For the free market system to work an effective insurance system must also work alongside this. However, there are problems with insurance as well. There is the moral hazard that if people are covered by insurance for certain treatments they may change their behaviour (e.g. become more reckless) so that they are more likely to require that treatment. For example, a rugby player who has private insurance in case of sports injuries may become a more careless player than one without the policy, and so need the treatment. This would be a waste of resources, as the problem could have been easily been avoided. There is also the adverse selection system that private insurance companies use. This means that the more likely a person is to get ill or need to use insurance, the more expensive the policy is to take out, but also the less likely the company is willing to give that consumer the insurance. These both defeat the purpose of insurance, as the people who need it may not be granted access to it either because their attempt to purchase it is denied or else to not because the premiums are too high for the consumer to afford. This is particularly true of elderly consumers, whose needs are on average significantly greater, and whose means might well be considerably less. By having government intervention equity is created; this means that people are treated equally on the basis of need, not depending on how wealthy they are or on their income. The potential issue of richer consumers being able to jump the queue is also reduced.
By having the government providing national health instead of many small private companies, there will be the benefit of economies of scale. This means that the average cost for treatments and the purchasing of drugs will decrease, and so the scarce resources would also be used more effectively. Also, many specialist services could be beyond the amount the small private providers could afford. Another waste of resources would be the administrative costs needed to attract patients to these practices and hospitals, which could go towards medical research instead, if all resources are used by one state provider. At the same time resources will be directed towards more essential operations rather than those more cosmetic treatments that would dominate healthcare if it were left to the private market.
By having the NHS, there are some very important beneficial externalities that would only occur if healthcare was free. For example, there would be less illness from certain types of disease (of those that can be vaccinated) as everyone would be able to get the vaccination. This also means that fewer people would catch contagious diseases from others – an external benefit. In the long run this would mean: reduction of diseases, higher standard of living, and less people would be away from their jobs and so would help to increase the growth and productivity of the economy within the country.
If all education was private, very few people would attend as there would be very few schools, but also because only a small percentage of the country would be able to pay for the fees. This would be because the schools/universities would be seen as profit maximising agents rather than places of learning. The few people who could afford the prices might be exploited as their choice would in practice be quite restricted and so the prices would increase steadily.
By having government intervention, there is a choice of private or state schools which would force private schools to keep relatively low prices otherwise they will lose attraction from consumers who would change to state schools. This will keep healthy competition between the different private schools, and between both sectors. As national education is accessible to both rich or poor, this will help to create equity.
By having state education, but also, making it law that everyone must have some education (in the UK up until GCSE’s), this will have many positive externalities of making the country’s economic growth increase as well as the increased productivity of the country, the internal and external trade, as well as increase of overall wealth of the country. This also helps to reduce the inequality of people within the country so that the income/wealth distribution is less wide. This is because everyone has basic education, and become increasingly employable, being able to get good jobs in order to earn more.
