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  • rmacculloch

An explanation why the Kiwi health-care reforms will end in catastrophe and how to save the system

One of the most respected names in world health economics was Uwe Reinhardt, who worked at Princeton University during my time there at the School of Public Policy. He was one of the primary architects of the Taiwanese health-care system. From what I've learnt reading Reinhardt's interviews & articles, the "reformed" Kiwi system will probably fail.

Why? Since our system has become one where there's little competition in the supply of services. It's now dominated by a behemoth - a gigantic public provider called Health NZ. The weakness of this model is that people are forced by bureaucrats to go where they are told - which is where a public administrator chooses to allocate resources.

By contrast, in Taiwan, for example, the choice of where to go for health-care, whether it be public or private, is up to you. The government, as single payer, picks up the bill. After negotiating with hospitals, it decides on a fee schedule that everybody abides by. Public & private hospitals compete for work. They compete on quality & cost, not on price. In this type of system, the money follows you. The power & choice are with you. Under the Kiwi system, as set up by Labour, it's the opposite - you must follow the money. You are told where to go. You have no power; no choice.

Here's part of an interview Reinhardt did for the US Public Broadcasting Service:

Reinhardt: "... but basically these [German, France, Dutch] are social insurance systems, and this is what some politicians cannot get through their heads .. these systems use socialized insurance - in other words, they socialize the financial risk of getting sick - but the delivery system is private, often a for-profit mix.

Now, the British health-care system traditionally .. had been purely socialized health-care & by that we mean the production means are owned by the government. So the government owned their hospitals & paid for it, but the ambulatory-care physicians were freestanding doctors, essentially entrepreneurs .. But that, too, was .. still a highly regulated system .. [Now] it's quite a mixture [of public and private]. It's a system in transition".

According to Reinhardt's insight, the Kiwi government has confused providing "social insurance" with socializing the means-of-production. NZ can have a universal health-care system where everyone is insured and at the same time, like many European nations, not to mention Canada, Taiwan & Singapore, have much of their health-care supplied by private providers (often non-for-profits). This set-up is needed to keep costs low & quality high.

Health NZ is a Soviet-style centralized system which only empowers bureaucrats. Labour's reforms have arisen due the party confusing the desirable aims of social insurance, universal health-care & single-payer system with the Communist ideal of the State owning the means of production. Inefficient provision & plummeting quality will be the consequence.

Equity & efficiency are possible in health-care. But the Kiwi government has wrongly assumed there has to be a trade-off. It has thrown away efficiency & taken the country down the road of a universally equally-awful system for all.



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