GOVERNMENT INTERFERENCE BLOCKS FREE MARKET IN HEALTH CARE

Barry Fagin

Colorado Springs Gazette, 9-3-09

I don’t usually do back-to-back columns on the same topic. But my last piece on health care reform got such a response from readers that I thought I’d explore the issue a little further. This week, I want to convince you that the problems of American health care are not the result of deregulated markets and unfettered competition. In fact, the exact opposite is true.

There are so many anti-market factors, laws, rules and regulations affecting health care in the US that it’s hard to know where to begin. I could fill a year’s worth of op-eds with them, although I think my editor might take exception. Instead, I’ll pick the most obvious ones and hope I can get my point across.

1) Tax laws and health insurance. Way back in World War II, Congress in its infinite wisdom passed wage and price controls. Employers in turn began offering health insurance benefits as a way to attract workers without paying them higher wages, which would have been (believe it or not) illegal. Employer-provided insurance was treated as a business expense not subject to taxation. This was eventually written into law, a law still with us today.

Differential tax treatment creates an absurd distortion in health care expenditures that has only become worse with time. By artificially lowering the cost of insurance relative to other goods, it means Americans use too much insurance. We’re not talking rocket science here.

Insurance now pays for every health care expense under the sun, as opposed to insuring (remember what that word used to mean?) against catastrophe. It also means that health care coverage is largely tied to employment, something so burned into the consciousness of modern America that we have forgotten other arrangements are even possible, let alone desirable.

2) State regulation of health insurance. State legislators have written thousands and thousands of pages of law dictating what kinds of policies can and cannot be written by insurers. They mandate benefits, ban exclusions, and dictate prices. Insurance companies in turn often exercise the only option they have left: Packing up and leaving. The irony of this is that many economists (most of them Democrats) love to cite states with a small number of insurance companies as evidence of imperfect markets or insurance monopolies. Their solution? More regulation. It’d be funny if it weren’t so tragic.

3) Third-party subsidies. Medicare, Medicaid, and health insurance are responsible for the overwhelming majority of health care payments in America. The best data I could find says that 86% of all health care dollars come from someone other than the patient. How can that possibly be considered a market? How can that possibly have anything to do with capitalism? How can anybody be surprised when medical services are overused, costs go up, and waste runs rampant? We are all spending somebody else’s money!

4) Medical information and technology regulation. The exchange of information so essential for markets to work is heavily regulated if not outright forbidden by the FTC. Medical advertising is strictly controlled, on the theory that consumers and entrepreneurs could never in a million years figure anything out about medicine that would be useful to them.

And lets not forget our friends at the FDA. They have strict control over what drugs and procedures Americans have access to, based on how they define “safe” and “effective”. I’ll save a cost-benefit analysis of the FDA for another time. For now, I just want to point out that American medicine is overseen by a government agency whose job is to threaten entrepreneurs with jail.

Given all these factors (and there are many, many more), how can people say that American health care is anything even remotely resembling a free market?

Our problems of waste, misallocation of resources, rising costs, inefficiency, and lack of competition are not the result of George Bush, evil Republicans, big bad insurance companies, greedy drug manufacturers, or dogmatic laissez-faire capitalism. They are the direct and predictable result of political actions taken through the democratic process over the past fifty years. We have met the enemy, and he is us.

The question is only whether we have the strength of will to admit our mistakes and begin anew.