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Journal of Health Politics, Policy and Law 26.5 (2001) 993-1001

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Valuing Charity

Richard Kronick
University of California, San Diego

Economist Kenneth Arrow's 1963 article, "Uncertainty and the Welfare Economics of Medical Care," proposed insurance as a solution to many informational problems in the health care system. This insight helped generate a rich literature on the economics of health insurance. At the same time, however, Arrow recognized that residual problems of information might limit the degree to which medical risks are insurable, and therefore the degree to which health care can be successfully governed by market forces. Somewhat surprisingly, Arrow invoked decidedly nonmarket mechanisms such as professional ethics as compensatory solutions to these problems.

Notably, Arrow asserted that the ethical compulsion to treat patients regardless of their ability to pay was a special feature of medical care. He wrote:

It is at least claimed that treatment is dictated by the objective needs of the case and not limited by financial considerations. (950)

The belief that the ethics of medicine demands treatment independent of the patient's ability to pay is strongly ingrained. (950 n. 17)

Price discrimination and its extreme, free treatment for the indigent, also follow. If the obligation of the physician is understood to be first [End Page 993] of all to the welfare of the patient, then in particular it takes precedence over financial difficulties." (965)

In Arrow's view, the physician's obligation to provide care without regard to ability to pay contributed to a trusting relationship between patient and physician. In the presence of informational inequalities, the ethical compulsion to treat the patient unconditionally gave the patient confidence that the physician was using his or her knowledge to the best advantage of the patient and not simply to enrich the physician at the patient's expense.

To Arrow, the ethical compulsion for individual physicians to provide care without regard to ability to pay was not a substitute for social insurance. Arrow noted that the elderly and the unemployed were almost completely uncovered by insurance, that "the insurance mechanism is still very far from achieving the full coverage of which it is capable" (964), and that "it follows that the government should undertake insurance in those cases where this market, for whatever reason, has failed to emerge" (961). In practice, moreover, physicians' ethical obligations certainly did not safeguard the financial security or the health of the uninsured elderly or the poor. Charity care in hospitals and physicians' offices provided some protection, but these mechanisms were far from sufficient to provide full protection. The insufficiencies were magnified as commercial insurance eroded the ability of Blue Cross to engage in community rating and insurance became increasingly unaffordable for the elderly (Starr 1982). Arrow was aware of these problems, and his writing presaged (although was apparently not invoked during) the debates over the enactment of Medicare and Medicaid in 1965.

My purpose in this essay is to explore the possibility that Arrow's insurance arguments turned out to be in significant tension with his ethical arguments. Medicare and Medicaid have made tremendous progress by insuring elderly and indigent segments of the population who were not adequately served by physician charity in 1963 and for whom the much more sophisticated and expensive medical technologies of 2001 would be completely inaccessible. Moreover, although Medicare and Medicaid fall well short of universal health coverage, the lion's share of these programs' rapidly rising costs has been borne by nonbeneficiary taxpayers and represents a significant advance from the pre-1963 commitment of the American public to social welfare.

Unfortunately, these programs may also have inadvertently weakened medical ethics, detracting from the ability of professional norms to fill [End Page 994] informational gaps in health care markets even as they increased health insurance per se. Specifically, Medicare and Medicaid created the expectation that it was the responsibility of the federal and state governments to assure that patients would be treated without regard to their ability to pay. These programs, which spread the risk of illness across generations and income groups, shifted responsibility for care of...


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