Healthcare isn't the only example of a two-tier system

Merit goods are defined as goods that are deemed to be socially desirable. Socially desirable things can often be provided by the market. However, merit goods are deemed to be somewhat problematic because either: (1) the market doesn't provide enough of the good, compared with the socially efficient (economic-welfare-maximising) quantity; or (2) the good is important, and if it was distributed by the market, some people would miss out on the minimum quantity of the good that is deemed to be necessary. Who decides what is socially desirable or what the minimum quantity of the good is? Those are political decisions. In other words, what constitutes a merit good is mostly a political decision, not an economic decision.

If merit goods are not provided in sufficient quantities, or are provided in sufficient quantities but not to everyone who we think needs them, then that suggests a role for government. That means that the government either subsidises merit goods or provides the merit goods itself. I was tempted to provide some examples that fit into each of those two categories, but it turns out that, for every example I considered (health, education, public transport, the arts) the government tends to do a mixture of both subsidising and public provision.

However, let's focus on public provision of merit goods. There is no free lunch. When the government spends on health or education, that means less spending on other things. There are trade-offs, and that makes it difficult for government to provide gold-plated goods and services to everyone. Sometimes, people just want more than the government is able to provide. That's why in New Zealand, alongside the public healthcare system, there is a growing private healthcare system, accessed mainly by those with private health insurance. This unavoidably creates a disparity in people's access to healthcare. Some people can only afford to access the public healthcare system, while others can choose to access public healthcare, or to pay extra (either directly or through health insurance) to access private healthcare.

Many people take issue with the disparity in access, arguing that it creates a two-tiered system and is therefore unfair. Take this article from The Conversation yesterday, by Elizabeth Fenton and Robin Gauld (both University of Otago):

Many seem to accept the argument that a two-tier public-private health system is not morally problematic, given most essential health services remain free to all. Some might go further and argue justice demands a two-tier system because health is only one public good the state is obliged to provide. Limiting non-essential healthcare services ensures it can meet those obligations.

The second private tier protects the liberty of those who want and can afford to purchase those services, while the first public tier focuses on meeting everyone’s needs to a sufficient level.

But the justice argument supports this conclusion only if the services and benefits provided in the first tier meet that threshold of sufficiency. Where exactly this threshold lies has been the subject of perennial debate.

Fenton and Gauld are clearly in favour of a more generous public healthcare system, which in turn would limit the necessity for the private healthcare system. Their argument is valid. It's simply a question of prioritisation of government spending (but keeping the trade-offs in mind). However, I do want to take issue with this bit from their article (aside from them saying in the quote above that health is a public good, when it isn't [*]):

When the worse-off are required to accept services below reasonable expectations of routine care (and the demonstrable harms that result), individuals are no longer in the same boat. The better-off live in a world of social goods and privileges inaccessible to the worse-off.

Why we accept this in health and not other sectors is an important question. It is hard to imagine school teachers only taking bookings months out to see parents seeking help for their troubled children, or denying entry to public schools due to limited capacity.

It is also doubtful we would accept teachers setting up private classes and consultation times to provide a timely service to those who can pay.

Fenton and Gauld need to reconsider their example of education. Education is a two-tier system as well. There are both public schools (nominally free) and private schools (with high fees). Parents can (and do) pay for private tuition for their children as well. Some of that private tuition is conducted by people who are teachers in their regular day job (a consequence of the education system paying teachers poorly). And that isn't even considering post-secondary education, where there are both public and private providers as well. 

Healthcare isn't the only example of a two-tier system. Consider transport (public transport vs. taxis or Uber), justice (legal aid vs. private lawyers), or security (police vs. private security firms). Unless there is some law that prevents the private sector from operating, any time the government is publicly providing a good or service, we'll end up with a two-tiered system, with one tier accessible to everyone, and a separate tier accessible to those who are willing and able to pay more.

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[*] Public goods are goods that are non-rival (meaning that one person's use of the good doesn't diminish the amount that is available for everyone else) and non-excludable (meaning that no one can be prevented from accessing the good). Healthcare doesn't meet either of those conditions (for some further explanation with other examples, see here and here). Healthcare is a private good - it is both rival and excludable. It may be a publicly-provided good (in many countries like New Zealand that have a public healthcare system), but that doesn't make it a public good.