Government healthcare is more expensive than private healthcare

Vox has a nicely outraged piece about how expensive one of San Francisco’s hospitals is. It wastes no opportunity to call it the Zuckerberg (after a charitable donation from Mark and his wife), and it does point out that it’s owned and run by the city government itself. It tells us at length about how the costs of using said hospital are high even by San Francisco standards. And yet there’s one reasonably important thing it doesn’t discuss at all.

Why is a government-run hospital more expensive than one run by the private sector? For aren’t we all supposed to know that single-payer healthcare will supposedly be cheaper? That if we kick out the insurance companies and their profits then those very savings will pay to expand coverage? This being something that isn’t going to happen if government-run, no-insurance-company-profit healthcare is more expensive in the first place.

Why Vox has not mentioned it is simple at one level — it just wouldn’t occur to make the connection. At the more important and deeper level, it’s not too hard to explain either. Some of us think in terms of static systems, others of dynamic. Always and too much of either is an error, but we’ve all got to ponder matters at least a little bit using either structure.

For example, tax systems: Should we use dynamic or static scoring? Should we just assume the economy stays as it is and tot up the revenue changes from altered tax rates? Or should we assume that people will change what they do (incentives matter, of course) in response to different tax rates and estimate income in that manner? Clearly we must use dynamic estimates.

No, this isn’t the argument Congress has about this matter, for all those official estimates are using dynamic estimates these days. The controversy is over how much. To say that all tax reductions pay for themselves is an error. To say that all tax hikes bring in more revenue is an equal but opposite error.

Or perhaps we might talk about inequality. Too much, where one has everything and the rest have nothing, no one wants that. But entirely equal? There’s a strong line of thought insisting that unequal outcomes are what motivate people to do things. Doing things is what propels the general standard of living upward over time.

The thing we’ve got to think about in politics, the design of socioeconomic systems, is this question: Are we going to think in static or dynamic terms? This is actually rather one of the great differences between the left and right sides of the aisle, or at least certain stereotypes of the common arguments. That this level of inequality, or this tax rate, isn’t fair — well, that could indeed be true. But perhaps what we really want to know is: What is the effect of it two decades down the road?

At which point, back to hospitals. Sure, we can look at the current system and insist that we can make it cheaper by cutting out all those profits, the insurers, the paper chases. That’s an entirely static look at the problem. A dynamic one would ask: What is the effect upon incentives and developments of those things? The lust for profits, for example: Does that drive healthcare forward as it does in nearly all other areas of production? Perhaps that more expensive (in a static sense) market-based system is what drives up standards and drives down costs over time — that’s usually what we think competition does after all, it’s dynamically cheaper.

Which is what is informative about this San Francisco example. That city-owned, not-on-any-insurers’-network provider of healthcare seems to be more expensive than the private sector. This is proof that single-payer healthcare is going to be cheaper?

Tim Worstall (@worstall) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at the Continental Telegraph.