Healthcare as a luxury good

“The strong correlation between GDP and spend on health care [has led] to some observing that health care behaves rather like a luxury good which delivers value for individuals and populations and contributes to economic wealth” Jennifer Dixon, Nuffield Trust. Political Quarterly Feb. 2012

I think this is important. Luxury goods are traded at a price that is considerably more than their value. Adam Smith recognized that commodities such as diamonds may have an exchange-value but may satisfy no use-value, while a commodity such as water with a very high use-value may have a very low exchange-value .

In health care provided by the NHS, by minimising markets and the profit motive and by using NICE to ensure that healthcare is supplied according to need and according to use-value, we keep costs under control by minimising the  exchange-value.

Converting healthcare into a luxury good changes it into a commodity. Ccommodities have exchange values. These are completely independent of use-value and are inflated by various market mechanisms such as restricting supply (regulated markets/ professionalism), stimulating demand (advertising, fear-mongering, healthism) and the invention of new markets (disease-mongering; redefining health and illness) Luxury goods also derive some of their value by being exclusive and restricted to wealthy people.  Defenders of markets in healthcare believe that by a combination of decreased regulation, increasing supply, and increased competition, overall costs can be reduced. But they fail to mention the need for markets to stimulate demand and maximise profits, which is why costs increase, and is why healthcare is so expensive and so inequitable in the US.

The healthcare myths of our time are that physical health is the same as physical beauty and mental health equals happiness.  The World Health Organisation definition, Health is a state of complete physical, mental, and social well-being and not merely the absence of disease or infirmity, supports this utopian view and leads to the possiblity of open-ended, insatiable demand for health care. The consequence of this way of thinking is that our minds and bodies are projects to be worked on for the whole of our lives, like endlessly tinkering with a classic car. Unlike classic cars we have to grow old and die and so the ‘human body as classic car’ project is futile. So we need a different definition, or definitions, of health.

One adverse consequence of the health bill that ought to worry people of every political persuasion is the certaintly that if healthcare is treated as a luxury good, costs will rapidly increase.

See also:

Healthism parts 1 and 2. The Healthculture

Managed competition for Medicare, sobering lessons from the Netherlands. NEJM

The Value of Nothing. Raj Patel

The risks of competition in healthcare

8 responses to “Healthcare as a luxury good

  1. A very interesting article

  2. Great post, Jonathon.

  3. Beginning to see where the political dogma is heading. thanks.

  4. Spot on.

  5. Excellent work, JT. A succinct analysis of how health gets commodified, and how marketeers seek to ‘add value’. The Iranian Hospitalier is one suspects a past master at such wheezes. Monogrammed dressing gowns, Michelin food, that sort of thing.

    En passant, that super-aspirational WHO definition of health has got a lot to answer for – but that is another story for another day.

  6. Just stumbled across this whilst looking for something else and felt compelled to comment even though it is an old article…
    I think you have a fundamental misunderstanding of what is meant by the term ‘Luxury Good’.
    A luxury good is one with an income elasticity of greater than 1. That is, if your income (or in the case intended by the initial quotation, national income) increases, then, in the long run the proportion of your income devoted to healthcare will increase to reflect preferences for that commodity*. It is neither a necessary or sufficient condition for a a Luxury good to hold any of the properties mentioned in the blog.
    Spending on the Healthcare went from about 7% to 10% of GDP between 2000-2010, a far greater proportion of that increase came from the public sector too, rather than private sector. This suggests that healthcare in the UK already is a luxury good and that that is not incompatible with the NHS.
    There are some boring details about why it may not be technically possible to ever define healthcare as a luxury or a necessity (income elasticity <1) but it seems the powers that be are glossing over the theoretical structures and going off empirical data in their definition of healthcare which forms an understanding of what it will be like in the future and how best to plan for that.

    *don't be afraid of the word commodity, it is but a word. Commodities exist whether there are raving, neo-liberal, profit craving loonies or not. And you don't just find commodities in Tesco or a stock exchange.

    • Thanks Patrick. John Appleby (economist at the Kings Fund) and Dave Parkin (another health economist) both corrected me when I wrote this and I should have edited it then. I quite often edit blogs if there is a glaring error, but I realised that this one was so off the mark that it was beyond editing.

  7. Orders straight from top then! Parkin is one of most heavily cited academics on the subject

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