Market-based Healtcare is the Only Way to Increase Coverage at a Pace America Can Afford

Market-based Healthcare is the Only Way to Increase Insurance Coverage at a Pace America Can Afford

by Jesús M. Beltrán Jr.

The problem with the current health care debate is that it centers too much on the lack of insurance coverage for millions of Americans. That is a problem, but not the central problem with health care. The real critical problem is that America’s health system is bankrupting the country and, more to the point, the government. Put simply, the skyrocketing cost of the Medicare and Medicaid programs is unsustainable and patently unaffordable, even for the richest country on Earth. If America continues down that path it is destined to cede its place at the pinnacle of nations to other countries and to witness a considerable reduction in its standard of living.

These facts are well know across the governing class, but you just can’t win elections by telling people that the government is already providing too much healthcare. It’s best, instead, to come up with convoluted theories. One of the more popular goes something likes this: The reason that the healthcare costs are ballooning is that health insurance companies, pharmaceutical companies, hospitals, doctors and other health care providers are out there to make a buck, blind to the effects that their greed may have across system, and are driving prices up. Thus, to introduce some discipline into this market what is needed is not less government intervention, but more! That’s right, the government itself has to become the healthcare provider of last resort for all Americans. With that kind of competition, private health care providers will have no choice but to restrain their profiteering, and as a result, health care prices will begin to moderate. The added bonus of this type of theories, of course, is that it allows politicians to promise what they wanted to promise all along – not less, but more, government-provided healthcare for all!

At least three aspects of this theory should strike even the most credulous voter as specious. First, the notion that the government can save money by spending more money, and lots of it. There are circumstances when this can be true, of course, but voters would be well advised to consider any such postulations with a healthy dose of skepticism, specially coming from a politician. Second, the idea that government can do anything more efficiently – i.e., better and more care at lower cost – than a competitive private sector. This flies in the face of all experience with large government bureaucracies, past and present. Look at any country with anything close to universal health care. The best thing that can be said about any such system is that all have healthcare coverage, but most often that coverage is substandard, and in the few cases when it is not, it comes at a disproportionately high cost, inefficiently allocating resources away from other societal endeavors. Third, the notion that creating more demand for healthcare, and worse, demand that is free of charge, will somehow reduce prices. More people entitled to receive government healthcare simply means more people demanding healthcare at other’s expense. Some may view this as a normative good, but it is utterly fallacious to think that it will lower the cost of healthcare. Higher demand means higher prices, plain and simple. To control costs the government will have no choice but to dictate artificially low prices detached from economic realities, which will inevitably grind down private sector competition and lower the overall level of care.

Given the above, can the government do anything to actually lower the cost of healthcare and rein in its healthcare expenditures? To answer that question we must look at what is really driving healthcare prices. Back to demand and supply. The simple fact is that healthcare costs are rising because more people are demanding more and better treatment, and that demand is outpacing supply. And what exactly drives that increased demand? Well, several factors. One is human nature, about which there is little the government can and should do.

When it comes to their own survival, humans are understandably averse to weighing the costs and benefits dispassionately. If you have cancer, you want the best possible treatment. That the cost of that treatment may be outrageously out of proportion with other economic realities is something that gains little traction in our reasoning, unless, of course, we can’t afford to pay the price; you’ve heard the line in many movies: “how much is one more life worth?” To say this is not to belittle those types of sentiments. Our prime directive on this Earth, after all, is to survive. My point is simply this, when it comes to healthcare, we all have a natural tendency to be uncompromising, but it is compromise, of the economic kind, that makes markets works.

Economics is premised on the fact that there is a price at which each of us will be unwilling or unable to procure a given good or service. The problem with healthcare is that this is one of those areas where people tend to be willing to pay just about any price, leaving our ability to pay that price as the sole mechanism for restrain. This reveals the crux of the problem: if you want healthcare prices to grow at a more sustainable pace, one that is commensurate with overall economic growth, you have to be willing to accept a system in which the level of care each person receives is tailored to his or her ability to pay for that care. This is something most of us readily accept when it comes to the provision of most goods and services, but reluctant to when it comes to healthcare; that is why some talk about healthcare as a right.

This maelstrom of understandable human sentiments are co-opted by politicians to advance their own political goals, a few in the pursuit of well intentioned, but ultimately wrong-headed policies, but the majority simply to ensure their own political survival. As a result, instead of trying to restrain the demand for more and better healthcare, the government adopts policies that increase it. An obvious example is the tax deductibility of employer-provided health insurance premiums. This policy is not only unfair to the self-employed and the unemployed, it artificially lightens the economic weight of carrying health insurance for the vast majority of Americans, increasing overall demand beyond its natural equilibrium and disrupting the link between healthcare provider and healthcare customer that is essential for the efficient functioning of the market. With our insurance premiums paid at government subsidized levels, our goal turns to procuring the best possible level of care regardless of the cost that entails, often resulting in a battle of wills and machinations among patient, physician and insurance company. How many times has your doctor scheduled several costly visits when one would probably have sufficed? How many times have you had your insurance company initially deny your claim only to accept it after several tiring phone calls? When was the last time you gave a second thought to undertaking a cheaper treatment for your disease?

To arrest the exponential rise in healthcare costs the government must restore the essential trade-offs of economics to the market. This will inevitably mean that some people will not get the level of care that they would like, and some may not even get the level of care that they need. A statement like that will strike most as thoroughly callous, but public policy cannot be effectively crafted by ignoring reality and the reality is that without real trade-offs, healthcare costs will continue to skyrocket until they bankrupt the country. Beware of politicians that promise a panacea of unlimited care at moderate prices. Look at any socialized healthcare system across the globe and you will find that it involves significant rationing of treatment, and ultimately so will the plan proposed by President Obama, despite all promises to the contrary. The question is not whether some sort of rationing is required to slows the rise of healthcare costs, but rather, who do you trust to effect such rationing, a government bureaucracy or the market? In answering that question consider this: the market is harsh and unforgiving in many respects, but would you rather operate within a system where the currency for trade is each person’s level of need, or worse, bureaucratic factors that are unintelligible except to the bureaucracy?

Mankind has devised no better system to efficiently allocate resources than the market, and while some government involvement at the fringes of the system may be desirable to address extreme cases, by and large the market should be allowed to operate unhindered in the healthcare arena. If anything, the government should adopt measures to increase the efficiency of the market, such as increasing competition by allowing people to purchase insurance coverage across state lines; or adopting federal licensing that allows doctors to practice with one license in multiple states; or giving Medicare recipients an economic stake in their healthcare by providing coverage through vouchers and letting them choose the type of treatment they receive; and of course, by stopping the subsidy of employer-provided health insurance. These are the types of reforms that would enhance the efficiency of the healthcare system and lower its costs.

The dream of universal coverage may yet be within our reach, but only if the finances of healthcare are put on a sustainable footing. We all want a better house, a better car, a better vacation, but we can only sensibly get them when our income and wealth allows us to afford them. The same is true for the nation as whole. The challenges of healthcare can be solved only by reintroducing market discipline into the system, not by eroding what little market discipline there is. Tame healthcare prices through real, market-based mechanism, and the level of insurance coverage will increase at a pace America can afford.