Observations Atlantic crossing

Faith based health policy: the urge to privatise

BMJ 2007; 334 doi: https://doi.org/10.1136/bmj.39237.433843.59 (Published 07 June 2007) Cite this as: BMJ 2007;334:1193
  1. Uwe E Reinhardt, James Madison professor of political economy
  1. Princeton University, Princeton, New Jersey
  1. reinhard{at}princeton.edu

    Who owns health systems matters less than that the various enterprises operate on a level playing field

    Privatising publicly owned and operated enterprises in health systems has become a new fashion in health policy around the world. The movement is based on the credo (and a pure credo it is) that the management of anything by investor owned, private enterprise is by that very fact more efficient than management of the same activity by publicly owned enterprise. Like most credos—such as the belief in the Virgin Birth—this one lacks robust empirical support; but it matters little. The believers march on undaunted and have been successful in spreading the faith.

    One illustration is the firm belief of President Bush and his supporters in Congress that the long term fiscal sustainability of the hitherto government run Medicare programme for elderly people in the United States can be assured only by entrusting that programme to private health insurance plans. On the basis of that credo, they wrote into the Medicare Modernization Act of 2003 a provision under which US tax payers must now pay private health plans an average of 12% more for enrolling a Medicare beneficiary than it would have cost under the traditional, government run Medicare programme. Only faith in the inherent superiority of private enterprise could persuade anyone that such a policy would enhance the long term fiscal sustainability of Medicare—but faith carried the day.

    To secularists not beholden to this faith, the intellectual challenge in thinking about the relative merits of private and public enterprise begins with the word “efficiency.” In the proper usage of the word a human activity is judged efficient when it attains a specified goal with the least expenditure of real resources. It follows that efficiency is merely a means to a specified end and not, as seems widely assumed, an end in itself. Indeed, unless the goal to be achieved by a human activity is clearly specified, the word “efficiency” loses its practical meaning.

    In determining the goals of a nation's health system one consideration is the degree to which individuals' experience of health care should be allowed to vary by income and, furthermore, whether or not their payment for health insurance should depend on their health status. Thus, when health policy analysts and the policy makers whom they serve declare private enterprise to be more “efficient” than public enterprise in health care, they should immediately be challenged to demonstrate that either form of ownership will obey the same distributive ethic in health care. If not, the discussion should promptly shift from relative “efficiency” to the relative social merits of the different distributive ethics obeyed by the two forms of enterprise.

    In such a discussion, it will be useful to distinguish between the ownership and control of healthcare delivery and the ownership and control of the financing of health care. It is mainly through the ownership and control of financing that society expresses its ideas about the distributive social ethic that should govern its healthcare system.

    Nations that seek to divorce the individual's healthcare experience in the case of a given illness from the person's socioeconomic status—and moreover that wish to base the individual's contribution to the financing of health care on ability to pay rather than the individual's health status—will find an adequately financed, single payer, government run health system to be the ideal insurance mechanism to attain that goal. However, the government can, as Germany has shown, approximate the same degree of horizontal equity through tight regulation of multiple insurance carriers. In such systems it matters little who owns and operates the delivery of health care. As long as investor owned healthcare facilities that are run for profit are forced to compete with government owned or community owned non-profit enterprises in the face of the very same payer—and under identical rules and payment levels—both forms of healthcare facility will be forced into similar behaviour. In fact, in such systems it may be desirable to have different ownership models compete with one another over clinical quality and patients' satisfaction.

    By contrast, in a market driven health system in which both healthcare delivery and health insurance are entrusted to the hands of investor owned enterprises, the socioeconomic status and health status of individuals will inevitably influence their healthcare experience. A distinguished literature in economics shows that private health insurers competing in an unregulated market will inexorably segment their clientele into risk classes, with prospectively sicker individuals being charged much higher, “actuarially fair” health insurance premiums than prospectively healthier individuals. As has been shown in the United States for over half a century now, such a system will also leave a sizeable segment of the population without the benefits of health insurance.

    Forthright economists agree with the late Milton Friedman's dictum that the proper goal of investor owned, private enterprise is to run the affairs of the firm so as to maximise the owner's wealth, without breaking the laws of the land. The stock market in general, and private equity buyout firms in particular, make sure that managers pursue that singular goal with utter devotion. But their energy and ingenuity will also serve society's larger goals—such as a particular distributive ethic in health care—only if that energy and that ingenuity are constrained to that end by appropriate laws, rules, and payment systems. It is on this facet of health systems that the critics of privatisation should focus their scrutiny, rather than on patterns of ownership themselves.

    A market driven health system will leave a sizeable segment of the population without the benefits of health insurance

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