My readers in their comments about medical care uniformly show a great, and on the evidence, inexplicable trust in Uncle Sam’s ability to do exactly what he promises. They show an equal distrust of ‘greedy’ insurance companies. While mistrust of insurance companies is understandable, often based on personal experience, faith in government’s ability or even desire to keep its promises demonstrates a deep misunderstanding of how governments and free markets work.
This misunderstanding is only made worse by the debate’s focus on insurance. Even Americans who know there’s no free lunch are succumbing to the ‘entitlement’ mentality. The debate over insurance is not about how to reduce costs, it’s about how to get other people to pay those costs for us. No one is looking for the reasons health care costs are increasing at such alarming rates, and even less at how insurance itself drives prices higher. If you had speeding ticket insurance, would you drive faster?
There is widespread agreement that free enterprise and free markets made America rich. There is a great misunderstanding, however, about what government has done and can do to ‘correct’ what are labeled ‘market failures.’
Markets can’t fail any more than gravity can fail. Market forces exist as a fact of human nature, like Newton’s laws exist in the physical world. They are neither good nor evil. They have no political agenda.
People do have political agendas. People use government to manipulate markets for outcomes they prefer over those that the unhampered market might otherwise produce. Market manipulation is done under the guise of protecting people from some horrible injustice or fate. And in some instances regulation is clearly beneficial, for example, in food inspection or traffic controls. Never the less, government action increases costs in free markets regardless of what the action or its stated purpose may be. And as regulation increases, the regulated eventually learn to control the regulators.
Free markets work well at producing a general prosperity because market incentives automatically reward and punish the right behaviors. Markets reward hard work, saving, innovation, efficiency, prudence, responsibility, honesty, and fair dealing. Free markets punish sloth, complacency, dishonesty, inefficiency, waste, recklessness, stupidity, and even honest mistakes. Laws and regulations, on the other hand, are creatures of politicians, whose purposes are often obscure.
Once a marketable item is sufficiently in demand, market forces tend to produce it ever more efficiently. The natural trend for prices in a free market is down. To analyze a product whose price is rising dramatically we must consider government’s role in interfering with normally declining price trends in a free market.
We are encouraged to believe that increased technology and corporate greed are driving up the price of medical care. But new technologies for the treatment of exotic illness only effects those few with exotic illness, unless the costs are forced onto others by government. Technology in routine care would not be adopted if it didn’t offer some advantage in efficiency. Disposable syringes, absorbable suture material, and advanced bone setting techniques were adopted because they were more cost efficient than the old methods.
As to corporate greed driving up prices, why should insurance company greed successfully drive up prices while computer company greed works with opposite results? Aren’t all corporations manned by equally greedy scum?
In fact, the computer and electronics industry offers an excellent example of how unhindered market forces effect prices. Government regulation is extremely light in that sector of the economy. Despite corporate greed, prices have fallen steadily and innovation has exploded. Even in the face of relatively heavy regulation, other industries have shown the same tendency to produce better products for less. The price of a Ford Focus, corrected for inflation is less than a Model T was in the 1920s, and you don’t have to crank a handle to start the Focus.
It is in the public sector, and in the most heavily regulated industries, where we find market efficiency cannot buck the heavy hand of politics. The medical industry is among the most heavily regulated of all, with government on both sides of the supply and demand equation. Here are a few examples of how government drives the cost of medical care steadily higher:
Subsidized insurance, like Medicare and Medicaid, inflates demand for services by spreading costs to those who won’t benefit for many years, and giving almost unlimited funds to beneficiaries. You can’t beat unlimited demand to boost prices.
Tax deductions for corporate insurance programs similarly increase demand for services while punishing individual insurance seekers for whom premiums are not deductable.
Regulation backed by false American Medical Association, the doctor’s union, predictions of a ‘doctor glut’ have created a doctor shortage by limiting the opening of new medical schools.
Medicare, which pays medical residents at teaching hospitals, has similarly limited the number of doctors by controlling the number of residency spots available.
Certificate of Need programs in 33 states severely limit the introduction of new medical equipment like MRIs and other diagnostic and therapeutic tools based on a ‘need’ determined largely by the owners of competing machinery.
State and federal requirements for what insurance companies must offer in their policies drives up prices and reduces competition among those companies, to the point where many companies simply don’t offer products in many states.
The effect market forces would have on the cost and availability of medical care is the same as they have on every industry where they are allowed to work. Pouring our efforts into trying to figure out how we can all get someone else to pay for our own care is just more of the same stimulus of demand and cost shifting. It is our attempt to get ‘free’ medical care that is the problem. Free market competition is the solution.