Mises Wire

What Republicans Miss About Healthcare Reform

Healthcare reform is back in the news as the Republican House and Senate have begun the process of repealing the Affordable Care Act. While Republicans have been able to consistently communicate the obvious problems with Obamacare, few have been able to articulate ways in which to improve what was already a broken healthcare system.

Senator Rand Paul is one of the few exceptions. He recently outlined an approach that would seek to lower the cost of health insurance by eliminating insurance mandates, allowing consumers to purchase insurance across state lines, allow smaller organizations to pool their insurance together for greater leverage, and eliminate limits on health savings accounts.

Senator Paul’s reform package certainly represents a great step forward from the absurdity of Obamacare and would help liberalize many aspects of modern health insurance. Unfortunately, while access to health insurance has largely dominated the political debate, the real disease plaguing American medicine is its 100-year descent into government control.

After all, the reason health insurance has become so indispensable is that providing healthcare has become so expensive. There are many reasons for this, most of which are a direct consequence of government intervention.

For example, one of the more fundamental issues with American healthcare is how reliant it has become on the insurance model. While it makes sense to have insurance for catastrophic medical issues, the very nature of insurance breaks down when it is used for routine procedures. Unfortunately this over-reliance on third parties to cover medical bills reduces the incentives by both consumers and providers to keep costs down. This is why the “cash price” for medical procedures is often quite lower than what clinics charge insurance companies.

As Dr. Michel Accad explained last year, this medical insurance model took off following World War II, when medical associations started to work with government to generate increased demand for hospital services through insurance plans. The Stabilization Act of 1942, for example, allowed businesses to work around imposed wage controls by offering employer funded health insurance. States followed suit by offering tax-exempt status for health insurance companies such as Blue Cross and Blue Shield.

This reliance on health insurance only became more entrenched with the creation of Medicare and Medicaid. This massive new Federal entitlement not only served to increase the moral hazard of having taxpayers cover the costs of individual medical treatment, but would go on to directly contribute to another problem we face today: growing administration costs.

As Medicare and Medicaid grew, so did their costs. In an effort to help create a more uniform payment system for Medicare and Medicaid, in 1992 Congress passed a Medicare Fee Schedule. This created a coding system to help make government-sponsored medical costs more uniform. This top-down approach to medical costs helped expand the medical bureaucracy at American hospitals – at the expense of personalized medical care.


As government’s influence in medicine grew, the more barriers arose between a patient and their medical professional. While this has only been exacerbated thanks to Obamacare (which included its own massive expansion in government-imposed coding), these issues existed long before the law took place.  

Of course access to medical professional themselves has been arbitrarily restricted by government intervention. One of the issues facing not just the US, but throughout the Western world, is a shortage of doctors and other medical personnel. While growing restrictions placed on future, especially doctors in more socialized countries, surely skews some of the incentives for embarking in a medical career, licensing and other government barriers prevent individuals with experience and skill from entering the medical profession.

For example, medical experience earned in the military is often not accredited for civilian certifications. I personally have a friend who, as a Navy corpsman, served in military hospitals, and yet had to begin his nursing certification at a Florida state college without any credit for his practical experience. Similar issues are faced by medical professionals from other countries entering the United States. While not every doctor immigrating to the US would be prepared to serve in an American hospital  on their first day, the decisions for who is or is not qualified to help patients should be made by consumers and hospitals -- not by a one-size fits all government policy.

The consequence of these measures should be obvious, arbitrarily reducing the supply of medical professionals raises the costs of medical treatment. Basic economics.

The same can be said of the FDA’s role in reducing competition in the pharmaceutical market place, either by granting monopoly rights to certain companies, or with regulatory red tape that delays the release of competing drugs while adding additional expense to their development. The costs of the FDA’s caution cannot simply be measured in the dollars it costs businesses, but the lives lost by those suffering diseases that could have been treated.

While Senator Paul’s proposal would help free up the American health insurance market, it doesn’t address any of these more fundamental problems. Unfortunately it still represents one of the most “radical” attempts in DC to reduce the role of government in medicine, a sign of how few in the Federal government understand the basic problem it has created.

While there are some promising signs from the Trump Administration, which appears to be given seriously consideration to appointing a libertarian to head the FDA, but there still appears to be little appetite in Congress to tackle some of the biggest issues plaguing our healthcare system.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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