The Affordable Care Act (“Obamacare”) is fatally flawed and is now in a death spiral. It cannot be saved, barring even more massive subsidies from the government. It should be repealed. But this is only the beginning of the changes that need to be made.
The American healthcare system is in a crisis. It consumes a large and growing percentage of our GDP (currently about 17%), it accounts for a large part of the fiscal problems of our government, and it often produces very mediocre outcomes and great financial risks. This is one of the biggest challenges facing America.
One of the greatest myths in American politics is that the United States has a free market in healthcare and that the problems in our system prove that such a market cannot work. Nothing could be further from the truth. The reality is that there is no sector of the economy where government policy is more destructive.
The fundamental problem with the American healthcare system is its exorbitant cost. Much of the bitter dispute over who pays for healthcare would dissolve if it weren’t so hugely and unpredictably expensive.
Economics teaches us that high costs come from great demand and/or restricted supply. In the case of healthcare, bad government policies have been working on both determinants of price. Demand has been artificially inflated and supply and competition have been artificially restricted. If we want to reduce prices then we must work on both demand and supply.
Something like 85-90% of total healthcare costs are paid by someone other than the consumer, a figure that rises to about 95% when it comes to hospital care. No market system can work where the consumer has so little incentive to control consumption, enforce competition and monitor prices.
The government is largely responsible for this. First, through the tax advantages given to health insurance– which is the largest “loophole” in our tax code, worth over $235 billion per year – we are encouraged to over-insure. You do not buy automobile insurance to cover worn tires and gasoline; you buy insurance to cover “catastrophic” events like accidents. Yet bad government policy has created an absurd system where we pay high insurance premiums to cover routine expenditures, which we and the insurance company then spend a huge amount of time and money claiming back under overly expansive policies. The government programs (Medicaid and Medicare) make the same mistake.
Medical insurance should always be “catastrophic,” just like every other insurance, with the definition of “catastrophic” varying with the financial position of each person. Routine expenditures should be paid by the consumer, just like the consumer pays for every other routine expenditure (like food, clothing, utilities, transportation, etc.). Under Obamacare, the government has pushed the market in the exact opposite direction, which is just one of the many mistakes in this legislation.
People will object that this will put another financial burden on households. But the financial burden already exists in the “invisible” form of increased taxes, higher insurance premiums or reduced wages (if insurance is provided by an employer). The problem with the current system is that these invisible burdens do not provide the type of incentives necessary for a market to function.
There are other important changes that can be made in our insurance markets. We can move, for example, to a system of payment for outcomes and not for procedures. We can move to a system where health insurance, like virtually every other form of insurance, is no longer linked to employment but is completely “portable.” We can move to a system of longer-term health insurance, or insurance that is automatically renewable, eliminating the problem with pre-existing conditions – an innovation that the market was beginning to implement before it was killed by Obamacare.
A completely free market in health insurance would be an innovative market, just as the free market innovates in every other sector of our lives. This innovation is currently stifled by regulation and bad incentives. It is also stifled by the mentality that our government-induced system has created.
For example, a huge amount of our health care expenditures are related to “end of life” care. These expenditures often do little to increase the quantity or, more importantly, the quality of life. Yet we have created a system where no one is incentivized or empowered to make judgments about these costs. In a free market for health insurance, policies would be offered with different levels of coverage for these expenditures, rewarding people who sign “living wills,” for example, with lower premiums. People would be free to choose a better quality of life over a prolonged, agonizing and degrading death.
We must also acknowledge that the biggest reason we have a healthcare crisis in America is that we have a health crisis. Our biggest health problems relate to “lifestyle” diseases like diabetes, many forms of cancer, heart attacks, and much of dementia. The statistical evidence is overwhelming that these are heavily affected by things like diet and sedentary lifestyles. But insurance companies are usually prevented to price for these different risk factors. This undercuts incentives and market signals.
The benefits of a free market do not come automatically; they are the result of competition. Yet the government restricts the supply of, and limits competition in, healthcare in literally hundreds of ways. Below I list some of the ways that the government can stop restricting supply and competition – experts could easily add to this list.
The FDA approval process for new drugs needs to be streamlined (or possibly eliminated in favor of a private sector alternative that has better incentives). As the very least, “efficacy” should be left to the market to determine and the FDA should only be concerned with “safety.” Drugs which are approved for use in other advanced countries – such as Europe and Japan – should be automatically approved in America.
The approval process for generic drugs should be made vastly faster and cheaper. The abusive regulatory tactics used by pharmaceutical companies to expand patent protection and prevent generics should be stopped.
We need to make better use of pharmacists, nurse practitioners and physiotherapists for minor medical problems. Pharmacists undergo seven years of training and then are reduced to counting pills and monitoring the War on Drugs. In other countries, pharmacists successfully handle a large number of minor complaints. We also need to make more drugs and medical tests available without a doctor’s prescription, starting with contraceptive pills.
The government artificially restricts the number of medical schools, which reduces the supply of doctors. This must stop. Unlike most countries, we also require doctors to get a college degree, often involving completely unrelated studies, before starting to study medicine – this adds years of studies and reduces the number of doctors we graduate. We have to make medical licenses more portable between states. Among other things, this would make it easier to provide “tele-medicine,” where minor issues can be handled with a phone call.
We need to eliminate “certificates of need,” whereby existing providers of medical services – such as a MRI machines – can restrict the entry of new competitors and inflate prices. The conflict of interest here is glaring.
On the insurance side, we need to allow insurance companies to offer policies across state lines, thereby increasing competition.
We need to eliminate restrictions on the type of services that doctors can provide and their ownership and management of clinics and hospitals. We also have to make it easier for mass-market retailers – such as Walmart and Amazon – to bring the benefits of their economies of scale and logistical expertise into the healthcare market.
We need to make it easy for specialized providers of procedures – such as hip replacements or cataract surgeries – to emerge so that we can have the benefits, in both cost and quality, from specialization and economies of scale.
It is often said that healthcare is different and a free market cannot work here. This is nonsense. We have already seen how a free market in related but largely unregulated areas, such as laser eye surgery, brings the same benefits of lower cost, better technology and increased quality that happen in every other area of our economy.
We are fast approaching a critical point in our healthcare system where we must either move to a free market or to some form of socialized medicine, which has been an utter failure every time it has been tried (including with the Veterans Administration in the United States). The only viable solution is the free market and the Libertarian Party is the only one offering this alternative.