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What True Health Care Reform Would Look Like

  • health care

Tags Big GovernmentFree MarketsHealth

01/05/2015Matt Battaglioli

With the relatively recent passing of America’s new healthcare law; the Affordable Care Act (Obamacare), the topics of healthcare, health insurance, prices and reform have been particularly hot lately. This of course does not mean that the controversies surrounding the American healthcare system are anything new. Healthcare prices are getting higher with many hospital visits for certain conditions totaling bills of millions of dollars. Also, the laws regulating the industry are getting heavier by the day. People have known for a while that a solid reform of the system has been in order, though it is unfortunate that most of these people calling for reform have a tendency to find their influence for such reform across the ocean.

What is “Fairness” in Health Care?

Many Americans are so fed up with the American healthcare system, that what seems too many to be the most sensible thing to do is to follow the European model and nationalize the entire industry. With a quick glance at some snapshot statistics, it doesn’t seem to be a crazy idea. After all, according to the WHO (World Health Organization), the United States ranks only no. 37 in quality of healthcare worldwide. Look a little closer though, and one will find that this data does not tell the whole, unbiased story. It turns out that the WHO uses “fairness” as one of its criteria for evaluating nation’s healthcare systems. In fact, a number of the criteria used by the WHO are not that relevant to healthcare itself, such as how much patients pay out of pocket for healthcare. Factoring all criteria together, the US ranks no. 37, however even the WHO ranked the US as no. 1 worldwide in “responsiveness to patients’ needs in choice of provider, dignity, autonomy, timely care, and confidentiality.”

Dr. Timothy Terrell, associate professor of economics at Wofford College, gives some insight into why the US tends to do so much better than other nations in those particular categories. He says:

If you tell people … that medical care is going to be zero cost out of pocket, then at a zero price, the quantity of demand is going to be [all the way to the right] (of a supply and demand graph). You can’t provide that much medical care. … You could have everybody in the country working in the medical care field and you wouldn’t be able to provide as much as people will want if the price is truly zero. So what the government will then do is start to ration medical care according to some criteria of its own.

Arbitrary Criteria for Distribution

Of course, this criteria would have to be arbitrary. Political authorities have no profit or loss; no cost-benefit analysis to aid them in resource allocation as would be the case in a free-market healthcare system. Certainly, evidence of this is prevalent. To give an anecdotal example, a 2007 study found that as many as 6 percent of English patients have treated themselves for dental care due to not being able to find a NHS (National Health Service) dentist. Also, a poll of patients that had sought private dentistry in England revealed that 78 percent had done so because their dentist refused to take NHS patients or an inability to find an NHS clinic.

How To Get More, High-Quality Care

What Americans actually need to do to reduce costs and even improve the quality of their healthcare system is very counterintuitive. It would involve dismantling their Medicare and Medicaid programs, as well as eliminating occupational licensing requirements for the medical field. It is true that the prices of US healthcare really took off after the enactment of the programs in 1965, and it is not difficult to see why that is. When the price of a commodity like healthcare becomes too high, healthcare providers actually lose money due to there being so few people who can afford their service. They then have an incentive to lower prices to a more consumer-friendly rate. However, Medicare and Medicaid eliminate that feature of the market as it pertains to healthcare because they make it so that people will have money for healthcare regardless of the price, via subsidy. Providers realize this and then raise their prices knowing they’ll be able to get whatever price they charge.

Economist Milton Friedman pointed this out in an analysis of the post-WWII and post-Medicare/Medicaid American healthcare system in 1991. He wrote:

From 1946 to 1989, the number of [hospital] beds per 1,000 population fell by more than one-half; the occupancy rate, by one-eighth. In sharp contrast, input skyrocketed. Hospital personnel per occupied bed multiplied nearly seven-fold and cost per patient day, adjusted for inflation, an astounding 26-fold. One major engine of these changes was the enactment of Medicare and Medicaid in 1965. A mild rise in input was turned into a meteoric rise; a mild fall in output, into a rapid decline.

Stop Limiting Supply

Competition in the medical field is one thing that could curtail this effect, though that is drastically hampered by strict occupational licensure requirements. These requirements alone almost exclusively enable the seemingly monopolistic power of the American Medical Association (AMA). It is projected that about one-third of doctors will leave the medical profession within the next decade, much to do with certain new regulations of the industry. What’s more, when in 2010 it was recommended that nurses be able to practice “to the full extent of their education and training” regardless of their specific legal licensing, the AMA (arguably the group most benefiting from these requirements) quickly opposed the notion. Allowing easier entry into the medical field would cause a rise in the supply of labor in that field, and naturally increase competition between medical practitioners and ultimately yield lower prices for the consumers, as well as a better service.

Policies such as opposing the AMA are certainly not politically profitable, but then again, how often is good economics also good politics? Not very. Americans have shown time and time again that they desire a more affordable, more efficient healthcare system; they can have it.

Eliminating subsidies and licensing requirements would go a long way toward reducing costs. Reducing the bureaucratic nature of the healthcare system in general would undoubtedly provide America with more physicians and a more efficient system overall. The most commonly stated reform though; the European model, is nothing more than all of the problems the US already has, doubled down and taken to a whole new extreme; minus most everything that is actually good about it. Hopefully, since the passing of the ACA, Americans will be able to see more clearly the negative effects of government intervention in the healthcare market. Although if not, it can and will only get worse from here.


Image source: iStockphoto.

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