The needs of the one vs. the needs of the many

Some basic economics today. This is one of my favourite topics to generate discussion in a meeting; it generates so much energy from both sides of the discussion. Which one is more important, the needs of the one or the needs of the many? Should we invest heavily in a drug that costs an amazing quantity of money to save an individual (protecting the needs of the one), or should we allocate that money into, let’s say, prevention if we know that at the end of the day we will save many more people (protecting the needs of the many)? How do we decide where we allocate our finite resources?

The truth is our healthcare systems are based on scarcity. Scarcity has two sides, the infinite nature of human wants and the limited nature of resources available to produce goods and services.

It is clear that the demand for healthcare has expanded dramatically in the first world in the last decades. Why? Changes in the age structure of the population meaning elderly people needs more healthcare, increases in real incomes (more on that later) and improvements in medical technology have done the trick.

When real incomes go up, people’s expectations of healthcare go up as well. We are not longer prepared to put up with pain or discomfort. In some countries, people suffering from mild ostheoarthritis of the knee often have an operation rather than give up playing golf! Yes, that happens.

Improvements in medical technology have increased the range of treatments available. Many new treatments have transformed now serious illnesses into chronic medical conditions requiring a lot of resources.

And that’s the problem, the other side of this equation relates to the finite nature of resources (land, labour, capital…) that the society has available to invest in this. There is a trade-off between healthcare and other goods (education, police….), and of course, devoting all resources to education or devoting all the resources to healthcare would be irrational. The problem is how the society decides how much should we spend on each one.

When demand seems to be infinite (everybody wants improvements to the quality of their lives), some rationing needs to be in place. But rationing means sometimes not investing an amazing quantity of money to save an individual… So we face the problem of deciding how much healthcare should we have. We need to decide how much of which kinds of healthcare should be provided. And we have three systems to provide this healthcare (and here is where the real discussion begins), the free market, the command system and the mixed system.

The free market allocates healthcare resources according to consumer’s purchase behaviour (let the market decide for us). In a free market, there is no interference from the government. Free markets have proven very effective in maximising satisfaction, but need as a sine qua non condition that both buyers and sellers have access to enough information to allow them to make rational decisions. The command system would use planning by experts (politicians at the end of the day) to allocate healthcare according to “needs”.

It’s hard to choose between those who rely on the “invisible hand” of the market and those who exercise power by spending other people’s money, isn’t it? More on this in a future post.