The basic economic problem is how to allocate a finite amount of resources among practically unlimited wants. Suppose there are seven kids, but only five tickets to an amusement park, and all seven kids would all like to go to. How do you decide who gets to go and who stays home? You could use non-market schemes such as drawing who gets to go randomly, giving them to the youngest kids who might enjoy this particular park a little more, hold a contest of some sort, or you could use price mechanisms such as asking them to give up allowance and awarding the tickets to the highest bidder, or allowing them to barter against future trips where space is also limited. The prices can be implicit as well, e.g. you could find out who is willing to stand in place saying absolutely nothing the longest, and those who are willing to do so get the tickets.For the most part, we use market mechanisms to solve these problems, but not always. Market outcomes are efficient, or as efficient as we know how to be, but they are not necessarily equitable in any grand sense and sometimes we believe that equity is the dominant principle. National parks, for example, are often under priced so that everyone can afford to go. In such cases, the government intervenes and allocates spaces randomly, on a first come first serve basis, by seeing who will wait in line for hours to get in, etc.I believe that when it comes to health care, equity is the dominant principle. Everyone should have the chance to go to a beach, or the redwoods, or the Grand Canyon if they want to, these places shouldn’t be locked up as private property and completely inaccessible to those without the means to buy their way in. Everyone should have access to education as well, and in the same way everyone should have the access to health care. Access to life-saving and life-improving technology and treatments should not depend upon having sufficient household income.

But if we don’t use the price mechanism to allocate health care resources, what mechanism do we use? As I’ve said, I believe that there ought to be a broad set of treatments and care available to everyone, without exception, but where do we draw the line? If we don’t use the price mechanism, how do we properly and fairly allocate resources both between health care and the production of other goods, and within the health care system itself? Within the system is easy, equal access ought to prevail, but how much of GDP to allocate to health care overall is a hard question, and it depends in part on something discussed below, the relative effectiveness of various medical procedures. It also depends upon our general level of wealth. As we get wealthier as a nation over time, as we will with economic growth, we will be able to afford to spend a greater share of output on medical care, and will likely be willing to do so, but how much more? In any case, one way or another, it’s a question we’ll have to find a way to answer:

Health Care Rationing Rhetoric Overlooks Reality, by David Leonhardt, NY Times: Rationing. More to the point: Rationing! … The r-word has become a rejoinder to anyone who says that this country must reduce its runaway health spending, especially anyone who favors cutting back on treatments that don’t have scientific evidence behind them. …

Today, I want to try to explain why the case against rationing isn’t really a substantive argument. It’s a clever set of buzzwords that tries to hide the fact that societies must make choices.

In truth, rationing is an inescapable part of economic life. It is the process of allocating scarce resources. … We ration lakefront homes. We ration the best cuts of steak and wild-caught salmon. Health care, I realize, seems as if it should be different. But it isn’t. Already, we cannot afford every form of medical care that we might like. So we ration. …

The choice isn’t between rationing and not rationing. It’s between rationing well and rationing badly. Given that the United States devotes far more of its economy to health care than other rich countries, and gets worse results by many measures, it’s hard to argue that we are now rationing very rationally. …

There are three main ways that the health care system already imposes rationing on us. The first is the most counterintuitive, because it doesn’t involve denying medical care. It involves denying just about everything else.

The rapid rise in medical costs has put many employers in a tough spot. They have had to pay much higher insurance premiums, which have increased their labor costs. To make up for these increases, many have given meager pay raises. … Our expensive, inefficient health care system is eating up money that could otherwise pay for a mortgage, a car, a vacation or college tuition.

The second kind of rationing involves the uninsured. The high cost of care means that some employers can’t afford to offer health insurance and still pay a competitive wage. Those high costs mean that individuals can’t buy insurance on their own. …

The final form of rationing is … the failure to provide certain types of care, even to people with health insurance. … In Australia, 81 percent of primary care doctors have set up a way for their patients to get after-hours care… In the United States, only 40 percent have. …

The comparative-effectiveness research … has inspired opposition from some doctors, members of Congress and patient groups. Certainly, the critics are right to demand that the research be done carefully. …

But flat-out opposition to comparative effectiveness is, in the end, opposition to making good choices. And all the noise about rationing is not really a courageous stand against less medical care. It’s a utopian stand against better medical care.