Question

Suppose the government builds and staffs a hospital to provide “free” medical care.

1. a. What is the opportunity cost of the free medical care?
2. b. Will individuals over consume health care in this environment?
3. c. How do you ration the healthcare in this world? What alternative rationing system also exists in countries without free healthcare?

Answer 1

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a. The opportunity cost of free medical care could be investment in other sectors or merit goods like education. Infact a policy like "free education" can also be considered as an opportunity cost as it is a foregone alternative.

b. There is a high chance over consumption in such a scenario. This is because public goods generallly face an issue of free-rider problem. In "free healthcare" individuals will resort to using healthcare for even meagre issues and will burden the system unless it is properly implemented.

c. Rationing of healthcare requires the creation of civic awareness and responsibilty regarding the use of "free healthcare". In such a system individuals who can afford healthcare alternatively should try to continue in the same manner as much as possible. Countries without a free care system usually look upto private entities to set up and run the healthcare system. The government subsidises the investments or the charges incurred by patients. Providing easier insurance policies is also carried out. Thus there is a public-private partnership.