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Can a society provide Healthcare solely through “Market system” or by total

ownership and provisions by state?

The question above challenges the ability on whether a state or private run market
system can provide an efficient allocation of resources, with regards to social and
economic efficiency within the healthcare sector.

The rationale behind free healthcare is twofold; firstly, healthcare is considered by

society to be universally desirable and to ration it through the price mechanism is seen
as inequitable. This is taken from the moral standpoint of democratic governance and
underpinned by welfare economics. Social indicators such as the public quality of life
index (PQLI) illustrate the increase in public well being through the allocation of
healthcare on the basis of need and not simply income or wealth. For example
Healthcare system in UK is run by the government and is called the National Health
Service (NHS); the system has been in place since 1950 and provides free healthcare
for all. It was based on the proposals made on Beverage Report in 1943.
Whose concept refers to “the state's provision of public measures and support to
achieve basic living standards and help those in need across society”.

There are fundamental problem with a publicly provided healthcare system, for
example, the NHS, in that demand for healthcare is greater than supply; and in the
absence of the price mechanism, demand is rationed through waiting lists. The answer
to the ‘waiting list crisis’ or rather the excess of demand over supply would appear to
be the provision of an increase in NHS resources. However, a publicly provided
healthcare system, such as the NHS generates revenues through public taxation and
government budgetary revenues. The problem with that it has been limited by
government funding constraints and public sector pay freezes have reduced the
attractiveness of the medical professions to NHS system and have pulled them
towards private sector. This is due to under funding that has resulted in lacking the
facilities and infrastructure to cater for the rising demand. Staff shortages are the
result of poor working conditions and pay, which discourages prospective GPs and
ancillary medical staff. These shortages of skilled labour will contribute to the waiting
list problem and, due to the extra workload for GPs, significantly reduced morale1.
The main reason that private sector will not provide public goods to people are
because they cannot be confident of making a profit

The advantage of healthcare being a public good is that in theory it is available to

everyone and the consumption of a public good by one person does not decrease the
availability of the good to others. It is free at the point of use, so one does not directly
pay for it; e.g. if one cuts oneself and requires stitches one will go to the local hospital
and the doctor or practical nurse will stitch up the cut and the person will not have to
pay at the point of use. Therefore this is a benefit to the person whom requires
medical attention the person does not need to pay at the point to gain healthcare.
However this is not the case in America where their health service works on the
private sector basis.

An indication of the poor morale is shown in the recent General Practitioner Committee's ballot in
which 56% of all GPs voted to hand in their resignations next year if a new contract with the
Government is not reached.
Also as there is a great demand for public healthcare within the UK, therefore the
government needs to accommodate this demand and therefore more doctors, nurses,
practical nurses and all the staff required for a hospital are needed this generates and
creates more jobs and decreases unemployment rates in the UK, this again is an
advantage. Public healthcare clearly benefits the poor; not taking the “free riders”
aspect into perspective it benefits the poor whom may be ill and require medical
attention. This is not a great economical advantage because it has being debated that
diseconomies of scale might due to large bureaucracy that management beign unable
to control costs and utilise resources efficiently. However it shows democracy,
equality within the country and between all peoples of all natures and positions,
which generates a external benefit to society, decreasing discrimination and prejudice
within society

Taking into account these advantages the disadvantages of a public healthcare service
healthcare is non-rivalry in consumption non-payers can take a free ride and enjoy the
benefits of consumption (“free riders”), this creates market failure as smaller amount
of money is being regenerated into the health service so there is less money for the
government to invest into the health service which results in hospitals having out of
date equipment, decrease in hospital beds due to cut down in hospital jobs, this is a
great drawback. As Dr Reggler argued in a debate that “market forces were part of
everyday life and therefore understood by the majority’. He believes that without
market forces incentives to change would not be established. Furthermore he added
that even though the government for over 50 years had controlled the NHS it was
judged worse than every other health care system in Europe.

Privatisation that is meant to increase competition but this might not be the case, as
seen USA where privatisation creates monopolies with high barriers to entry. These
firms have significant economies of scale that new firms cannot compete with, and
the start up costs can be colossal. For example HCA one of America’s largest health
care firms is already feared to be trying to created a private monopoly in London
(Cohen 2000).

If the health is Privatised firms will make decisions on profit maximising, whereas the
government run system will makes decisions based on the public interests. If the
government wants to focus on the reducing poverty then production can be organised
appropriately. Privatisation though reduce long run average costs however the strive
for productive efficiency can have problems. The more highly developed the
technology gets the more maintenance that may be needed. In US private health
system is know to be greedy as Gibbs, inspector general of the US department of
health describes the freeish market as pervasive fraud. Where as government run
healthcare has no interest in performing pointless operations whereas according to the
British medical journal in 1993 at least one third of private hysterectomies were
unnecessary and the number of useless removals of tonsils was an epidemic (Cohen

The advantage however for private healthcare is that typically you expect better
doctors and staff as all the staff are more motivated to work as your are directly
paying for the healthcare provided. The waiting lists are a lot shorter. Furthermore
private hospitals are more up to date and consist of all the latest medical equipment
and technology. The big drawback is that it is very expensive however offers high
quality medical treatment in terms of doctors, nurses, medical equipment etc. These
advantages however come at a high price, as people have to pay at the point of use on
top of their general taxes; therefore only a minority of people can afford private

The foreseeable problem with a healthcare system wholly dominated by a price-

mechanism would be social unfairness with regards to providing healthcare to poorer
people and the fear of under-consumption of healthcare due to its merit and public
good properties; notwithstanding over consideration of the profit motive to ‘cut
corners’ within healthcare, for example, the NHS repeats the AIDs test three times
whilst private health companies in the UK carries out the test only once on the same
blood sample.

Healthcare is considered as merit good is a socially desirable good as it is a positive

externality to society i.e. it benefits society; as social benefits exceed private
benefits,so it is important to consider the impact of changing to solely one healthcare
system. I think a price system within healthcare would therefore demonstrate to an
extent the presence of economic, that would productively efficient. Resources would
be used in an optimum way to gain maximum utility with production at the lowest
possible cost i.e. efficient production. A private healthcare sector would also be
dynamically efficient through innovation and investment in research and development
due to greater revenues generated as a result of the price mechanism.

The introduction of the profit-motive into the healthcare market would result in
competition through pressure to lower costs of production and lead to subsequent
competition in the factor market for healthcare; economic theory suggests that
adjustments will occur in each related market with a corresponding change in
resource allocation until a position of general equilibrium is obtained. This
corresponds to labour and capital costs of healthcare.

Perhaps a ‘private-public partnership’ would provide greater social efficiency

whereby only certain elements of healthcare were co-ordinated through the
price mechanism and the majority publicly provided. One idea, adopted in
Sweden, is to charge patients for appointments. As well as providing an
additional source of income for the NHS, it would also decrease the
number of time wasters in GP waiting rooms. This charge would also
encourage patients to make more use of services provided by pharmacies
and NHS Direct thereby reducing the workload of GPs. To ensure that the
poor and elderly aren't discouraged from seeking treatment, exemptions
could be made based on income or age.

It is good to have both private and public healthcare within a country. Public
healthcare offers an effective health service to everyone and is paid by general
taxation, however if one dislikes the current public healthcare service; then one has
the chance and freedom to go private.
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Website:- 28/April/09