Monday, July 09, 2007

More nonsense Rants

More on one of those pesky Dr Rant questions from Timmy.
The administrative cost of the US health care system is 31% of the total health care budget (reference [PDF]).

When the NHS was introduced in 1948 it spent 2% of its budget on administration.

Both statements are true so clearly a state run health service is more efficient, no?

Just to stop us getting into the argument of whether it is or not let's just say that whether it is or not cannot be proven by the above.

Have a look at "excess burden of taxation" or "deadweight loss" on Wikipedia.

Then consider the following. That number for the US system includes all of the costs of raising the money to pay for the system. That number for the NHS does not include the costs of raising the money to pay for the system. Thus we must add the deadweight costs of taxation to our costs for the NHS in order to be comparing like with like.

A useful rule of thumb for such costs is 20% of the sum raised.

Makes something of a difference really, doesn't it?

It most certainly does: the cost of collecting and administering the taxes, plus the damage done to the economy by the effective confiscation of that money, actually makes a state run system look very much less attractive than maybe Dr Rant would like it to.

We'll chalk another one up to the economists then, shall we?

4 comments:

Mark Wadsworth said...

From Wiki "it can be shown that the Marshallian deadweight loss is zero where ... supply is perfectly inelastic"

Which is what makes land value tax/site value rating the least worst tax (and land value subsidies, i.e. CAP, the most wasteful subsidies).

The Remittance Man said...

There's also the slight difference in timings, comparing the US system in 1999 to the NHS in 1948.

Conveniently ignoring over fifty years difference in government interference (on both sides of the pond, but probably greater in the UK), insurance costs and requirements (mostly for the Americans), health and safety diktats (both sides, but again more prevalent in UK by my guess).

Given the equivalent stats for the same year and we might be talking a valid argument. Otherwise we might as well include the admin cost of private health care in the thirteenth century.

SisiBrumEvitaLiza said...

Go back to school and learn what is the difference between costs and welfare loss. Welfare loss is income unearned due to some suboptimal market situation.
Once you are in class look up the chapter on transaction costs [of running different contractual arrangements that underlie the health care financing]. That is really what you have attempted to talk about.

Steve_Roberts said...

Hmm, let's see, in 1948 the NHS would have not yet morphed into today's bureaucratic monstrosity, its hospitals and clinic would have been run pretty much the same as under previous ownership - friendly societies, trade unions, charities, religious foundations, etc.

Dr Rant's data therefore suggests that pre-nationalisation healthcare systems were efficient, in the sense of not absorbing much administrative cost, somehow I don't see this as evidence in favour of his opinion that 60 years later the NHS is not only efficient, but is actually the only way to run healthcare (why does this make me think of 'The Corps is Mother, the Corps is Father' ?).