The healthcare sector is a tragic example of Mitchell’s Law in action, with politicians expanding the role of government in response to problems (rising prices and inefficiency) caused by previous expansions of government.
The solution is free markets, and Hannah Cox points the way in this short video.
Ms. Cox is definitely correct to use cosmetic surgery as an example of how free markets work.
I’ve previously cited great research from Mark Perry showing how prices for various procedures have risen by less than the overall consumer price index.
And far less than prices for the parts of the health care system where government plays a big role (in the table, see the section outlined in red).
The bottom line is that we get lower costs and greater efficiency when buyers and sellers directly interact without lots of interference from government.
Ms. Cox also wrote about this topic, to augment what she said in the video.
If you’re somehow under the impression that the problems with our healthcare system were created by “capitalism,” you have been lied to. …If we were to cut the insurance companies and the government out of the picture, prices would naturally have to fall to meet what the market could actually afford to pay. No more $100,000 knee surgeries. A model of this can easily be found in the plastic surgery industry, which is a rare niche in the healthcare market that both the government and insurance companies have largely not touched. Because it is seen as an elective service, insurance does not cover these services, and therefore the government hasn’t been able to get its grubby hands on the industry. And because of that, the quality of service has consistently risen while the prices have fallen simultaneously. …True capitalists want the entire healthcare system to look like the cosmetic industry. But that can only happen if we get the government out of the way.
Economists refer to the problem Ms. Cox is discussing as “third-party payer,” and it exists because government policies (everything from the tax code’s healthcare exclusion to programs such as Medicare and Medicaid) have crippled market forces by creating a big wedge between buyers and sellers.
How much of a wedge?
Well, consumers directly pay for only 10.5 percent of healthcare expenditures.
P.S. Here’s my first-hand story of dealing with the problems caused by third-party payer.
P.P.S. Regardless of one’s views on abortion, it’s another example of how markets can work in healthcare.
P.P.P.S. This video from Reason is a compelling real-world illustration of how markets can succeed in the health sector. And here are two other excellent videos.
[…] pointing out that free markets work in health care when they’re allowed. Consider how we see rising quality and falling prices in the market for cosmetic surgery. Why? Because people are paying with their own […]
I appreciate your input always, but your example of cosmetic surgery is imperfect, for these reasons:
1. Cosmetic surgery is voluntary. If the price is too high, some potential customers will not buy. By contrast, heart care and cancer care and organ failure are involuntary.
2. Cosmetic surgery is outpatient. 24 hour coverage is not needed.
3. There are no non-paying patients to work around.
Bob Hertz
None of us is born knowing how to think, it is something we must study. Before you go further in life, I seriously believe you need to take a course such as de Bono’s Thinking Course.
Frankly, your assertions contain so many unfounded assumptions and wander so far off the focus of discussion by introducing ever more of them, and do not answer a direct question, that I have come to the conclusion it is a waste of my time to continue.
I would say these are obvious. If private charity is truly individualistic, it would run into the same coincidence of wants problem that limits barter economies. The one in need of charity must have access to the one willing to give charity. So it becomes necessary to form a voluntary group. A church charity is a good example. Those who give to a charitable activity of the church are not being coerced to do so. But now the second problem kicks in. The church or any other such association will restrict it’s help to those that agree with their ideas. Churches till recent years were rather harsh towards unwed mothers for example. The churches in segregated southern states are another example. Think today. A hypothetical charity may offer to provide free medicines. But they could balk at providing vaccines. So to me it appears that any private charity will never provide universal coverage. That ofcourse leaves both the questions you raise. 1. Is this not forced redistribution. Yes it is. 2. Would not a universal health care come bundled with wait lists and inefficiency. Yes it will.
There is one final issue that needs to be highlighted too. A universal health care in USA will need large number of people to accept a lower quality of service. It is not possible to create a European style welfare state by taxing the billionaires. It is equally not possible to create an NHS without a majority willing to share. This is where I totally disagree with liberals who mostly try to get support for their ideas by hiding reality.
You said: “If the concerns I have do not convince you…” First, concerns do not convince me of anything. Facts and logic will convince me. But, two of your conclusions I would like you to explain to me (by showing me your reasoning process), are your following conclusions: “Charity [1] cannot help everyone and [2] private charity has a tendency to bypass certain segments of population.”
I must admit that I am not a libertarian who considers all taxation is theft. I view a libertarian low tax free enterprise system as a necessity for survival and flourishing of a technological society. But I view expenditure towards a safety net as a licensing fee to be paid to the society for encouraging a democratic majority to support such policies or atleast policies moving in that direction. So yes. The fact that a humanitarian universal health care would mean some people being forced to pay for others.
Maybe most people would say I am not even a libertarian.
Your statement: “Once you concede a humanitarian concern that no individual should be deprived of medical care, all talk of market based solution for health care sounds inhuman.” From this statement, I think you have resolved the ethical issue of using force to take from some to give to others in favor of using force with the “ends justify the means” as the governing principle.
That is to say, the “ends” of supplying medical services justify the “means” of the use of force to take from those who have earned money to those who need it. Do I understand you correctly?
I thought I explained. Basically when something is available as an item sold in market there are bound to be people who will not be able to buy it. That is the very idea of a market. Those who want to pay less will rather go without. Now healthcare is one area where I do not think people should be forced to take that decision. No one takes that decision except under duress. And frankly I am not convinced that voluntary charity will take care of it. That is why I said that health care is one of the few areas where a market cannot supply what is needed. Namely health care for everyone who needs it.
You said: “But I think that health care is one of the few areas of life that cannot be supplied by a market.” I am curious as to how you came to that conclusion.
I am extremely obliged for your responding. I hope to have an extended conversation with you, if you can spare the time.
I am not an economist only a physicist. But I think that health care is one of the few areas of life that cannot be supplied by a market. Law and courts are other examples. I don’t think the extreme libertarians who think even these can be achieved by voluntary agreements are not realistic.
I am quite aware that the universal medical care that is common in a country like Canada or UK have big drawbacks. But so will a commercial medical service. Instead of everyone waiting in ques, some will not have access at all. Charity cannot help everyone and private charity has a tendency to bypass certain segments of population. At the end of the day there are only so many physicians and surgeons. That number cannot miraculously increase. If some of those not having access (and there are many in USA) are provided access, by whatever mechanism, there will be ques. I am equally aware that doctors relocating from countries like India are a major reason why the NHS works in UK at all.
If the concerns I have do not convince you that healthcare is not a market commodity, and you want a economic analysis, then there is no argument. I need no convincing that a market is the best mechanism for supplying any of the other goods and services that we use.
I still feel that libertarians would be more successful in bending the economic policy to a more libertarian position if they leave health care and basic safety net out of the discussions.
regards
I respectfully suggest you get a better grasp of economics, which the distinguished British economist Lionel Robbins defined as the study of the use of scarce resources which have alternative uses. While I understand your concerns, I think you came to some erroneous conclusions. Sowell’s Basic Economics is an excellent study book.
But, beyond that, and I’m only going to cover one other item in your response: the poor guy with appendicitis. You assume if he has no money, then he’ll die. But, many charitable organizations exist to help the genuinely needy. So, that is one option. Fortunately, the world has the type of medical system you currently advocate. Research how they actually work. If medical available is your goal, then focus on what works.
There are several reasons
Think of a car with a market price.
There will be some who will not be able to afford to buy at that price. Most people don’t mind that such people have to rather walk. That is the meaning of a market mechanism.
Now think of an appendectomy. Is society willing to allow someone who cannot afford to die? So you will end up with either private charity or a government scheme. That raises questions of how much the government can pay and whether the charity case must tolerate lower quality service.
Think of medical insurance. If I neglect maintenance, my car insurance will not pay for an accident. Neglecting early symptoms makes later healthcare very costly. So the idea of confining insurance to severe ailments is a non starter
Ultimately universal healthcare is a societal value. Unfortunately no one in the USA tells the truth about it. The issue is not cost but the willingness of those enjoying excellent service now to forgo some of it. After all, the number of orthopedic doctors available cannot be changed suddenly. So how can more patients be given service while maintaining the same quality for the existing ones?
I think many people in the USA
are people like me. I support libertarian views on all issues except healthcare and basic safety net. So I think libertarians will be more effective if they stop arguing on libertarian lines in all cases.
(I am an Indian living in india but extremely interested in USA)
You say: “Health care can never be a commodity with a price.” How did you come to this conclusion?
Libertarians will be more successful in persuading the society to take accept libertarian solutions to OTHER problems IF THEY STOP ADVOCATING MARKET MECHANISMS IN HEALTH CARE.
Health care can never be a commodity with a price. The example of cosmetic surgery is a proof. Yes. Government and insurance do not provide cosmetic surgery. Because the society at large thinks that it is no big deal if some people cannot afford cosmetic surgery. Just remember that SINCE a market price is the balance between demand and supply, AT ANY PRICE, LOW OR HIGH, THERE ARE INDIVIDUALS WHO WILL NOT BE ABLE TO HAVE THAT PARTICULAR GOODS OR SERVICE.
Once you concede a humanitarian concern that no individual should be deprived of medical care, all talk of market based solution for health care sounds inhuman.
A country can only have either a government mandated universal care WHICH WILL INEVITABLY BE INEFFICIENT or it can tolerate a section of the population getting INFERIOR SERVICES
[…] Cosmetic Surgery and the Economics of Healthcare […]
Heard that proposed decades ago. When was the last time you thoroughly researched those providing your care BEFORE you submitted to treatment?
It is not “health care”. It is ” Who pays the bill.’
My recommendation is to eliminate government licensing to practice health related services. Let the professions establish their own private quality control system similar to Good House Keeping. Competition in care would result, and prices/quality would be the result of market forces,
The cosmetic surgeries example by Cox is great. I never thought of using that in discussions, butI will now. Thank you, Dan, for this.