Part I: Does the United States Have Free-Market Health Care?

Does the United States have a market-based health care system or a socialist health care system?

That’s not an easy question to answer.

Because of Medicare, Medicaid, and other government programs, taxpayers directly finance about 50 percent of overall health expenditures. Does that mean we have a 50-percent socialist system?

Once again, there’s no easy answer.

On one hand, Uncle Sam does not operate the hospitals and employ the doctors and nurses (like we see – often with horrifying consequences – in the United Kingdom).

But on the other hand, policies in Washington (not just Medicare and Medicaid, but also the tax code’s exclusion for fringe benefits such as employer-provided health care) have replaced market forces with a massive third-party payer problem.

While there’s no easy answer, my back-of-the-envelope guess from back in 2013 is that the US health system is 79 percent government and 21 percent free enterprise.

If you want words rather than numbers, we have an incoherent and inefficient system that is part socialist, part interventionist, and part market.

That being said, is the US system more market oriented than other nations?

That’s also a hard question to answer. But let’s look at a couple of charts that suggest the answer is more negative than positive.

First we have a chart from Michael Cannon’s recent analysis of the tax treatment of healthcare. As you can see, the United States has a much-higher-than-average amount of health spending dictated by government.

By the way, if you look at dollars spent per capita, you find something similar.

In the United States, government has a huge footprint in the health sector.

For our next chart, Andrew Biggs of the American Enterprise Institute shared a chart last year showing which nations have the most third-party payment (i.e., someone other than the consumer paying the cost of healthcare).

It showed that the United States had a much-lower-than-average share of expenses financed by consumers.

But his chart relied on 2016 data and we now have data from 2019. So here’s the latest look at how the United States is not market-oriented, at least when compared to other developed nations.

Basically the same look as the chart from Andrew Biggs, but I didn’t want anyone to think the data may have changed.

I’ll conclude by noting that America’s healthcare system is a mess. But as I explain in this video, it’s a mess because government plays a big role. Even bigger than some of the nations that have “socialist” health systems.

P.S. You can see the impact (or lack thereof) of third-party payer by looking at prices for birth control, plastic surgery, and abortion.

P.P.S. Everyone should watch this Reason video to see how third-party payer makes healthcare more expensive.

P.P.P.S. And look at these two visuals to grasp the difference between a free market and Obamacare.