Government-Centric Health Care is Inefficient and Unresponsive to Patients' Needs

Can free market healthcare be efficient, cost-effective, and equitable? 

In the ongoing health care policy debate, there are two fundamentally different world-views. There is the view that government has a very large, if not the largest, role to play in making ter provision of health care efficient, cost-effective, and equitable. Then there is the view that a market-centric approach will increase health care accessibility, decrease medical costs, and direct health care to those who need it most.

Of course, many stake positions between these two comprehensive visions, but most people lean toward one or another by default. 

My default position is market-centric. When allowed to operate freely and without government subsidies, legal favoritism, and other interference, this approach reflects and serves the demand for health care goods and services at any given time. Some call the free market approach “consumer-based” or “patient-centric.”

However it’s titled, the free market approach reflects consumer demand through a peculiar type of information: prices. Prices are important because they triage the limited supply of doctors, nurses, IVs, aspirin, heart transplants, and hospital beds, getting scarce things to the consumers who need them most. When something has a relatively high price compared to its alternatives (including doing nothing), you know it is demanded highly. When the price is relatively low, you can assume the supply of that medicine or procedure is greater than the quantity demanded.

Prices are the key to addressing rising health care costs. When the price system is permitted to operate in a free market and without government interference, prices for goods and services can change to fit changing realities.

Importantly, real prices also dissuade the overuse of medical services, which is the best thing we can do to address the problem of the availability of health care for those who are most needy but also least able to pay.

To use a couple examples from outside health care but with which we’re all familiar, let’s compare bread to iPads. The price of bread is relatively stable because it’s a familiar product made by many competing firms. There is also somewhat predictable demand for bread. iPads, on the other hand, are still very new and there are few companies making tablet computers. The price of iPads and iPad substitute devices can fluctuate wildly based on people’s taste for tablets.

There’s a lot more bread than tablet computers because there’s a lot more demand for bread than tablets. That’s also why the prices are so different, and why the price of bread fluctuates less than the price for iPads. It's also why there's always bread on store shelves and why shortages in the iPad supply are corrected very quickly. 

Were health care policy to permit prices for medical goods and services to reflect consumer demand, health care costs would finally – for the first time since government interference began in earnest during the Johnson Administration – face some downward pressure. Instead of permitting doctors, hospitals, pharmaceutical manufacturers, and health instance companies to essentially conjur prices (the status quo), consumers would actually be able to choose between various options. Their choices would then affect the prices presented to the next person facing similar choices. 

Prices are vital information. When they are not allowed to work, the market malfunctions. 

Where prices have been allowed to work in health care, they have proven their mettle. Today, you can only see prices working in elective procedures not covered by insurance. LASIK, for example, is an alternative to eyeglasses, contact lenses, and just not seeing well. Prices for Lasik surgery used to be $2,500 per eye in the early 1990s when it was introduced. Today, you can have your eyes zapped by more experienced physicians and better equipment for $700 per eye. 

The reason this is happening is that people with poor vision have to dig into their own wallets to pay for the procedure. That makes it so they can actually shop around for the best deal, creating competition and forcing prices downward. The price for LASIK is still high relative to glasses, for which insurance absorbs much of the costs. However, if insurance required individuals to pay for the full cost of their glasses, the price for LASIK would come down even more because people would see it as a more attractive option.

Subjecting the health care market to the influences of a free price system would allow competition to heat up and prompt health care businesses to devise better ways to serve customers’ needs, both for emergency preventative care. In a system in which even small things like IV bags -- used for all sorts of elective and non-elective procedures -- are priced according to their demand, prices for the most needed health care would fall across the board.

For the health of Americans rich and poor, this would be a very good thing.

The health care needs of individuals change from day to day. Doctors and patients have enough to worry about when trying to predict the health needs of one person. That problem is only compounded by orders of magnitude when trying to design a system to address the health care needs of a nation.

There is no way a government-centric, top-down approach to health care can address the changing health needs of individuals anywhere as well as a free market. The current government/industry designed health care system cannot respond quicker than the free market when new products or services are introduced or old ones exit. Government also cannot adjust its rigid system of price commissions and rules fast enough to respond to the urgent needs of sick people today.

Health care policy is not only a question of efficiency, but also one of morality: How can we design a system so that sick people today can access medical products and procedures that they need to live? How can we ensure life-saving resources go to that person instead of the person whose condition is not so critical? How can we make preventative medicine less expensive and more widely available? How can we put power back in the hands of health care consumers rather than health industry lobbyists in Washington, D.C.?

Because I don’t know, you don’t know, and all the boards of experts and doctors advising politicians and bureaucrats don’t know, the only way forward is to leave the answers to the decisions of health care consumers and producers (informed by prices) in a free health care market.

How much do you trust the information in this article?

Richard Lorenc

Libertarian (classical liberal), entrepreneur, big cat enthusiast, Apple-head, Trekkie, double bass player. I direct programs at the Foundation for Economic Education (FEE), which teaches young people the economic, legal, and ethical principles that make free societies prosperous. He serves on the board of directors of the Coalition to Reduce Spending, an advocacy group dedicated to limiting federal spending through programs such as the "Reject the Debt" anti-spending pledge. He is also a member of the Leadership Committee of Young Conservatives for the Freedom to Marry.

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