Introduction

In the UK, the National Health Service (NHS) has survived beyond its 60th birthday. Should we celebrate? Of course, there are lots of reasons as to why there is an NHS in the UK, as well as Medicare systems in Canada and Australia and similar such schemes in other advanced economies (with the exception of the US). However, this chapter focuses on the economic, as opposed to the moral or political, arguments. Although they stem from the discipline of economics, these arguments are just that – arguments. Nevertheless, while they may be contentious to some, it is fair to say that most health economists would subscribe to them.

Health care as a ‘commodity’

As explained in the introductory chapter, to take our line of reasoning forward, it is necessary to suspend belief and think of health care as a ‘commodity’. A commodity is essentially an item that can be exchanged in the marketplace; in other words, it is something for which there is both a demand and a supply, each of which will interact to determine the optimal amount produced. Although this notion is anathema to many, it is vital to the case for significant government intervention in the health care ‘market’, allowing us to strip humanitarian and political arguments from the debate. To illustrate, one could argue that it is more of a fundamental human right to have access to food than health care. But why do we not have a National Food Service? Governments intervene in the food market to maintain production standards, providing income supplements where necessary. Such intervention is nowhere near as pervasive as in health care; the rest is left to the market. Make no mistake, if governments could do this for health care, they would.

The fact is that government intervention in health care is a global phenomenon – borrowing data from the table in Chapter One, see the selected examples of proportions of health care spending coming from the public purse in Table 2.1. The story we have to articulate is why this is the case. It is the nature of the commodity we call ‘health care’ that provides the explanation.

More particularly, health economists make the case for extensive government intervention on the basis of ‘market failure’.