HPU
A free market provides what the patient wants
Author: Eustace DavieDate: 16 September 2009

In SA, individuals pay a substantial amount of the money spent on health care. They do so either directly, through medical schemes, or through their employers, a sure indication that there is a strong demand for the care offered by private healthcare providers.

Private providers treat up to 45% of all the people who receive health care. That is considerably more than the 15% or 16% who belong to medical schemes and a significantly greater number than that acknowledged by the Department of Health. Money spent on self-medication, alternative therapies and traditional healers, all private and most of which is not covered by medical schemes must be taken into account in arriving at the total spending of people paying their own healthcare costs.

Claims that the public healthcare services are responsible for providing care to everyone except medical scheme members (84% or 85% of the population) cannot be right. Anyone who is not a member of a medical scheme does not automatically receive health care from the public sector. For a meaningful comparison to be made between the volume of services provided by the private and public sectors, it would be most helpful to everyone concerned if government would provide information on the actual number of patients that receive treatment from public hospitals and clinics. 

In the debate over the public/private healthcare-funding split there are anomalies that need to be addressed. Members of medical schemes are castigated for wishing to purchase better quality health care for themselves than that available to patients reliant on public health care. They are also criticised for being potential public patients if they should exceed their maximum available medical scheme benefits. What is overlooked is that if these people were not members of private medical schemes they would have been potential public patients from the outset; in fact their exhausted membership benefits of the private medical scheme represent a reduction in the overall burden on the public health system. The criticism is consequently misplaced and, instead of being castigated, members of medical schemes should be praised for their self-reliance.

As many people as possible should be encouraged to cover, to the best of their ability, their own healthcare costs through medical schemes or out-of-pocket payments and not be a burden on taxpayers, leaving government to concentrate its attention and available budget only on those who are unable to pay their own costs. A scheme that promises “free” health care for all creates insoluble problems and has various negative consequences for patients. It removes part of the individual’s incentive to follow a healthy lifestyle, discourages self-care for minor ailments, overloads the healthcare system due to unlimited demand, forces administrators to limit access through queuing, entirely removes the discipline that competition for patients imposes on healthcare providers, and abolishes patient choice.   
 
We must bear in mind is that the people supposedly benefiting unfairly from spending their own money on their own health care are much the same people who are paying the greater part of the taxes that provide the total public healthcare budget.

They are paying not only for their own health care, but as taxpayers, for the health care provided by government; in other words, close to 100% of all healthcare costs. For that they deserve praise, not criticism.

SA has a relatively free economy, which is one of the reasons why it has been performing quite well. (It is in the top 40% of economically free countries as ranked by the Economic Freedom of the World: 2009 Annual Report.) It produces high quality healthcare services and products through its innovative, entrepreneurial and vibrant private healthcare sector. Rapid growth of all sectors of the industry in the production and delivery of healthcare goods and services, and the development of lowest-cost and efficient methods of delivering quality, taxpayer-funded healthcare services to low-income people should be a top priority. The best way for government to achieve this objective would be to remove all statutory and regulatory constraints on the growth of the industry that are not related to patient safety and to purchase increasing quantities of care for low-income patients from the private sector.

When medical schemes are treated as part of a welfare system and compelled by government to cover risks that their customers do not want covered, they cease to perform their proper function. They cease to respond to the wishes of their customers and to provide the choices that their customers want. If medical insurance is to be competitive and responsive to the needs of the insured, the insurance company actuaries must be allowed to formulate competitive and innovative insurance products in response to the demands of their customers, including those with a low income.

Greater choice leads to greater customer/patient satisfaction, greater choice in doctors, hospitals, suppliers of medicines and medical appliances and every other aspect of the provision of health care. Centralised control eliminates choice, allows for very little innovation, reduces incentives to provide good service, and generally reduces the range of products and services available to customers. Without statutory protection or substantial subsidies, no government provider of goods and services can compete with private providers operating in a free market. Government should provide patients with a healthcare environment that will give them what they want: a free market in health care.  

Author:  Eustace Davie is a director of the Health Policy Unit (a division of the Free Market Foundation). This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author's and are not necessarily shared by the members of the Foundation.

HPU Feature Article / 16 September 2009