Ken Rogoff raises a very important issue.

Many societies view healthcare as a right, not a luxury. When medical expenses constituted only a small percentage of income, as was typically the case 50 years ago, an egalitarian approach to healthcare was a small extravagance. The direct and indirect costs were relatively minor and affordable.

But as health expenses start taking up a third of national income, healthcare socialism starts becoming just plain Marxism: to each according to his needs. Even China’s authoritarian capitalism will someday feel the pressure, as its rural populations, who currently have little access to doctors or hospitals, eventually explode with discontent.

…it remains to be seen whether health care pressures will ultimately cause the current trend towards free (and freer) market capitalism to reverse, with a very large chunk of the economy reverting to a more socialist system. Some societies might decide that it is better to be red than dead.

The fallacy goes like this:

1. Health care is rising as a share of GDP. In the United States, Rogoff points out, health care spending has been rising at a rate of 3.5 percent per year faster than GDP.

2. Health care is a necessity.

3. When people are denied the necessity of health care because of its expense, there will be political instability.

4. Therefore, free-market health care will not be sustainable politically.

I believe that this is a fallacy. The trick proposition is number (2), that health care is a necessity. Some health care is a necessity. Not all health care is a necessity.

Getting an MRI after you hurt your back may give you peace of mind. Getting a colonoscopy every five years after you turn age 50 may be a helpful precaution against colon cancer. Getting an experimental, expensive, but unproven treatment for kidney cancer may give a dying man a sense of hope.

But none of these medical services is a necessity. You would not say that someone’s human rights were violated if they did not obtain these services.

Cost-effective health care is affordable for all. Medical services with high costs and low benefits are affordable for those who wish to pay for them. The challenge in health care reform is to ensure that people have access to cost-effective care without subsidizing wasteful medical procedures.