Cost-Benefit Analysis Should Be Part of All Government Policies (Health Care Included)

August 13, 2009

A few weeks ago, one of my co-workers brought back to me a pamphlet handed out at the annual NCSL conference from the Governors Highway Safety Association that had the headline “Toward Zero Deaths.” Of course, this sounds nice; but unless you are going to eliminate highways, there will never be zero deaths on highways. Furthermore, policies that attempt to lead us in that direction are not a free lunch. We could save a lot of lives tomorrow by reducing all speed limits to a maximum of 45 MPH. But that means it’s going to take you up to 30 percent longer to get from point A to point B. So implicitly, government is saying that the costs of X additional deaths on the highways due to the speed limits being above 45 MPH is less than the benefit of people being able to get from point A to point B faster. (That may sound like a cruel way to put it, but we face these kinds of tradeoffs everyday as individuals. For example, when I take D.C.’s metro train system to work, there is a risk I’m taking that I won’t make it there alive, but I am implicitly saying that my expected benefit of getting to work exceeds the expected costs, including the probability of death.)

I only bring this up now because the issue of end-of-life health care is in the news. And many critics of the House health care bill are obsessing over possible rationing of end-of-life health care for America’s seniors. But what they fail to realize is that, like all policies, there is no free lunch. Like the speed limit example above, resources that are directed by government to extend the lives of seniors must come from somewhere. That means higher taxes and higher health care costs for others due to the higher demand for health care inputs. And while government is currently not in the position of making explicit case-by-case choices on end-of-life care for seniors, due to the fact that government doesn’t force 100 percent of resources in our economy to be used for the purposes of extending the lives of seniors, government is already implicitly “allowing seniors to die” earlier than could be the case if all resources were directed to extending life.

Under a purely private health care system, the government wouldn’t be involved in this decision; and you may say that’s good. But individuals would have to make those decisions on end-of-life care. And that would mean allocating via the price system (i.e. the free market), which you can call rationing under a broad definition of the term. Under either scenario, end-of-life care has its limits. So even under the current Medicare system, if government “cut grandma off” in certain situations in order to save money, government in the aggregate would still likely be redirecting more resources to end-of-life care than a purely private market would, all else equal.

(Note: This is not a personal endorsement of the policies in either the House or Senate health care bills, but critics should use sound economic analysis, not scare tactics in making their case against these health care reform bills.)


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