Is there an economic rationale for socialized medicine for veterans?

Each fall, I teach an undergraduate class in health economics at Rice University. It’s important to discuss the many ways that government intervenes in the healthcare sector and measure the costs and benefits of these interventions. Often this exercise works best with references to articles and editorials from the media. As I was going through the collection of media pieces I saved from last year, I came across one on socialized medicine. It was written in 2012 by Uwe Reinhardt, who is one of the most thoughtful and well-known health economists in the country.

Reinhardt begins his piece by noting that many U.S. policymakers vigorously criticize Britain’s National Health Service, which is the epitome of socialized medicine. All United Kingdom residents have access to healthcare services financed by taxes, healthcare facilities are government-owned, and physicians are employees of the government. In contrast, America is the land of free competition, where most hospitals are privately owned and physicians are not employees of the government. The government intervenes to provide healthcare for the elderly through Medicare and for low-income populations through Medicaid. But most Americans with insurance are privately insured.

{mosads}Then Reinhardt mentions an important instance where socialized medicine has gained a foothold in the U.S.: the Department of Veterans Affairs (VA) health system. Care for veterans is financed by taxpayers, and the VA facilities are owned and operated by the federal government. Reinhardt observes that both political parties have supported this form of socialized medicine for decades as the best health system for military veterans. Reinhardt ends his editorial with a reference to multiple studies praising the high quality of the VA healthcare system.

Fast-forward to the present, and the VA is no longer the darling of policymakers that it was in the past. A combination of patient and physician whistle-blowers, Government Accountability Office reports and internal investigations have revealed long wait times, inadequate scheduling processes and attempts by some top VA officials to hide significant deficiencies. While the VA can point to many examples of high-quality care for veterans, there are clearly important instances of deficient care as well.

So what did I decide to tell my students about the VA this year? There are many other examples in healthcare where there is a clear economic justification for government intervention. For example, governments can levy taxes on cigarettes to compensate for the many costs that smokers impose on nonsmokers, such as the negative health effects of secondhand smoke, or the government can intervene to challenge hospital mergers that will give providers unfair pricing power. However, the justification for the VA healthcare system is much less clear.

Policymakers and the public support the idea of providing healthcare to veterans after they have served our country. Care for severely wounded soldiers and those suffering from post-traumatic stress disorder is highly specialized, and it makes sense for the government to operate facilities that address these needs. However, the majority of veterans suffer from acute and chronic diseases that are similar to the rest of the general population. These veterans could be readily treated in the private sector, and there is no economic justification for funding government-run facilities to provide this care. The government could reimburse private-sector providers for treating veterans using Medicare reimbursement rates. The government could also provide vouchers to veterans to purchase private health insurance. The private sector would be eager to serve new patients, and competition among providers and/or insurers would alleviate the concerns regarding excess waiting times which plague the current VA system.

The Department of Veterans Affairs has just announced a Veterans Choice Program, which is designed to speed healthcare for veterans by expanding access to private providers. The program will run for three years or until funding for the program runs out. I am hoping that the program serves veterans well and that policymakers choose to expand this program and gradually shrink the size of the VA healthcare system. I searched through Google Scholar, and I could not find any studies that conclude that the cost per person covered is lower in the VA system than in the private healthcare sector. Without this justification, we should be cautious of additional support for our own American model of socialized medicine.

Ho holds the Baker Institute Chair in Health Economics at Rice University’s Baker Institute for Public Policy. She is also a professor of medicine at Baylor College of Medicine.