[Ed. Note: On March 21, 2017, The Indiana Star ran an article by Dr. Richard Feldman on healthcare economics. Dr. Feldman is an Indianapolis family physician and former Indiana health commissioner.]
Dr. Richard Feldman’s article “Feldman: Economics Principles Don’t Apply to Healthcare” speaks to the frustrations many of us experience regarding healthcare; like high prices, high insurance deductibles, high-cost or limited insurance coverage. His blanket assertion, however, that “Unfortunately, free-market forces don’t work in a health-care system that doesn’t follow the usual rules of economics,” is false on its face: our current healthcare system is exactly following rules of economics—showing the bad results that come from over-regulation.
Just as bad economic policy produces the kinds of negative healthcare results we see today, the converse is also true: Free market principles do work in healthcare (as you will see in Part II). But first some background. Feldman asserts not only that, “Our health-care system has become a market-driven economic engine, (italics added) running on the ability of society to pay the bill”—(by definition, an economic system that relies on others to pay the bill is not a market), but also, “… free-market forces that do exist have served to produce (the current healthcare) system….”
“It is amazing that people who think we cannot afford to pay for doctors, hospitals, and medication somehow think that we can afford to pay for doctors, hospitals, medication and a government bureaucracy to administer it.” ~Thomas Sowell, Rose and Milton Friedman Senior Fellow, The Hoover Institution
How did we get here?
To say that free market forces produced today’s healthcare system is enormously inaccurate. Government found its way into healthcare long ago, and it is becoming more intrusive by the year, whether Democrats or Republicans are in power. The Hill-Burton Act of 1946, Medicare and Medicaid of 1965, The Emergency Medical Treatment and Labor Act (EMTALA) of 1986, The Health Insurance Portability and Accountability Act (HIPPA) of 1996, The Affordable Care Act (ACA) of 2010, and the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015 all expanded government’s role in regulating healthcare.
Our current healthcare system is overwhelmingly the product of government intervention, not free markets. American economist Thomas Sowell said, “[I]t is amazing that people who think we cannot afford to pay for doctors, hospitals, and medication somehow think that we can afford to pay for doctors, hospitals, medication and a government bureaucracy to administer it.” The ACA created a monopoly for insurance companies by allowing only certain companies to provide the mandated comprehensive plans—an example of the government picking economic winners and losers in healthcare. Reimbursement rates for Medicare, Medicaid, and insurance incentivize medical procedures over patient education, and over-utilization of various labs, imaging, and medications. In the mean time, physicians get bogged down with ever-increasing paperwork, draining away even more time from their patients. For a good example of what government healthcare produces long term, look no further than the Veterans Administration (VA), or the National Health Services (NHS) of Britain.
Lack of price transparency is an issue
Aside from government intervention, Feldman correctly identifies that a lack of pricing transparency presents another issue under the current healthcare system: “Prices are not readily available and inexact when identified…“ and “…Few patients actually shop or research cost and quality data and are powerless to determine the value of what they will receive”; but again, his rationale for this behavior is faulty. Instead of assuming that market forces are to blame, consider how markets actually work—direct customers always have access to prices-for-service in a market. Hospitals do not advertise prices or “sales on knee replacements” because patients are not the hospital’s main customers—insurance companies, Medicare, and Medicaid are. Why advertise prices when insurance will predominately pay the bill, and patients are responsible to cover the rest without question? Currently, few patients shop or research cost and quality because it is uncommon for hospitals to have this information available for them.
What is the proper role of health insurance?
Current healthcare models further eschew free market ideas, claiming, “… (P)atients do not have the luxury to shop when facing an acute or serious illness.” Free market healthcare advocates agree with this, but understand that insurance itself is the issue. Insurance was created to hedge against catastrophic events, just as we rely on auto insurance for major accidents—not for oil changes, gassing up, or fixing a flat tire. Health insurance today does not play this “catastrophic” role singularly—instead it is used for everything, from a routine visit to neurosurgery. When insurance pays for all this routine care, a consumer loses sight of the actual costs. And because doctors and hospitals are incentivized to provide more and more medical services, it isn’t surprising that patients could become confused about the services they need. Further, insurance is becoming increasingly expensive under the ACA’s mandated comprehensive plans. Premiums and deductibles rise yearly, causing patients to pay more for insurance with less coverage, pricing people out of affordable healthcare.
Next: Part II—How free markets can get us out of this healthcare mess!