Some Reflections on Health Care Reform

This is the first in a series of posts that will look at the recent health care legislation. The debate is often characterized as one between efficiency and equality. Proponents argue that the legislation will increase equity by distributing resources more fairly and more equally. Detractors argue that the bill will decrease alocative efficiency, and hinder economic growth.

It is clear that the bill increases equality of access to medical care. But why does it follow that this increases equity? What principle of fairness dictates that equal distribution is required for equity? If we believed in the equivalence of equality and equity how can we justify and disparate outcome in standard of living? My predilection is to view equity through a just deserts lens. Which is to say those who strive and accomplish deserve better outcomes than those who do not. I view it as fundamentally fair that Bill Gates or Hank Paulson (and even President Obama) live much better than I do. I do belive some redistribution is necessary for fairness, but this would primarily be limited to a safety net to correct for the so-called hard luck cases. So while the bill clearly increases equality I am unconvinced that it enhances equity.

On the other side of the equation is the loss of efficiency and freedom. The inefficiency stems primarily from the incentives for sub-optimal allocations. The subsidies will cause over consumption, the agency problems will cause poor oversight, and the taxation will result in economic dead weight loss. These inefficiencies are detrimental outcomes. Healthcare will be over-consumed. It will become more expensive. And we will all pay with diminished economic growth. Furthermore, we have now vested the federal government with a new set of powers and regulatory mandates, chipping away at our freedom to conduct our affairs as we see fit.

In the fight between equality and efficiency I always choose efficiency. The President; equality.