The Myth That U.S. Health Care Is a Free Market

Just a few quick thoughts based on discussions this weekend and seeing the various intelligent debates going on about health care. Health care isn't alone in this myth that its somehow currently under the auspices of the free market. Financial services, real estate, energy, telecommunications are all heavily regulated and in each instance it generates huge and unhealthy bubbles followed by massive "dead periods" and "contractions". After each big bubble, we get public outcries about how free markets have led us into this and boy we better get bigger government into action quick so it doesn't happen again.

In short, a funny thing happened on the way to the free market--

This almost seems like some sort of cold war hold over that what was great about America was the free market and that's why we should win over "communists". America=Free Market right? Truly if you look at some of the true free markets in Singapore or Dubai, we look like the real Politburo. It's all a matter of perspective.

To get a little more perspective, what if you take a look at the part of health care that is not regulated and really is a free market, cosmetic surgery. This is a pure negotiation between patient and doctor without regulated insurance or state or federal medical programs. LASIK and other procedures keep getting cheaper and more effective, yet in the rest of health care we see inflation. People on the right and the left should be running away from the current system, not trying to make it more comprehensive and expansive.

There are many great things I admire about our president, but I'd like him a lot better if there was a more solid respect for free markets and a little more fear of big government. Just a little.

Comments

[CLH:]

You are right on. The US medical care is nearly 50% run by the govt. now. This is the reason its so expensive. We will never get prices for medical care down until people are responsible for their own care. If people can take care of their own housing, food and clothing why not medical care?

Whatever you turn over to the govt. will double and triple in price. Our present leader who apears to be quite retarded wants to save money by turning health care over to his Democratic party.

Impeachment time has arrived.

Jul 28 06:21 AM

[JCC:]

Your right, todays healthcare system is not a free market.

People yell and scream that we can’t have a socialist system. In today’s environment insurance companies pay 35% of costs, and the government pays 45% of costs. With our regulatory system and the FDA, we don’t have capitalism. We have a system whereby the medical practitioner can reap huge profits, with a captive customer base, and virtually no competition. Healthcare workers compensation has been equivalently growing, so that the compensation levels are way out of line to the rest of the economy. In today’s system, there is virtually no competition and today’s system is not capitalism!

So how do we fix this mess? There are a few choices.

You want a free market, so here is a radical free market approach that has not got a snowballs chance in hell of becoming reality:
1. Get rid of the FDA
2. Modify patent laws to prevent pharmaceutical companies from obtaining patent extensions based upon new usage for a product.
3. Remove most regulation to open up the medical infrastructure to be open to competition.
4. Doctors, Hospitals and Pharmaceutical could develop and market goods and services unfettered by regulation.
5. Implement limits on liability for medical providers thereby reducing malpractice related costs.
6. If mistakes or problems occur let the buyer beware. The future patients should have access to the records and choose based upon quality and price.
7. Quit caring for those who cannot pay.

The alternative approach is radical but in a different way. It would not provide a free market and would not offer as much cost reduction, but it would offer significant cost reduction and cost controls. So here is the second approach:

1. Set up a quasi-socialist system with competion from cooperatives or government insurance plans.
2. Import pharmaceuticals from the lowest cost location or country.
3. Reduce hospital and medical care regulations to the extent that we can agree.
4. Limit payments for services to hospitals and doctors (we won’t have competition to control price). Obviously this becomes a bureaucratic/socialistic approach.
5. Pay doctors based upon results and not based upon the number of procedures that they perform.
6. Emphasize wellness and prevention to avoid future treatments.
7. Ration care for benefit – Expensive procedures that provide marginal benefit would not be accepted.
8. Expand the VA system or something similar to allow for government treatment.
9. Encourage the use of other countries medical services for expensive procedures.
10. Set up a system that would send patients away from high-cost providers to lower cost providers.
11. Modify patent laws to prevent pharmaceutical companies from obtaining patent extensions based upon new usage for a product.
12. Implement limits on liability for medical providers thereby reducing malpractice related costs, and the need for defensive medicine.

I realize that there is not a perfect solution, but you can pick and choose from the lists above. If you don’t like the points, make your own suggestions and help solve the problem. Remember, we can’t ignore the problem! With the ~10% per year inflation rate costs double every 8 years. Our current system causes this inflation and we cannot afford the outcome.

Jul 28 02:44 PM

[east coast ...:]

article.nationalreview...

check out this thoughtful article

Jul 28 02:46 PM

[JNR:]

I HEARD THIS ARGUMENT MADE LAST NIGHT ON CNBC'S HEALTHCARE SPECIAL AND WAS, AT FIRST, CAPTIVATED BY ITS LOGIC. BUT THERE IS ONLY ONE MAJOR FLAW IN THIS OTHERWISE COMPELLING THESIS - AND THAT IS THE SINGLE WORD 'ELECTIVE' - YOU CAN HAVE A 'FREE MARKET' IN THIS CATEGORY SINCE HAIR TRANSPLANTS, TUMMY TUCKS, BOTOX AND VISION CORRECTION ARE NOT PROCEDURES WHICH MODERATE SERIOUS HEALTH OUTCOMES - LIKE DYING! A BETTER EXAMPLE MIGHT BE FREE-STANDING HERNIA REPAIR 'FACTORIES' WHICH HAVE APPLIED FREE MARKET ECONOMICS OF SPECIALISATION AND VOLUME TO A NOT-QUITE-ELECTIVE PROCEDURE?

Jul 28 03:14 PM

[User 20528:]

east coast,
Thanks for the link to the national review article. It is a clear lucid commentary.

"article.nationalrevie...
check out this thoughtful article "

Jul 28 05:56 PM

[YoYoMama:]

JCC -

The system #1 you propose does exist in large part in Costa Rica, with the exception of bullet point 7, as there are government-run facilities for the poor. The health care costs are 1/3 of U.S, and the quality of care is excellent. I know, I've received treatments in Costa Rica.

System #2 is not so radical, and you've made some common sense. I would agree with all bullet points, but the last (#7). But we need not resort to either NO treatment or government intervention. Churches, charities, corporations and generous individuals could fill in the gaps.

Jul 28 09:06 PM

[Robert0713:]

You really need to read some basic economics. Try Krugman's column in the Times a couple of days ago. Health care is systematically not a marketable good. Period. Full stop. Get some intelligence. And stop reading Ayn Rand. That will rot your brain.

Jul 28 11:37 PM

[BlindReason:]

Hi Robert-Interesting viewpoint that health services by some intrinsic nature were not marketable goods.

How does this argument have merit given many European government have private health care companies. For example, in Switzerland where people spend 11% of GDP on health care they population there can buy insurance from a system of over 85 insurers. Europe and Canada provide a good example of systems with varying mixes of prriate and public that we can use to redesign our own system. If you believe that health care is not a marketable good you better tell Switzerland.

As far Paul Krugman, I would argue he is so partisan in his economics his views have to be discounted as a political polemic rather than economics.

Interesting comment although we disagree. Thanks.

On Jul 28 11:37 PM Robert0713 wrote:

> You really need to read some basic economics. Try Krugman's column
> in the Times a couple of days ago. Health care is systematically
> not a marketable good. Period. Full stop. Get some intelligence.
> And stop reading Ayn Rand. That will rot your brain.

Jul 29 11:41 AM

[JCC:]

Well Blind Reason, when I check the Swiss plan appears not to be a free market. Wikipedia states the following:

"Healthcare in Switzerland is regulated by the Federal Health Insurance Act of 1994. Health insurance is compulsory for all persons resident in Switzerland (within three months of taking up residence or being born in the country). International civil servants, members of permanent missions and their family members are exempted from compulsory health insurance. They can, however, apply to join the Swiss health insurance system, within six months of taking up residence in the country.

Health insurance covers the costs of medical treatment and hospitalisation of the insured. However, the insured person pays part of the cost of treatment. This is done (a) by means of an annual excess (or deductible, called the franchise), which ranges from CHF 300 to a maximum of CHF 2,500 as chosen by the insured person (premiums are adjusted accordingly) and (b) by a charge of 10% of the costs over and above the excess up to a stop-loss amount of CHF 700."

The Swiss healthcare system is a combination of public, subsidised private and totally private systems, and for countries with universal care, it is the most market oriented. But in fact it is not a free market approach. You can read about it at the following URL:

healthcare-economist.c.../

So check your facts - Krugman is generally correct. The only way to have a free market is to use my suggestions above, and that won't happen.

I generally agree with Robert, and find your arguments to be without merit.

Aug 01 08:03 PM