The Economics of Health Reconsidered
Second Edition
By Thomas Rice
Health Administration Press, November 2002
The challenges facing health policymakers – to ensure that costs are kept manageable and quality remains acceptable in a world of limited budgets but expanding technological capabilities – are daunting. New and innovative ideas are essential. If analysts misinterpret economic theory as applied to health – by assuming that market forces are necessarily superior to alternative policies – then they will blind themselves to policy options that might actually be better at enhancing social welfare.
http://www.ache.org/pubs/rice2.cfm
Comment: “The Economics of Health Reconsidered” is an extremely important addition to the health policy literature.
For the benefit of non-economists, Professor Rice first describes the traditional economic model of market competition, demand theory, supply theory, and equity and redistribution. He then describes many of the problems with the traditional model and then some of the important implications for health policy. Finally he also discusses the role of government. With academic purity, he describes concepts such as Pareto optimality, the Edgeworth box, revealed preference, elasticity of supply, demand inducement and many other fundamentals of economics.
Why is it important that health care reform activists understand all of this? Virtually every person debating health care reform invokes economic theory, using that theory to explain why his or her model of reform is “better.” By providing us with an understanding of normative policy analysis, Dr. Rice helps us recognize that many statements are made that purport to be absolute truths based on fundamental theories in economics when, in reality, they are merely an expression of policy that the advocate believes we SHOULD adopt. Ironically, in many instances, the advocate truly believes that his or her statement cannot be challenged because it adheres rigidly to the “pure laws” of economics, when, in reality, it was merely a statement of personal opinion based often on that person’s own social goals.
In the Forward, Professor Uwe Reinhardt states, “… the book and other such critiques should be read as pleas that social goals not be posited inadvertently or surreptitiously in policy analysis, either carelessly through normative economic analysis or through deliberately mischievous use. It is difficult enough at times for economists to see through such tactics; it is well-nigh impossible for even highly educated lay persons – let alone the general public – to see through these tactics.”
Everyone who wishes to debate or advocate for health care reform should read “The Economics of Health Reconsidered.” It will help us recognize the social goals posited in the economic treatises on health care reform. We should then be able to expose those that have nefarious intents (nefarious from OUR perspective). Undoubtedly we too will continue to err in our careless digressions into normative policy analysis, but perhaps we can be forgiven because of our morally superior, egalitarian social goals (superior from OUR perspective).