Sunday, June 03, 2007

Teeth economics

Labor proposes giving free dental care to those earning less than average earnings ($55,000) to reduce the 650,000 waiting list for public dental care. I wonder how this will work. The price of dental services is not determined by government – it is market-driven. Given that it takes time to train new dentists and that there is currently an excess demand for State Government-provided public services I assume that the extra servicing would be achieved by offering the additional work to those dentists who currently serve private patients.

This would mean an increase in the demand for the services of such dentists which would raise their supply price. The hourly cost of a dentist is around $295 and it is claimed 20% of patients are not currently seeing such dentists because of the cost of services.

I don’t have data so let me make some guesses of the impact here.

The induced rise in dental costs might be more than proportional to the extra demand so the cost per hour of dental services might rise quite a bit – say by 30% to nearly $400. If each of those on waiting lists has say 4 hours of dental services required the cost of this plan would be, ignoring administrative and other costs, around $1.04 billion.

These other costs should include the lost consumer surplus from those who currently pay for their own privately-provided services but who will now face higher prices. Also many of those who currently pay for their own services but earn less than average annual incomes will now opt to augment the temporarily-shortened public queues. These factors add to costs significantly. In addition these proposals provide no incentives for people to take better care of their teeth.

The cost figure here is a rough back-of–the-envelope calculation but its outcome does accord with press estimates of the cost which come to around $1 billion. Almost predictably the Labor Party provides no estimate of these costs (new Shadow Health Minister says all will be made clear closer to the election) and, as usual, hopes the public will treat the reform as a costless social welfare measure. The Age predictably describes the dental reform as ‘well-targeted’ though it acknowledges no costings have been provided.

This seems to me a poorly-thought-through policy option. Options which increase the supply of dentists by reducing university admission scores and which improve dental health through education would have had the respective effects of increasing dental supplies and reducing the demand for such services. These measures would have improved access to cheaper dental services.

A major beneficiary of this plan are the dentists who predictably support it - they will earn higher incomes funded by the tax-payer and subject to no government control. Income will be distributed from those who pay for their services to those who currently don't and those earning less than average income who will defect to the public scheme as public waiting lists fall.

Overall the supply of dental services to the community will not increase since this measure addreeses demand and not supply. There will be no more services net - its just that some who now pay will opt out of treatment or settle for lower standards of treatment to give way to those on the public list.

Finally, one has to ask why the State Governments who are responsible for public health care will suddenly now perform better.

8 comments:

Francis Xavier Holden said...

The free dental care will mostly consist of people long overdue for basic or near emergency services, like old age pensioners who cant eat.

It is possible that those they will displace will mainly be people with good teeth but seeking "cosmetic" improvements.

I havent had a squiz at the thinking but I'd assume that there will be a triaging around urgency and importance so that people who had to date payed their own way would probably have mouths in too good condition to qualify.

I'm not up to speed on the dental issues but I can dig up stuff later in the week if you want. From memory some of the practicalities alter your analysis.

hc said...

jwh, Who will do the prioritising here? The state will intervene to determine who gets treated?

The measures you suggest will work in a socialist state but I don't follow how they would be implemented in Australia.

BTW I mainly focused on the short-term issue of eliminating waiting lists. In the longer -term there are arguments for treating dental services like other medical services and covering them witrh some measure of public insurance.

But short-term where do the dentists come from?

derrida derider said...

Jeez, not another bloody intrusive, expensive-to-administer, labour-supply-and-savings-distorting means test. And worst of all a "sudden death" one - if you earn a dollar under the threshold you get full coverage, if a dollar over you get nothing. If you've got a family with dodgy teeth and earn anywhere near the threshold you'll be knocking back pay rises if you're sensible.

Since two-thirds of workers earn less than AWE (log-normal distribution and all that), and since better-off people tend to have better teeth anyway, the bloody means test won't even save much money.

Why not just go for universal basic preventive care and maintenance? What's so different about teeth compared with the rest of the body that it should be excluded from Medicare?

hc said...

DD, If you want to bring these under that umbrella I think you are right - a means test will impose high transaction costs.

I retain my view that in the short-term this measures won't get rid of waiting lists.

Francis Xavier Holden said...

harry - jeez first you address me as jwh - john winston howard - and then you accuse me of being a commo and an urger for socialized medicine.

I'm confused - should I be insulted or flattered that you call me jwh or was it a typing slip. I'm guessing you fire off quick emails to jwh (and vice versa) on a lot of matters and you just forgot who you were addressing.

Anyway back to toofs and health.

You'll find pretty much all health treatment and expenditure is rationed to some extent.

Even if you pop into the private school equivelant to an emergency dept, Epworth, and pay your $120 upfront for treatment for the rash you break out in each time you comtemplate a Rudd Gillard junta you'll find you get bumped down the line if someone comes in with a more life threatening condition.

For the record I support more $ for BASIC dental care, not cosmetic improvements, but I do think there can be a lot of useful arguments about the best way to do it.

Means testing, other than simple Health Care card or no, adds a bunch of processes and costs that benefit no one.

Francis Xavier Holden said...

On the short waiting lists. Many many dentists are happy to take vouchers (a limited system that already operates)to operate on basic and emergency dental care.

Not all dentists are flat out full time and many are happy to bump a few "makeover" cases to treat the basics. It pains dentists to think that people lack the very basics and can't eat properly so much so that they do limited pro bono work.

hc said...

fxh, What an unforgiveable slip! I think it is your recent unveering shift to the right.

But I have got to say I think my original argument holds. There might be a little excess capacity but where does the short-run increase in supply come from?

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Biby Cletus