I’m going to imagine what health care would look like if government played a much smaller role, very different from the one it plays now.
Two things drive me crazy about the debate that surrounds the existing health care system. One is that everyone conflates health care and health insurance. They are not the same thing. People without health insurance can still get health care. Yes, it’s very expensive. But one of the reasons it’s expensive is because government policy subsidizes a lot of the demand for health care and pushes up the price. More on that below.
The second thing that drives me crazy is the claim that the current world of health care (which is indeed an ugly mess) somehow proves that the market for health care works poorly.
In the current world, the government heavily subsidizes or pays outright for the health care of the poor and the elderly and subsidizes the price of health insurance for everyone else via the tax deductibility of employer provided health care or through Obamacare. The government further affects the insurance market at the state level by mandating that insurance covers a wide variety of stuff. Government controls the supply of doctors via licensing and accrediting of medical schools. Government affects the prices of various procedures via its 800 pound gorilla role in Medicare and Medicaid. And then there’s the role of the legal system in incentivizing defensive medicine and excessive testing.
These interventions artificially inflate the price of medical care. Some of these interventions are good in theory but aren’t executed in practice the way the theory would suggest. Some of them are actually good. Some of them are good but lead us to pay more than some things are worth. But no matter how you feel about them, please don’t tell me that the current mess we call health care in America is a free market. Yes, there are market aspects to the provision of health care. But that’s about all you can say.
One more thing before we get started. I think America’s health care system is pretty good for a big chunk of the population. Most of us get access to great doctors, great gadgets, great pharma, low wait times. But it’s incredibly expensive. We don’t appear to get our money’s worth in the aggregate. There are worse policy mistakes to make. Having too much innovation (because too many customers don’t have to pay for their own health care and so what is defined as standard care evolves upward without regard to price) is not the worst thing in the world. But it’s not free.
(And yes, I know America spends more than anyone else on health care and we live no longer and sometimes shorter than others. It shocks me how many smart people think this is a proof that our health care system doesn’t provide good quality. Before you reach that conclusion, you want to remember that our health care system isn’t the only thing that affects longevity. There’s our gun ownership, and the amount we drive, and our obesity, just for starters.)
Our health care isn’t just really expensive. The next problem is the people who fall between the cracks even with ObamaCare, Medicare, and Medicaid— they are unemployed or take a chance and don’t insure so their ability to take care of themselves in the face of the unexpected is absurdly difficult because of the absurd over-pricing of almost everything. The existence of this group creates a never-ending opportunity for politicians to continue to “improve” the system.
The other important thing to recognize is that a lot of health care is either wasteful or unproductive. A few years ago, my mom, who was 84 at the time, was telling me about a trip to see her heart doctor. She’d fainted and her echocardiogram showed her aorta was narrowing, putting her at risk of a heart attack. She went to see her heart doctor. He took an EKG and put her on a heart monitor for 24 hours. Two weeks went by and she went in to discuss the results. On that visit, they gave her another EKG. Why, I asked my mom. They always give me an EKG, she explained. Yes, I guess they would. My mom isn’t paying for it. She doesn’t know what it costs (she has no reason to care) and the price that they’d quote her if they did tell her the price isn’t really a price in the sense that anyone actually pays it out-of-pocket. I presume it’s just something to let the doctor have something to bill given that a consultation has been scheduled. Or maybe it’s a really good idea. Cardiologists, please weigh in, in the comments. But either way, it’s something that just happens mechanically. That’s bizarre.
A lot of tests are like that. Most doctors don’t even ask before they do them. They just do them and bill our insurance companies. We the patients don’t care or we don’t care much because they’re either free to us or really cheap. That’s bizarre. It leads (generally but certainly not always) to more peace of mind but it’s expensive to somebody — either the taxpayer or the other holders of insurance. Yes, the insurance companies have some incentive to police this kind of implicit fraud, but the current system is a pretty good deal for them, too.
Another preamble. I am 100% sure that a free market in health care would lead to results that would be bad for somebody. Maybe me or you or someone’s parents or children. People like to point this out as if it ends the argument: Or they advance a theoretical point that they think is conclusive: a free market in health care wouldn’t work because ____. You can fill in the blank with “health care is too important to leave to the market” or “asymmetric information” or “moral hazard” or “people need health care and will pay anything when their child is sick” or “adverse selection.” These are all real concerns that might lead to less than perfect outcomes. But the conclusion that we shouldn’t rely on a free market doesn’t follow. That’s because the theoretical corrections for these imperfections are not the actual policies that government follows. The sausage factory does lots of other things, too.
So when we compare an actual free market with the current system, there are lots of other things going on. It would be stupid for me to say “we have to have a free market in health care because government health care wastes billions (trillions?) of dollars. Or because it prices semi-poor people out of health care. Or because it forces people to wait too long. All of that may be true. But you have to compare it to an alternative. Otherwise you’re making the “Big Prettiest Pig” mistake (just watch the first 60 seconds or so):
And when you compare it to an alternative it can’t be an unrealistic one — a free market with perfect information and perfect competition or a government staffed by saints who always do what’s best for the people.
So I’m sure a health care system with much less government would lead to some really bad outcomes. Maybe some children would die unnecessarily. Maybe people would go without treatment and suffer chronic pain as a result. But of course under the current system children die and people suffer chronic pain because they can’t afford health care (the government intervention has made it too expensive) or because some critical medicine approved in Europe is not approved by the FDA.
A typical version of the kind of error I’m talking about comes from smart people who when I suggest eliminating the FDA respond by saying, “so when a kid dies after taking some medicine, that’s how we’ll know it’s not safe?” Or they say: “that will be really efficient — everyone will start their own laboratory to assess a new drug. Get real!”
The people who make these kinds of arguments could be trolling, but I think not. I think they simply lack imagination. Because that isn’t really likely to be the way we deal with risky medicine in a world without an FDA. Sure, some people will be stupid or ignorant or merely imprudent, just as they are now, and will try something for the fun of it, like heroin. Or they’ll take some new pharmaceutical whose side effects and efficacy are uncertain and it will hurt rather than help them.
But most of us are going to rely on other methods than just hoping for the best to make sure drugs are safe. Organizations will likely come into existence that provide information just as Consumer Reports and Underwriter’s Laboratory and various online providers do now for a whole host of products. Maybe a foundation will create an equivalent to the FDA to provide information. I don’t know what will happen exactly. What I do know is that drug companies won’t want to kill the consumers of their drugs and those consumers don’t want to die. And drug companies know that they can sell more drugs and make more profit if their customers are put at ease about the safety of their drugs. That’s going to induce all kinds of new ways to deal with risk and uncertainty.
Those new ways won’t be perfect. But one of the reasons drugs are expensive today is that the FDA approval process creates too high a hurdle that keeps out lots of drugs that could help people. And people die waiting for drugs to be approved.
The fundamental errors people make in thinking about this are to assume drugs are either safe or not, and that there are no private voluntary ways to produce information and induce care and caution. More on the FDA here.
And if the FDA were eliminated, maybe it would once again become profitable and therefore feasible to have smaller drug companies which would mean more competition. In the current world, small companies can’t comply with the magnitude of the compliance costs opposed by the FDA. So in some sense, big Pharma is big because they are good at understanding what needs to be done for the FDA and can spread those costs across a wide range of activity. This is not a good thing.
So let’s get to work. What do we need to do if we want to get government out of most of health care? By the way, the title of this piece isn’t Health Care Without Government. It’s Health Care Without (much) Government. I’m not an anarchist. In the world we’re exploring with less government, we’ll still have courts. And police. And roads to get to the hospital. What we won’t have in this story is Obamacare, Medicare, Medicaid, the tax deductibility of employer provided health care, state mandates for health insurance policies, an AMA stranglehold on the number of doctors, the ability of hospitals to keep out new competitors by claiming there’s no need for a hospital, the FDA, and probably a bunch of other things I’m forgetting.
Let’s not sweat the minutiae. What I want to explore in this piece is what the world might look like if we removed the biggest ways government interferes with our private, voluntary choices.
Another crucial side note. People mistakenly assume that if I’m against government involvement in health care, I must favor an alternative where profits drive decisions and businesses take center stage.
The opposite of government isn’t business. The opposite of government is voluntary.
We associate with others in many different ways. Some of those ways are commercial. We work for others, hire people, invest. A business is a voluntary organization with the goal of financially enriching those who participate in the business and ideally providing satisfactions besides money along the way to the workers and the consumers. But businesses aren’t the only way we organize and join together voluntarily with others. We also have clubs and charities to help people who struggle to help themselves. We join with others in religious institutions where we work to create spiritual communities.
If you want to buy a car, there is a sticker price and a negotiated price. But there isn’t a hardship price. Not so for joining a synagogue say, or attending a private school. There, usually, there are dispensations made for people who are unable to pay the full price or who find it burdensome. So if government gets out of health care, yes, some businesses will find opportunity and some will lose it. And the yardstick that determines that path will be profit and loss. But a charitable organization funded by its members (a religious institution for example) or a charitable organization funded by a foundation, will not use the same yardstick.
Ironically perhaps, the podcast I host, EconTalk, does not try to pass a market test using profitability. We charge listeners nothing and all 700+ episodes remain up on the web in our archive and free of charge. I have passed the foundation test. I have been able to convince Liberty Fund, the Indianapolis foundation devoted to economic education and conversation that what I do is worthwhile. Liberty Fund, in turn, prefers not to charge, in order to maximize EconTalk’s reach. Our costs are not insignificant. If our audience were small or began to dwindle, Liberty Fund could decide its funds are better spent elsewhere. So it’s not the case that anything goes. At the same time, it’s not a case of profit and loss.
We call these organizations non-profits but it really doesn’t capture the important distinction between a foundation, say, and a business. It’s not just that the foundation doesn’t care about profit. It also care about something else — fighting malaria or helping poor kids go to college or one of a zillion things foundations and charities do.
So when government’s role in health care gets smaller, I don’t expect or desire for business to make up the difference by itself. I’m looking for voluntary efforts of all kinds to increase. Some of those will be commercial enterprises and some will be charitable, so-called non-profit entities.
So what would happen if government’s role in medicine was greatly reduced?
Let’s begin with the impact on how much we spend on health care and insurance and how much medical care we use. If there is no Medicare or Medicaid or subsidies to insurance, people are going be spending more of their own money rather than someone else’s money. Insurance policies are going to be much less generous. They would probably cover catastrophic events, major surgery, and life-threatening illnesses. Other treatment might not be worth insuring because people would prefer to pay out of pocket rather than insure when the cost of insurance is no longer subsidized through tax-deductibility. Those out-of-pocket prices are going to be a lot lower because the demand for health care will be lower. The prices will be more transparent. Service providers will ask your permission before they probe you, test you, scan you.
At my last physical, I told my doctor that a PSA test for prostate cancer seemed to be a bad idea. I believed (and the evidence seems even stronger now than it was then) that the PSA test leads to many false positive results. He agreed and after asking a bunch of other questions sent me off for a battery of tests — blood work, urine, an EKG.
I was surprised to discover when I received my results that they included a PSA test. When I saw my doctor afterwards, I asked him how that happened. He shrugged and I got the impression he hadn’t quite shaken the habit of scheduling the PSA as a matter of habit. I don’t think it was a scam. He just forgot. Had I been a real customer in a free system without subsidy, the test probably would’t have happened or maybe I would have received a refund.
When my wife was pregnant with our first child, there were times when tests were either done to her or were about to be done on her that we either refused or would have certainly refused if we had been paying with our own money. Then there was the orange juice my wife drank after the delivery. I saw the price on the final bill. It was something frightening like $50. Or maybe $500. I don’t remember the exact amount or if we had to pay for it or not or if that price has any real significance. I do know that when our second child was born, we brought our own orange juice. It just seemed like the right thing to do, either way.
When we think of people deciding to spend less on medical care when they have to pay for it themselves, frightening examples are usually invoked — someone with a broken leg not bothering to get the bone set because it is too expensive, someone foregoing chemotherapy or a life-saving drug because of the price. I will get to those cases in a little bit. But there are all kinds of things we pay for now that are not close to life-threatening — the orange juice, the amniocentesis my wife didn’t want, my mom’s EKG, my PSA test, the swab my dentist did to the inside of my mouth before I could stop her (she was checking me for gum cancer, bless her heart!), the tests done by doctors that nurses could do as well or better, the weird skin thing on my foot where I filled the prescription but never used the cream and on and on and on. Would the world be a better place if these did not take place at all? The costs seem fairly small.
But there are cases that are not life-threatening that are more challenging to consider. There was the time my sore throat wouldn’t go away and I was afraid I had a polyp — my father had had a polyp in his throat when he had been the same age. The doctor used two tests. The first used about 50 cents worth of technology to help him make a diagnosis — he put a wooden stick on my tongue and told me to say ahh. He couldn’t see anything he said, but just to be safe, he stuck a scope down my throat that had a camera in it that allowed him to project the inside of my throat onto a monitor mounted on the wall. Very cool, I thought, and unbelievably expensive. He never asked me if I wanted that treatment. He simply assumed that given that my out-of-pocket cost was something like $10 whether he did the test or not, I’d be happy to be more sure that nothing was there.
Nothing was there. And I was glad to hear it. I slept well that night even with my sore throat. I don’t know if there was an intermediate alternative between the scope and the wooden stick, but the doctor could have sent me home when the stick revealed nothing and told me to keep an eye on my throat and if it didn’t get better in a few days (which it in fact did) I could come back for the scope and pay the premium.
Then there was the time I tore my rotator cuff. My doctor suggested a cortisone shot to reduce the pain. In the old days, she would have just eyeballed it and hoped that the juice went into the best spot. But not today. She was able to stream the inside of my shoulder using some scanning technology and could see exactly where the needle was going to make sure it was in the right place. I could see it, too. It was really cool. And really expensive. How expensive? I have no idea. Didn’t ask. She didn’t tell. I’m glad she was able to do it more precisely. Other people paid for it. Good deal for me. And nice to make sure that the pain would recede which indeed it did. What are the odds of such a careful shot without the scope? I don’t know but the scope had value. The question is whether the value outweighs the cost.
Before the shot, I asked the nurse for the coolest thing that went on in the office. She said vertebroplasty — the procedure had wonderful results to reduce the back pain of their patients. Not surprisingly, she seemed genuinely happy extolling that pain reduction. I happened to know something about vertebroplasty — the injection of a special acrylic bone cement to help support fractured vertebra. I had recently discussed the procedure in an EconTalk interview with Adam Cifu, the co-author (with Vinayak Prasad) of a fascinating book called Ending Medical Reversal.
Here is Cifu talking about vertebroplasty:
And in the 1980s, some radiologists came up with this kind of new idea that, ‘Well, what if we take some of those with compression fracture and we inject medical cement into that collapsed vertebrae?’ And so the vertebrae puffs up, it’s stabilized; the nerves that are coming around that area get a little more room to breathe; and people should get better. And this was an approved therapy, based on some not-perfect trials, which showed that people who got this procedure felt better than people who didn’t get this procedure. The real test, though, was to design a test though that had a placebo group as close to the intervention group as possible, other than the vertebroplasty. And it was an amazing study, done by some very brave researchers, where patients were randomized — either to have vertebroplasty or to get sham vertebroplasty. And the sham was that they took people to the procedure room. They prepped their back like they were going to do vertebroplasty. They actually opened the medical cement so the patient could smell the medical cement. And then they just injected saline into their back. And it turned out that over the first month after the procedure, all the endpoints were exactly the same between the sham group and the intervention group. No difference in pain. No difference in quality of life. No difference in activity scores. Nothing.
Do with that what you will. Suffice it to say that lots of treatment happens that doesn’t do much good, a lot of treatment happens that works but maybe only through a placebo effect, and a bunch of treatment happens that hurts people unknowingly. A lot of these not-so-productive and counter-productive treatments are going to go away when people are using their own money. The result is that the demand for some of these treatments is going to go down and so are the prices of medical care generally. That’s the upside. The downside is we’re going to have a lot more anxiety, some procedures won’t be done as effectively and some procedures that work through a placebo effect probably won’t happen in the first place.
Another story. A friend of mine who lives in England had some complicated symptoms that were difficult to assess. The National Health Service is gloriously free but it is also not-so-gloriously uneager to be aggressive with treatment or diagnosis unless symptoms become severe. My friend was given aspirin for the pain and told to come back if the symptoms didn’t go away. The symptoms did not go away, but they did not worsen. More aspirin was dispensed. Then my friend came back to the US and used his American health insurance. He went to three different doctors and received a battery of tests costing thousands of dollars that ruled out cancer and some other really unpleasant and frightening outcomes that were in the mix. The British system got this one right at the cost of anxiety and stress. Was eliminating that anxiety and stress worth paying for via the Cadillac insurance my friend had available in the US? No easy answer there. All I know is that we pay a lot of money in the US for peace of mind. Peace of mind is valuable. But when you subsidize peace of mind as US policy does, you tend to consume too much of it.
(The other lesson is that the “free” system of England is not free. The peace of mind part is probably dwarfed by the things that it misses or finds too late to help with because it is unaggressive.)
The point of all this is that there is a great deal of medical care that has little to do with life-threatening situations. If we paid for health care out of pocket, much of our reduction in health care would be money saved at a relatively small cost.
But that’s not the only effect. It’s not just that some things are not worth what we pay for them. When demand goes down, the price goes down — the price of doctors and nurses, for example. This often gets described (bizarrely to this economist) as “when customers spend their own money, they’ll have more of an incentive to shop around.” That is true. And it’s also true that current prices are usually meaningless because almost no one is actually paying that price. But the savings won’t come mainly from shopping around. They’ll come from the fact that when you spend your own money you’ll spend less of it. You’ll be very interested in making sure that what you pay for is worth it. In the current system, that mainly falls on the government and the health insurance industry. The health insurance industry would seem to be pretty motivated to keep an eye on wasteful procedures. But the incentives there are mitigated by the fact that the industry is not very competitive — it is highly regulated and entry is hard. If a wasteful procedure becomes common practice, the insurance company can raise its rates and not pay too big a price. Bad system.
When people pay with their own money, that will reduce the demand for health care and lower the price. This has nothing to do with being a better negotiator when you spend your own money. It has to do with the fact that doctors don’t grow on trees. Increase the demand for them and wages rise to pull them out of other professions and into medicine.
Think about college education. College education is expensive for lots of reasons but one of them is that government policy subsidizes it through state universities and subsidized student loans, just to take two examples. That pushes up the demand for people with PhD’s to do the teaching. That in turn pushes up the price universities have to pay to hire PhD’s. So part of the reason that tuition is so high is because professors are much much more expensive than they were 40 years ago. And one of the reasons professors are expensive is because public policy has artificially inflated the demand. Not surprisingly, the high cost of tuition encourages politicians to push for more subsidies to allow affordability. But those subsidies are both cause and solution. Get rid of them and price will go down.
It might be useful at this point to get a feel for how much money we’re talking about when it comes to health care. According to this NPR story, the US spent $9237 per person in 2014 on health care, while in the UK, the number was only $3749. Life expectancy in the UK is 1.8 years longer. This last point means virtually nothing about the relative performances of the two systems as I pointed out above — we care about more than just how long we live and there are genetic differences between the two populations as well as behavioral differences — automobile usage, smoking habits, gun ownership, stress, sugar, obesity, you name it. But, the bottom line is that the UK system is pretty good. (I’m also ignoring that the size and profitability of the US market allows other countries to enjoy the devices and drugs developed to sell at higher prices in the US. This is really important and often forgotten. And yes, there are fine German pharma companies. And they make a huge chunk of their profit selling to Americans.)
Those cost differences mean that the US is spending over $1 trillion per year relative to the UK. I don’t think we’re getting our money’s worth. I say that because of the way the money is spent and the lack of incentive to spend it well — a lack of incentive driven by the fact that so much of US health care involves patients spending other people’s money. Change that incentive and we will get rid of lots of treatments that aren’t worth it when we as patients face the full cost out of our own pocket.
The problem with my argument is that poor people will struggle to afford treatment in life-threatening situations or therapy even when prices are lower. Chronic conditions, life-saving transplants, life-saving treatments and various kinds of surgeries. In these situations, we rightly worry about two things — poorer Americans will not be able to afford them or they will choose inferior versions just as they do with other products. I will get the expensive doctor with the Stanford degree. My poor friend will get someone whose training may not be as good. Or I’ll get the colonoscopy and my poor friend will just take a chance.
One possibility is that the Stanford-trained doctor may decide to offer a discount or free care for poorer people. That happened frequently in the past and it happens now. Right now there are free clinics around America for people who fall through the cracks of the government-subsidized health care system. These would presumably expand under a world with less government. Some of these clinics would not be free but they would charge on a sliding scale according to ability to pay, perhaps using tax returns as a basis for the payment.
I also assume that there would be private charity and foundations that would help fund care for the poorest Americans just as they do now helping poor people attend private schools. Yes, patients supported by charity will be spending other people’s money. But the foundations will try to limit wasteful spending and the more important point is that even so, fewer people will be spending other people’s money unlike the current situation where so many are.
The second thing to observe is that there still will be a market for insurance for catastophic issues, it just won’t be subsidized through tax-deductibility. Certainly rich people will buy more generous insurance than poor people. But it will also be the case that foundations and charities will will help poor people afford insurance or direct care.
That insurance market would be imperfect. But it would also likely offer a much wider range of choice than the current system. The current system mandates a one-size-fits-all approach. Every state has minimum requirements for what insurance has to cover. This is bizarre.
As I wrote above, health insurance is not the same as health care. But there’s an even more surreal aspect of our current health care system. Health insurance isn’t even health insurance. Insurance is a way to cope with risk. Most of us prefer a small loss with certainty than the uncertainty of a catastrophic loss. So we buy fire insurance even though the odds of a fire are low. We are happy to pay a small amount every month to reduce the severe unpleasantness of the enormous loss if a fire were to consume our house. But no one buys insurance against the risk of one’s house needing painting. You can’t buy insurance for oil changes. There isn’t any uncertainty about those things. So the premium that a profitable insurance company would have to charge for a discretionary, predictable expenditure like painting your house every few years or for oil changes would not attract any customers. We’re happy to pay for painting our house and changing our oil out of our own pockets.
Yet our health insurance generally covers everything — new eyeglass frames, a pregnancy we planned and of course, things like physical therapy for my bad shoulder where the length of time that’s needed is discretionary rather than a clear-cut medical issue.
The standard economic case against a health care market without much government is that there is asymmetric information. Or there is moral hazard. I think markets handles these problems pretty well. It seems to me that the real problem is the vagueness of how much health care we really want. Again, while we all understand that someone with a broken leg wants it set and someone have a heart attack could use some medical treatment, an enormous part of health care expenditure is vague.
Which diagnostic tests should be run? Should we improve those tests? How much preventive treatment is desirable? When is a particular treatment worth it?
Here is the analogy I would offer. No one should starve to death for lack of food. So let’s subsidize food insurance through the workplace! For every trip to the grocery, you will have a co-pay of $50 and the government will cover 50% of the total food bill. The poorest people will be eligible for FoodAid. They will shop in the same groceries as the richest families. The elderly will get FoodCare. Why should the elderly have to worry about getting enough to eat?
It’s nice that no one is going to go hungry. It’s also nice that poor people get steak. But what that means is that the demand for steak and lobster is going to be dramatically higher than it otherwise would be. That means people who fall through the cracks — the non-elderly who earn too much money to be eligible for FoodAid but whose employers don’t provide food insurance are going to find food delicacies priced out of reach. And we as a nation are going to spend a lot more on food than we otherwise would. Basically, we’re all going to be eating steak when we can get other people to pay for it.
The other thing that is going to happen with less government is innovation. This is the central point of John Cochrane’s excellent piece on imagining a world of health care with less government. (His EconTalk interview on the topic is here.) Cochrane asks: where are the Southwest Airlines or WalMarts of health care — the innovators who drive down price through finding cheaper ways of doing things and passing on the savings to customers? One answer to Cochrane’s question is that medicine is labor-intensive and that things that are labor-intensive get more expensive over time, not less. But the great innovators find ways to make an area less labor intensive. And that’s what’s missing from health care and from education, though the MOOCs are trying to change that in the area of education. The government’s heavy hand in the market stifles the right kind of innovation.
There is incredible innovation in many parts of the health care system. But that innovation is done without much regard to cost. Instead of finding less expensive and more effective ways to help people, the emphasis is on “effective” because the costs will be paid by people other than the patient. In the rest of the economy, costs and prices tend to fall with innovation. In medicine, costs rise. This makes little sense unless you think about how the incentives to innovate are so different in medicine than in other parts of the economy. We treat this perversity as if it were normal. But its abnormality is hard to notice. It leads to the MRI for my steroid shot and all the wonderful innovations that we enjoy. But their price is very high.
Another way innovation would take place is in the world of hospitals. Right now in most states, you need a “certificate of need” to start a hospital— you need to show that the area you would be located in has a need for another hospital. That certificate of need must be approved by existing hospitals. This is obviously nuts and in any other industry would be the met with anger and disdain. Without this requirement, new hospitals would open that might do some creative things to provide better service at lower prices.
There are a few ways we can get more information about how a world with less government involvement in health care might actually work.
The first area is private clinics that exist right now that only take cash. No insurance. No Medicare. No Medicaid. No overhead coping with the copious paperwork that these processes impose. They post prices like a normal business. They treat patients like (wait for it) customers. Reading the websites of these clinics is like entering another world, a world that is competitive but unlike any other part of the health care world. Because you are spending your own money.
Here is the EconTalk interview with Dr. Keith Smith of the Surgery Center of Oklahoma talking about many of the issues discussed in this essay:
Here is the bottom line of the point I am trying to make. In the current health care system of the United States, we are typically spending other people’s money rather than our own. For people who don’t have a lot of money, that’s wonderful and in some cases a life-saver. That’s the main benefit of the current system. But there is a cost — because people are spending other people’s money, they buy too much, spend money on stuff that normally wouldn’t be worth it, and the system approves technology or delays technology for reasons that are not ideal. If we went to a truly market-based system, poor people would have a tougher time. But everything would be a lot cheaper. And poor people would still get good medical care paid for by other people, but in this case it would be foundations and charities. In the current world, nearly everyone has that system. There is something comforting about that equality but we pay a very high price for it.
And one more summary: like many things the government gets involved in, the policies (as I learned from Arnold Kling) tends to subsidize demand while restraining supply. This leads to really high prices for the providers which they love and the subsidies soften the pain for the customers who are eligible for the subsidies (the poor, the elderly, and the employees of large businesses). Everyone else suffers and this creates a never-ending demand for “reform.”
This is the wrong way to run a health care system. We should away from the subsidies and restraints that make the current system such a mess and failure and toward a system that encourages people to take responsibility for their own decisions spending their own money.