buy health insurance. Therefore, even if prediction gets better, it is unlikely to stop the risk adverse from purchasing healthcare.

EDIT: But, yes, particularly in a country like Ireland, where most of the money is in the hands of the people, most of the time, there will be a huge demand for private healthcare. Private healthcare exists because some individuals can and are willing to, purchase more healthcare than the state can afford to spend on them.