Equality vs. Efficiency: The Case of Universal Health Care

By Simon Nguyen

One of the common mistakes people often make is to equate equality to efficiency. While equality can certainly enhance social efficiency, it can also lead to greater inefficiency. Confused? Perhaps a few examples will help you understand this concept a little bit better.

The first example is a simple one. A box of chocolates is to be shared by two children. The box contains 10 milk chocolates; both children like milk chocolates. Each child is given 5 chocolates. Well, it doesn’t take a rocket scientist to realize that the allocation of the chocolates is both fair and efficient.

The second example is bit more complicated; the numbers in this example have been normalized for greater clarity. There was a fruit sale at the local farmers market; my sister was able to buy 8 bananas and 4 mangoes. The bananas cost $1 each and the mangoes cost $5 each. My sister has two daughters, Julie and Christine. Julie loves to eat mangoes, while Christine loves to eat bananas. My sister doesn’t eat fruits.

What is the best way to divide the fruits among the two children? If my sister was to divide the fruits in the fairest way possible, she would give each child 4 bananas and 2 mangoes. In monetary terms, each child would get $14. Moreover, each child also gets the same number of fruits. Seems fair. But is this distribution scheme the most efficient way to split the fruits among the daughters? The answer is no.

Since Julie only likes mangoes, the four bananas she receives are probably gone to waste. Since Christine only likes bananas, the two mangoes she receives are too probably gone to waste. In effect, my sister has just wasted $14 on fruits that will not be consumed. The most efficient way to split the fruits would be to give Julie all the mangoes and to give Christine all the bananas. Since both children enjoy what they receive, there will be no excess or waste.

The distribution of the fruits appears to be a reasonable one. But there are many people who will take issue with it. Some will say Julie gets the raw deal; Christine gets four more fruits than her. Others will say Christine gets the raw deal; she only gets $8 of consumption compared to Julie’s $20. And that’s basically the essence of the debate -- equality vs. efficiency.

Before Obamacare came along, there was a contentious debate regarding single-payer universal health care. (Obamacare is not universal health care.) Proponents of universal health care believe that everyone is entitled to health care and that social equality cannot be achieved without a government-run health care system. Equal access to health care is a human right, they argue.

Opponents of the idea, on the other hand, argue that universal health care will reduce competition in the marketplace, decrease quality of service, and discourage the development of better drugs and medical treatment. After all, America may have the highest health care costs but also provides the best health care (if one could afford). Most of the recent medical breakthroughs and discoveries are as a result of research conducted by private companies; universal health care could discourage the furthering of such life-saving research.

As one can see, both sides have meritable arguments. Universal health care is certainly a huge step towards social equality. Yet, the end results (scrappy service, mediocre treatment) are not all desirable. The best approach appears to be one that maximizes efficiency. Instead of furthering the idea of universal health care, how about expanding the existing Medicaid program to cover more people? This will relieve the burden on hospitals having to service uninsured people and on firms having to provide their employees with health care. Health care costs are likely to be significantly reduced as a result.

Of course, higher income Americans will have to pay a bit more in taxes to finance the expansion. But given the choice of keeping their current health care coverage, I am convinced that most well-to-do will take this option. This approach will lead to more people having health care, while letting others keep the health care they prefer; it’s a real win-win.

Originally published 2009
Last updated 2016

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