The Theoretical Case for Socialized Medicine

Tired of emotional arguments for socialized health care, but instead want to understand the economic rational for it?

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Market Failure

When people don’t know or understand much about the service or product they want to buy then they tend to focus on external or superficial features, or they focus on single metrics. Most people don’t know much about cameras. When digital cameras got introduced this led to people dumbing down the choice to a single metric which was the number of mega pixels on the camera sensor.

Incentives in a Free Market

In our Econ 101, example it is assumed that whatever product people are buying, it is something they need or which is good for them. That is quite far from real markets.

Fundamental Problem With Private Health Insurance

So far I’ve just talked about the issue seen from the point of view of private hospitals. These are issues which single payer solutions can’t solve as private hospitals are still in the mix. In a single payer solution, private health insurance has been replaced by the government, but the hospitals are still privately run.

  • Avoiding very risky customers
  • Pricing their insurance right. Meaning they put high enough price on their high risk customers to avoid a loss, and low enough price on low risk customers to encourage them to chose you instead of the competition.

Benefits of Socialized Medicine

With socialized medicine, one typically do not want to carry out as many procedures as possible, because there is no financial gain from that. Budgets tend to be fixed. Hence there will be a drive towards cheap treatments you can enact early before things get overly expensive. This encourages preventative care.

Problems with a Monopoly

Socialized health care of course means monopoly which in our simple Econ 101 example provides some obvious downsides. There is no competitive pressure to improve health care efficiency and quality. On the other hand since the health care market is broken, we don’t really have this in a free market for health care either.

Problems with Public Financing

When hospitals don’t make money by selling health services, but rather get fixed budgets, then there is no clear incentive to even offer health care services. The less services you offer the more money you save.

Hybrid Systems

Health care isn’t difficult without reason. No pure free market or socialized publicly financed system will work perfect for the reasons mentioned. Rather the devil is in the details. One can make adjustments to counter negative effects.

How to Make Socialized Health Care Work

Markets can be utilized where they obviously work. E.g. medical equipment is best produced in a free market economy, because these can be easily evaluated and compared by the hospitals buying them. The same is mostly true for drugs.

How to Make Private Health Care Work

While I think the inherent problems with free market based approaches are more difficult to circumvent, there are certainly ways to tinker with the system to make it work better. First one has to dispense with the idea that all regulation is bad and drives up costs. It is all about having the right form of regulations.


My main point was to make the case that from a theoretical stand point there is no silver bullet when it comes to health care. All health care systems have problems. Most of all I want to rid people the notion that if you just get a pure enough free market system, competition will magically drive down costs.

  • simple cheap solutions over complicated expensive ones where possible.
  • avoid unneeded treatments

Geek dad, living in Oslo, Norway with passion for UX, Julia programming, science, teaching, reading and writing.

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