The healthcare market can’t function like a free market. Those who think it can are capitalist utopians.
Republicans voted yesterday to move forward the process on an unformed version of the Trumpcare healthcare bill. The concept behind Trumpcare (also known as “Obamacare repeal”), as expressed by Republicans, is to make the healthcare market function more like a free market. Cut down on regulations and make end users pay more for their own healthcare, the argument goes, and there will be more competition and lower prices.
There’s just one problem: the healthcare market can’t function like a free market. Those who think it can are capitalist utopians who haven’t learned from history—the flip-side of communist utopians.
Whenever communists are faced with the inevitable failures of communism and radical socialism—whether it be that of the Soviet Union, Mao’s China, Khmer Cambodia, or present day examples like Cuba, North Korea, and burning Venezuela—they just as inevitably respond with one phrase, “True communism has never been tried.” No amount of data-points, no amount of evidence of human nature will ever convince them that communism doesn’t work. Nor will they be convinced that even if “true communism” hasn’t been tried, the many failures of revolutionary movements to implement true communism prove communism is fundamentally impossible to implement.
So it is with free market dogmatists. If high quality healthcare could be provided to the vast majority of people on the free market at reasonable prices, then you could look around the world for examples of a free market healthcare system working. If government regulations and universal healthcare distribution fundamentally destroys prosperity, then there would be no examples of prosperous countries with universal healthcare. American conservatives are hostile to the idea of explicitly looking to other countries (particularly “socialist” European countries) for guidance—“American Exceptionalism” and all—but looking at the world and at history is at least a good means to learn what works and doesn’t work in human civilization. It’s actually a very conservative thing to do to consider what works in practice, rather than relying on idealistic theories. After all, how do we know that communism doesn’t work?
Whether we’re talking about free-market paradises at the top of the Heritage Foundation Index of Economic Freedom like Singapore, Hong Kong, Switzerland, and Australia, prosperous countries like the Netherlands, Sweden, and Taiwan, or developed countries with large populations, like Japan, Korea, the United Kingdom, Germany, France, and the United States, no country has a complete free market system.
Whether they have completely government-funded universal systems like the UK, heavily-regulated multi-payer systems like Germany (Obamacare on steroids), government-run hospitals like in Hong Kong, forced savings systems like Singapore, or regulated insurance markets with public programs for certain groups like Australia and the U.S., every prosperous country has much more regulation and public funding of healthcare than free market absolutists would prefer.
This is not to say that one country’s system would work perfectly in the United States. Every country is different, and noted above are multiple different kinds of systems that were adapted in part to the specific needs of each country’s politics and culture. But what it does show is that those who are arguing for tearing down any and all regulations are wrong. A prosperous, developed country can’t function without government programs in healthcare.
If it were true that universal healthcare or government regulation caused masses of people to be denied care and businesses to flee, then you would expect to see those countries with government regulation to be sick and poor. If not, then universal healthcare doesn’t inherently cause those problems.
Yet many of the countries in the top 30 for GDP per capita (U.S. is #20), like Norway (#13), Switzerland (#18), Sweden (#26), and Taiwan (#27) have national or single-payer healthcare. Universal healthcare doesn’t, by itself, destroy a country’s economy.
Nor are those systems extremely expensive, at least compared to the United States. Each of those countries (and every other country in the world) spends less than the U.S. as a proportion of GDP. Norway and Taiwan spend less than the world average. In fact, even given that the U.S. spends by far the highest proportion of any OECD country on private healthcare costs versus public healthcare costs, the U.S. still spends more per capita on public healthcare costs alone in absolute dollars than do Sweden, Ireland, Canada, Japan, the UK, and most of the OECD countries.
Are Japanese, British, Swiss, and Taiwanese people dying in the streets due to long waiting lines and terrible quality of care?
Now free market proponents might argue, “A free market healthcare system has never been tried.”
There’s a reason it hasn’t been tried by any advanced country seeking to create a workable system. Healthcare is a market that inherently wouldn’t work in the free market.
The U.S. is perhaps the most free-market, in the sense that close to 50% of its healthcare spending is spent on private healthcare. It would be hard to say the U.S. system provides the best results overall, although many of the problems might be caused partially by cultural issues. (If Americans die early due to exceptionally high levels of homicide and obesity compared to other developed countries, that isn’t a reflection on healthcare.)
It’s important to recognize, however, that free-market conservatives aren’t even satisfied with our current system or our pre-Obamacare system. They want to cut regulations and public funding closer to 0.
– “[W]e must move to a better system that embraces competition and choice and actually lowers costs for patients and taxpayers,” Paul Ryan wrote in a USA Today op-ed.
– “[M]ore than half a dozen Republican health care proposals increase choices for families and increase access to the best doctors via competition and individual empowerment,” Scott Atlas, an expert at the Hoover Foundation wrote in 2014.
– Senate Tea Partiers Mike Lee, Rand Paul, and Ted Cruz opposed earlier versions of the Trumpcare bill on the grounds that it didn’t go far enough in cutting government involvement.
– Grassroots conservatives say the problem with American healthcare is that there is too much government involvement. “ANY government involvement is unwarranted.”
To think that every advanced society in the world is wrong—that they somehow got where they are without knowing how to do things—is the same kind of arrogance displayed by utopian socialists. Here is why healthcare can’t work like a market: Free markets require a number of conditions to work competitively that are nonexistent in healthcare. Among the necessary conditions lacking in healthcare are:
Competition (Comparative Shopping and Ability to Walk Away)
Consumers must be able to compare price and quality and choose the option that best suits their needs. In what economists call a “perfectly competitive market,” competitors are basically indistinguishable in quality and only compete on price. In real life, quality and other variables are also factors. For example, someone in need of coffee might choose to buy a cheap cup of bland coffee at McDonalds or an expensive, tasty cup at an independent, locally-sourced specialist cafe. Shoppers can walk through a mall looking at different stores and comparing apparel side by side within a store.
Someone who just got injured in a car crash can’t go from one hospital to another comparing prices. Even someone whose needs are not urgent would have a hard time doing so, since hospitals are far apart and prices are not transparent.
Neither can an ordinary person easily compare quality. Healthcare is complex. If a medically-trained doctor tells you you need an expensive test, you have no way of knowing whether it’s really necessary—and, anyway, what value would you put on the life of yourself or your loved ones? You can’t easily walk away from the negotiating table when your health is on the line like you can in a market when you are just buying clothes.
This takes us to the next necessary condition:
Access to Relevant Information
Consumers can only be confident they are getting a fair price if they have access to information about the product and industry. For a piece of apparel, consumers can hold it in their hands. They can try it on and look at themselves in the mirror. For everyday items like food, consumers interact with these items everyday. People know if any apple looks good or not, and they can compare one apple against other apples in the produce section. Not so with healthcare. Most consumers are not doctors themselves.
When the seller has a vast information advantage over the consumer, the seller can take advantage of the consumer. Only when the consumer knows enough to know if a product is too expensive or low quality (as with most consumer products, not with MRIs) can a consumer make an informed decision to buy at the right price.
The more a firm expands, up until a certain point, the less it costs for the firm to produce per unit of production. That’s because the fixed costs are set, so they decline on average for each new customer. Eventually, the cost savings for scale decrease as variable costs increase. The fixed costs of building a new factory or hospital and hiring a set of employees to run it are great, so a healthcare provider wouldn’t build a hospital somewhere with a low population where they only expect a few beds to be filled. This is just one of the problems with America’s healthcare system; many rural counties have zero or one insurance company offering insurance on exchanges.