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Health Care Interventionism: A Case Study

Tags HealthTaxes and Spending

01/06/2003Christopher Westley

We are often told that 40 million Americans lack health insurance, and that this is a scandal caused by greedy health care providers in the private sector constantly raising health care costs. This simply must be true because it is told to us by Those Who Care.

Of course, there is much more to this story than the storytellers let on. Many of the uninsured are uninsured by choice, and not by necessity. Health care costs rise in response to providers trying to recover losses emanating from government interventions into an alarmingly socialized medical industry. (That prices tend to fall in industries marked by scant intervention leads one to the conclusion that if "public servants" really cared about helping the poor and sick, they would simply go away.)   

The truth is that this story is largely a myth promoted by those who stand to benefit in some way by a bigger government. This explains why events such as those that recently happened in my own state of Alabama rarely receive media coverage.

Several years ago in Birmingham, a private initiative to stem the flow of the uninsured to area emergency room facilities resulted in a program known as HealthPlus. In this program, doctors would volunteer their time and facilities to provide frequent emergency room visitors primary medical care. The care would be less expensive than trips to the ER, and unlike the ER, payments could be made on a sliding scale. Besides reducing the burdens placed on local health institutions, HealthPlus would provide the working poor an avenue through which they could receive the preventative care necessary to reduce their future use of them.

It sounded like a great program, reflecting the efforts of private individuals to try to deal with problems made worse by government regulations, such as those governing the use of private ERs. It suggested some of the ways that the working poor might be served by a free market in medicine if one were ever allowed to come about. Its army of doctor-volunteers underscored the notion that factors other than greed were causing health care costs to spiral.

What's more, HealthPlus was geared to the segment of the 40 million uninsured that is most often invoked by medical socialists to justify the U.S. government's adoption of a Canadian or British health care system. As a result, HealthPlus attracted funding from the Robert Wood Johnson Foundation for a three-year test.

However, one problem became obvious two years into the program. Very few people wanted to use it. To effect a genuine reduction in ER crowding, HealthPlus had to attract 3000 patients. After two years, it succeeded in attracting only 500 individuals to sign up for the program, and of these, far fewer kept their follow-up appointments at participating clinics. Recently, the program was declared a failure and officials withdrew their last year of funding totaling $150,000.

What happened? While focus groups showed that patients perceived emergency room care to be of higher quality, they also showed that patients considered the convenience of using the ER option more important than the financial and health benefits that would result from utilizing alternatives provided through HealthPlus.

Since programs such as HealthPlus have been successful in other states in getting patients out of emergency rooms and into primary care by offering medicine and doctor's visits free of charge to recipients, there will most likely be an effort to resurrect the program with these benefits.

In truth, the demise of HealthPlus illustrates the unintended consequences that accompany any government intervention of market forces. In this case, federal regulations require private owners of hospitals to provide health care to all comers. The intent is to create a medical safety net to uninsured individuals in need of health care and unable to otherwise pay for it.

Hospitals provide this service, but at higher prices than they charge patients utilizing non-ER-using customers. Efforts to force hospitals to reduce this price results in an overuse of these facilities by the uninsured and a general increase of prices for all other consumers of health care.

This result is completely congruent with economic theory in general, and Austrian theory in particular. As Mises argued over seven decades ago in his Critique of Interventionism, such solutions inevitably lead to more interventions in the future. By creating unforeseen problems, they lead to more government programs to deal with problems that would not otherwise exist prior to the initial intervention. As this process repeats itself, whole industries can become effectively socialized. No one is happy with the results save for the government bureaucrats charged with overseeing it.

This point is important to remember when policymakers discuss providing free medical care to repeat-ER users in an effort to make HealthPlus-like programs work as designed. Such efforts actually harm the very people they are intended to help. While reducing crowding problems in the ERs, other problems would arise, such as the creation of perverse incentives to those receiving the aid to remain both uninsured and dependent on the fruits of other's labor.

Moral hazard problems abound, as those receiving the entitlement have little incentive to avoid unhealthy behavior. This solution also further legitimizes the seizure of wealth and giving it to others—in this case, of tax dollars going to doctors so as to allow recipients of medical care to continue to pay a zero-price for it.

 In the process, both doctors and patients become dependent on the expansion of medical welfare programs, thus making such programs ends in themselves and providing reliable voting blocs for the politicians that make them possible.

These are parts of the health care story that do not make it into much of the mainstream press and they should be remembered the next time you hear of the 40 million Americans who lack health insurance. One wishes they were merely fairy tales. They can, however, have happier endings once enough people stand athwart the system, and yell stop.


Contact Christopher Westley

Christopher Westley a professor of economics in the Lutgert College Business at Florida Gulf Coast University and an associated scholar at the Mises Institute.

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