Usually, when we are deeply involved in the consequences of a bad choice, we think, “It seemed like such a good idea at the time.”
What has happened to the health care market is a lot like that, as, with all the best intentions, bad choices were forced on the marketplace by government and, as always when force controls the market, there were unintended consequences. Oblivious to the harm already done, government at all levels has placed mandates and restrictions on health care that we would not accept in any other business, always with the intention of doing good, and always making things worse. Now, we stand on the brink of placing health care under virtually totalitarian controls, still trying to fix the unintended consequences of past interventions, mindlessly hoping that this time government control will work.
Perhaps it would be a good idea to stop and think a bit on how we got here.
Prior to World war II, health care was a combination of free markets and charity, with little government involvement. But during the war, there were rationing, wage and price controls, and a shortage of labor. Companies were allowed to get around the wage controls to attract able bodied workers by providing health insurance without tax consequences. The unintended consequence was that the tax advantage this gave employer sponsored insurance plans drove private insurance and voluntary group insurance almost out of existence. Today, employer sponsored plans account for 95% of the non-government health insurance market.
As discussed previously in HC-Disconnection from the Market this results in purchasing a form of health insurance that suits the employer’s needs better than those of the consumer, especially as we grow older.
The destruction of the private health care insurance market has created the problem of non-portability due to age and pre-existing conditions, and the near impossibility of obtaining insurance by the self employed at an affordable cost.
State and federal regulation of insurance prevents small employers from joining together to form groups large enough to negotiate reasonable rates. While large businesses and major chain stores can spread their risks over thousands of employees across the country, the Mom-and-Pop store on the corner with five employees must go it alone. If even one employee has a serious illness, their group rate is no better than an individual rate because their “group” plan can spread the risk over only those five employees. My dental practice would be a group of three, one of whom is a breast cancer survivor, with maximum rates. But if State and Federal regulators allowed all the dental practices in the country, with all those thousands of employees, to band together as a group, our bargaining position would be on a par with WalMart. These State and Federal turf battles on regulation are the reason most employees of small businesses are not offered health insurance.
States also require all health insurance to cover certain diseases and health care needs, whether the purchaser desires that coverage or not. I had a vasectomy 30 years ago, but I cannot buy health insurance that does not cover prenatal care and well baby care. Neither my wife nor I are addictive personalities, but I cannot buy insurance that does not provide rehabilitative services. I could get a much better rate if I could buy insurance that excludes these risks, but these coverages are mandated by the State. The list of mandated coverages is as long as it is irrational. Those included are determined by political activism with no regard to economic impact. Requiring all insurance to provide for those risks spreads those risks and makes such care cheaper for those who need it, but only at the expense of those who are not at risk. This is the same thing as requiring air conditioners on all cars, including those sold in Alaska, because that might lower the per-unit cost a bit and save money for car buyers in Texas.
Of course, if you find health care insurance just too costly, you can just not buy it. The hospitals will have to provide you care anyway. It is required by law. The cost of your care will just be shifted onto others who do have insurance in higher fees and thus higher insurance rates for the responsible. This passed off as compassion, because health care is seen as a necessity.
Imagine if grocery stores faced similar requirements. Anyone who shows up hungry must be given food even if they have no money. How much more would we pay for groceries? Why would anyone show up at the gorcery store with money in hand knowing they could go with empty pockets and feed their family for free? Would we still feel so compassionate as our groceries doubled in price? Perhaps if our groceries were provided by our employers without us ever seeing the true price, we might.
OK, now this is one anyone with any concept of markets is going to find hard to believe. In order to open a new hospital or other significant health care facility, like a free standing surgical facility, you must obtain a certificate of need from the government. It might help to understand the concept if you apply it to another kind of business. Imagine you want to open a Jiffy Lube but first you must obtain a permit from the DMV. In the course of the permit process, local car dealerships are given the opportunity to object and if they can statistically show that the presence of your business will result in a excess of capacity for oil changes in your area, you will not your permit. To a bureaucrat, perhaps, this makes perfect sense, after all, service bays and lifts are expensive, and technicians are expensive to train and employ. If they are sitting idle a lot of the time, that is wasteful and increases the cost of providing oil changes. In the real world, it is that excess capacity that drives competition and brings us better service and lower prices, but bureaucrats do not live in the real world.
In a less obvious manner, costs are driven higher by liability laws which drive the market to specialization. Specialists charge a lot more for the same service than general practitioners.
Since I am a General Dentist, I will use dentistry as an example, but the same applies to medical practice. The fees charged for removing wisdom teeth by Oral Surgeons are about double the fee a General Dentist would charge. Insurance companies recognize this and pay higher fees to specialists than to GP’s. I will, for the sake of argument, assume that the risk of complications is slightly lower in the Oral Surgeons office than in mine (it really isn’t, since I know my limitations and refer the more dangerous impactions to an Oral Surgeon). If you are fully informed of the benefits of going to the OS, you might still choose to accept the greater risk in my office in order to get your wisdom tooth removed for $250 instead of $650. HOWEVER, when I take out a wisdom tooth, liability laws hold me not the the standard of another General Dentist, but to the standard of Oral Surgeons performing the same treatment. As a result, most dentists refer ALL wisdom teeth to Oral Surgeons, even those they are perfectly capable of removing themselves. Think about the last time you saw a Family Practice MD, did he/she actually treat your problem if it fell into a speciality area, or just refer you to a specialist? GP’s have been reduced almost to the role of gatekeepers for specialists. When is the last time you heard of a GP delivering a baby or removing an apendix? Those used to be part of routine medical practice.
While most people are aware of the costs of malpractice insurance as a factor in health care costs, few people realize the degree to which our out-of-control tort system has driven health care toward more costly specialization.
Finally, and most controversially, there is professional licensure. (This will draw the ire of my fellow health care providers.) You cannot go to an unlicensed dentist or anyone else for any form of dental care. It would be cheaper if you could. It would, of course, be stupid to go to an unqualified person for health care, but why is the State the arbiter of qualification? Many states, Florida and Texas, are infamous, have very restrictive licensure laws purely to suppress competition. There are better, private sector, means for assuring proper qualification.
So, those are the things that have made health care unaffordable. Notice that not one of them is the result of free market forces or “greed”, every single thing that makes health care unaffordable is the result of government trying to fix something.
Gee, isn’t that a surprise. Now, what can we do about it and remain free?