There’s a well-known concept in economics – diminishing marginal returns – that basically states that ever increasing investments lead to ever reducing improvements. What this means is that the first dollars spent buys far more value than the last dollars, or marginal dollars spent. To think about this concept, think about a worker who is paid an hourly wage for each hour he or she works. The first hour the worker is most productive (they’re well rested, mentally ready) but as each hour passes the worker gets less productive – and ironically the hours for which the worker is paid the most, overtime hours, are likely to be his or her least productive hours.
In healthcare, this concept is clearly at work. The first dollars spent are spent on the basics: things like vaccination, clean water, basic health literacy, primary care and maternity care. These things consume a relatively small share of the healthcare budget, but produce relatively large improvements in both the quality and quantity of health that is realized. The next health dollars are spent on things that cure acute (time limited) conditions and restore health. The next health dollars are spent on addressing the needs of chronic conditions. Finally, the last dollars spent, are spent on End-of-Life care – it is well known that the dollars spent in the final years of life buy little in the way of quantity or quality of life. Each marginal dollar spent in healthcare buys an ever shrinking amount of quality or quantity of life. Yet the costs of these very marginal improvements can be very large indeed.
There’s also a parallel concept in economics, where the less of a good a person has, the more he or she is willing to pay to get more of that good. The more of a good a person has, the less he or she is willing to pay to get more of that good.
Again, this concept is readily applied in the healthcare context. If you have a high quality of life, or a long life-expectancy, you would be hesitant to pay a large amount of money to realize a relatively small increase in either quality of life or additional life expectancy. As a 25 year-old with an expected remaining life expectancy of 55 years, you would likely not be willing to pay a lot to increase that expectancy to 55 years and 1 month. Nor would you be likely to pay a lot to increase your general level of well-being from feeling very good to feeling as good as you possibly could (if life quality were measured on a scale from 0 (dead) to 100 (the best health possible) going from 90 to 95 simply might not be worth the cost of doing so). This is likely the perspective of the average taxpayer – they have a fair amount of life expectancy on average and experience a relatively high level of quality of life.
This changes dramatically when a person is faced with having very little life expectancy left and very little quality of life left – then the amount that person is willing to pay to realize even modest improvements in health is considerably greater than the person with a lot of time left and a high quality of life. A person with a month left to live might be willing to pay dearly to extend that to two months and a person who is suffering with a low quality of life would be willing to pay to have that quality enhanced even modestly (perhaps even to the point of merely relieving pain). This is the perspective of the vast majority of patients of the healthcare system – they struggle with limited life expectancies and compromised qualities of life.
Using this framework – it becomes incredibly clear that there is a conflict between what taxpayers view as being value for health dollars spent and what patients are likely to view as being value for health dollars spent. To whom does the system owe its allegiance? Is it to taxpayers or is it to patients?
It becomes incredibly clear, that in a single payer system – the allegiance is to taxpayers and that all improvements in health are worth the same (a month that accrues to person A is worth the same as a month that accrues to person B). From that perspective the goal is to buy the most health possible (quality and quantity of life) for the dollars available. From that perspective there is a large amount of money that is spent on care that is viewed as being of dubious value for the money spent. There is hesitation to spend public money on care that will result in very marginal gains and the money that is spent on that care is seen to jeopardize the financial sustainability of the system. When thinking about this kind of care – think about the cost of drugs for rare disorders that run as high as half a million per year. When thinking about this kind of care, think about all the money that is spent in the final year of life, relative to all the money that was spent in the lifetime before. Think about expensive drugs that may buy a month or three months of life at an incredibly tremendous cost. There is a tremendous incentive to develop guidelines and to limit care that is publically funded to only the care that meets the taxpayer’s perception of being good value for money. It is seen as being critical to the financial sustainability of the system as a whole.
It also becomes incredibly clear that in a single payer system an allegiance to the taxpayer, harms patients by depriving them of access to care that they see as costing less than the value of that care to them. From the perspective of patients all improvements in health are most certainly not worth the same. If $30,000 is the cost of an additional month of life, is it right to deny a person access to that month of life if they are willing to pay for it from their own resources? Is it ethical? What about care that is not the cheapest care but seen as best meeting the needs of the patient from the patient’s perspective – is it ethical to deny access to that care? Should patients forego care that meets their needs in order for taxpayers generally to benefit? Further, what about the adoption of new technologies – is it fair to stymy innovation because (at least initially) it fails to deliver adequate value from the taxpayer’s perspective but is seen as having value from the perspective of at least some patients?
Equally clear is that a purely private system would also fail to perform as it would fail to deliver care that is seen as being of good value from the taxpayer’s perspective simply because some patients may be unable to pay for it.
Perhaps this is the theoretical underpinning of how hybrid systems in most advanced OECD countries out-perform both single payer systems (Canada) and largely private systems (US). A hybrid might go a long way to resolving what is otherwise an unresolvable conflict between what patients view as being value for money and what taxpayers view as being value for money.