Why SA should not nationalise its private health care?

Private financers and suppliers of health care products and services have been under siege since the adoption of the plan for a national health system; a system that appears to have as its end goal the nationalisation of private health care. Is this really what South Africans want? Do we want a system that allows no choice in health care; that offers no alternatives to taxpayer-funded and government-provided health care and where government officials decide who will get what, when and how – if at all?

SA is already losing many of its brightest and most promising citizens, including health care professionals. Nationalisation is the taking by force of citizens’ assets. Do its proponents really wish to create even greater problems in the economy in general and, more specifically, in the health care field, or will more sober minds prevail?

Government planners should bear in mind that increasingly mobile, skilled individuals expect a few cardinal institutions and services to be available to them when deciding where to exercise their talents. In addition to earning an internationally competitive income, they want to live in a peaceful, law-abiding society, have access to good educational institutions for their children, and be assured of good health care for themselves and their families. Currently SA offers, at most, two of those requisites, one of which is excellent private health care.

In his article, So You Want Government-Supplied Health Care? American economist Donald J Boudreaux illuminates the differences between government- and privately supplied services. He marvels that in Romania, where he had lectured on economics, and his wife, Karol, on law to students at a seminar organised by IES-Europe, downtown Bucharest was ‘blossoming with shiny new hotels, restaurants, and trendy retail stores’. Private firms were changing the landscape; shaking off the dreary dull uniformity of the city’s communist past and the streets were full of shiny new cars – too full. Few streets in the city had double lanes and the traffic was ‘horrible’. Roads in the countryside outside the capital city were narrow, badly marked and in need of resurfacing.

He recognised that a familiar pattern was playing itself out. Private firms had responded to the signals received from consumers and were delivering what their customers wanted. Whereas government, because it was not selling road services or attempting to price road usage, had no way of knowing what quantity or quality of road the users wanted, or what price they would be prepared to pay for it.

Flying into New York’s JFK airport, one of the country’s busiest, after the long flight from Romania, the Boudreaux’s thought they had plenty of time, a full two hours, to catch their connecting flight home. It was not to be. They had to wait more than 30 minutes before a gate at the terminal was cleared for their plane and they could disembark. To add to the frustration, a total of three officials from the Department of Homeland Security were available to check the passports of US nationals among the planeloads of passengers. Most of the passport control desks stood empty.

Waiting in the queue, Boudreaux analysed the situation. US airports are owned and operated by government, as is the post office and passport controls are carried out by government officials. Where else did government involvement cause interminable delays? His mind jumped to health care: ‘As I waited with increasing irritation in that line, I wondered why so many people want government to supply health care’. Had they not experienced waiting for service as he was doing? Why did people not recognise that ‘When “customers” neither pay directly for what they receive nor have the option of either not paying for the product at all or of seeking an alternative supplier, suppliers have little motive to respond to the wishes of the people they are allegedly employed to serve’. The couple missed their connecting flight.

If the same people, doing the same jobs, were subject to the ‘profit-motive’ and the ‘loss-potential’, they would respond very differently. When critics speak disparagingly about the profit-motive, they invariably neglect to mention the loss-potential that is as important as profit in driving individuals, engaged in private enterprise, to succeed. Firms that make the mistake of ignoring the needs of their customers lose money and even go broke. Firms that prosper and survive, listen to their customers, meet their demands, and constantly innovate and re-invent themselves to remain competitive.

Government officials attempting to run enterprises and service organisations, whether they be airports, trains, airlines, busses, post offices, water supplies, electricity supplies, insurance companies, hospitals and clinics, or any other type of economic activity, invariably do not respond to the wishes of customers. They respond to political dictates.

When these enterprises are poorly managed and uncompetitive, they do not disappear or get taken over by more efficient operators, as they would be if they were privately owned. Staff members within these enterprises, who excel at their jobs, do not get promoted and rewarded, as they should. When the enterprises experience increased demand, they depend on political decision-making for the capital needed for expansion, and have to contend with all the other demands on government. As one British commentator said: ‘How does the government decide between buying a submarine to protect our shores and building a new hospital to treat our sick patients?’

Government should leave the financing and provision of health care products and services entirely to competing private firms. It should remove all legislation and regulations that prevent and hamper competition, such as the single exit prices for medicines, certificates of need required for the building of new hospitals and clinics, the obligations imposed on medical schemes that prevent them from designing competitive products for niche markets, and the provisions that prevent private education organisations from teaching and certifying doctors, nurses and other health professionals. Let the patients tell the providers what they want by supporting them or declining to support them; that is how customers express their will and firms make decisions to meet their demands.

Instead of dragging everyone into a nationalised health system, not for the benefit of their health but to gain access to their money, government should purchase services for the poor from an efficient and fiercely competitive private sector. Such a move would ensure that SA’s poor would receive better service than those subjected to the UK’s NHS or Canada’s single-payer system, which both ration services by making people wait weeks or months to see specialists and receive treatments, including urgent operations.

SA could become a premier ‘medical tourism’ destination (imagine recuperating in a hospital or clinic inside one of our game parks); a preferred option for the manufacture of medicines and the conduct of clinical trials; a leader in the financing of health care; a teacher of medical students and other health care professionals from the rest of the world at no cost to the taxpayer; and a provider of quality health care for all, especially the poor. SA’s health care sector requires freedom to expand and flourish. It requires an environment in which its health care professionals will be appreciated and in increased demand, and in which its patients will receive health care that is incomparable – a much, much better option than stultification by nationalisation.

Author: Eustace Davie is a director of the Free Market Foundation and the Health Policy Unit. 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.

FMF Feature Article / 04 June 2009

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