We hear it every day. The American Right claims that the government should get out of the healthcare industry and place the “free” market in the driver’s seat. If the government steps aside, proponents argue, the cost of healthcare would go down and the quality of care would improve. On the opposite end of the spectrum, the American Left attacks the profits of insurance companies, big pharma, doctors…etc as proof of the evil capitalists profiting from your illness. They advocate total government control and removal of profit incentive entirely. But at the end of the day, both sides have this issue wrong.
Cold Markets or Warm Empathy
The argument put forth by the American Right will readily point out that markets can do wonders for the benefit of mankind. It is the free market, the pursuit of profit, and the competition that it entails, that has brought incredible and relentless innovation in many industries. Though not without government aid, Phones, computers, and tablets have become smaller, lighter, faster, and cheaper due to this never-ending market competition. Why should healthcare be any different?
The American Left, for its part, frames its argument as an emotional one. How dare companies profit from the sick? The Left argues that healthcare is a human right, no matter what the cost. Nonetheless, to reduce that cost, the government should step in and remove the profit incentive (and profits entirely) from the healthcare industry.
The Left’s desire to remove the profit incentives would surely eviscerate healthcare as we know it. Why should a drug company invest money into developing new life-saving drugs if there was no profit to be made from it? Why should an individual chose to obtain a medical degree if the salary of the profession would be inhibited by price controls?
Sure, there are always some individuals/companies willing to operate as non-profits…but this is the exception, not the rule. We like to think that our doctors do their job because it’s their passion, and maybe it is, but it would be foolish to think that they also don’t enjoy their paychecks. Removing the profit incentive from healthcare would not ultimately benefit anyone.
Markets Require Freedom
Having said that, it is also naive to believe that the “free market” will be able to solve the healthcare issue as well. Government intervention is needed, but not because “healthcare is a right” or because profit motive is inherently evil. Government intervention is needed because much of what we call “healthcare” does not obey the the rules of the free market.
I can go to Walmart to buy a television. When I arrive, I can look at and try out over a dozen televisions of all different brands, shapes, thicknesses, features, sizes, prices…etc. And if I fail to find a product that suits my needs, I have the freedom to walk out of the store and not buy a TV at all. In a free market, the consumer has tremendous power. Television manufacturers have to complete with each other for my money, and this results in TVs that get better with each passing year.
The function of markets assumes consumers 1) Have freedom of choice (and not to choose) and 2) Are informed and able to make rational decisions.
Healthcare goods and services often aren’t subject to the above criteria. If I need a spinal fusion, for example, I will not have many choices. Often, my choices will be limited by my geography. A TV can be shipped, a doctor cannot. Furthermore, my information about the product is much more limited, greatly inhibiting my ability to be an informed consumer. Indeed, as the patient, I am probably not making much (if any) of the decisions myself and relying on the advice of my doctor. In short, I can compare TVs, but as a patient I don’y have the time or specialized knowledge needed to compare DMEs.
Additionally, as a consumer of healthcare, I often cannot refuse treatment, because to refuse treatment would mean discomfort or death. I can refuse to buy a TV at Walmart, I cannot “refuse” chemotherapy, in the same sense at all. I have no bargaining power when I am riding in an ambulance with a broken arm. I do not have time to choose a cheaper or better ambulance provider. I do not get to pick which emergency room to go to. In healthcare, power rests with the doctors, hospitals, and pharmaceutical companies…not with the patients. Healthcare consumers do not have the freedom of choice upon which the free market depends.
As an analogy to my Walmart scenario, healthcare is akin to buying a TV with only two brands to choose from, while an armed guard stood at the store exit ready to kill you if you left without buying.
That is not a free market, and it is time that the American Right stop pretending it is.
Free markets won’t bring better and cheaper healthcare because there is no market mechanism to make it work. Bargaining power is skewed toward large corporations such that government intervention is needed to tilt the playing field back in the consumers’ favor.
Now, this is not to say that markets are totally useless across all healthcare products and procedures, there is certainly an important role markets can play. Indeed, as I have noted here, we can and should utilize the power of markets where possible. But it is foolish to try and apply market mechanisms while ignoring the basic tenets of what makes markets work in the first place.
Instead, we need to differentiate where markets work…and where they don’t. Where they don’t, the government should step in. Where markets work, they government should step aside. It’s that simple.
This isn’t a Left or Right issue, it’s not a binary choice that requires an extreme solution. The solution lies in logic and reason. We can ensure that healthcare providers have an incentive to innovate, while also not bankrupting our nation in the process.
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