The
Three Big Expenses: Health Care
GrassTopsUSA Exclusive Commentary
By Gennady Stolyarov II
09-07-07
In my previous
article, I discussed the ways in which government intervention in
and aid to higher education dramatically raises the cost of a
college education for most Americans. Health care constitutes the
second area in which Americans pay tremendous amounts of money and
an ever rising fraction of their incomes. Once again, government is
responsible – and the consequences are even more disastrous.
While it is still possible for ambitious and talented college
students to receive merit scholarships at some schools and thereby
offset the costs of their education, health care costs are not
always avoidable. One can, of course, reduce the likelihood of
having to seek health care by taking diligent care of one’s body.
But even there, prophylactic medicine can help, and even the most
conscientious among us can fall prey to bad luck or a rare disease.
Thus, it is in everyone’s interest to know why health care costs are
so astronomically high and what institutional forces are
responsible.
Health care hasn’t always been one of the biggest expenses. In fact,
prior to World War II, the best health care of the day was quite
affordable to the average American. It is true that the available
medical technology was also at a much less advanced level, but in a
functioning free market, technological improvements are typically
accompanied by lower costs, not higher ones. So the dramatic rise in
health care costs after World War II have taken place in spite of,
not because of, phenomenal technological progress.
Health care before World War II was affordable because it largely
took place in a free-market framework of direct patient-physician
transactions. The doctors were free to offer their services to
patients at whatever rates the patients were willing to pay, and the
patients most often paid for health care out of their own pockets.
When individuals spend their own money on health care – just as when
they spend their own money on groceries, furniture, or electronic
equipment – they have an incentive to get the maximum possible value
for what they pay. At the same time, a doctor – like a seller of
groceries, furniture, or electronics – has a strong incentive to
give the customer what they want and need. Without a third party
paying the bills, there was no incentive neither for patients to
demand superfluous treatments nor for doctors to deny care to
patients who requested it and were willing to pay for it.
But this changed during World War II, when the federal government
froze prices and wages. As a result, companies that wanted to reward
their employees or compensate them for rising costs in the standard
of living had to do so indirectly; most chose to offer health
insurance plans with low premiums.
Indeed, offering insurance to employees is not a natural free-market
employer behavior. After all, people typically do not purchase
automobile insurance or homeowners’ insurance from their employers,
and there is nothing about health insurance that makes it
dramatically different from the other kinds. Only the peculiar
circumstances surrounding government regulation and price controls
during World War II made company health insurance a widespread
practice. Unfortunately, this trend continued after the war,
primarily because employees had gotten used to their new perks and
were unwilling to renounce them – even in exchange for proportional
outright wage increases.
Thus, the number of people using health insurance increased far
beyond what would have been the free-market outcome. For a low,
fixed, regular contribution, the employees of many firms could now
get all the health care they desired – provided that they could
convince the managers of their insurance plan to pay for it. This
naturally led to greatly increased demand for health care, along
with dramatic increases in price. The insured, of course, could
afford the new higher prices, but the uninsured were left at a
disadvantage. Thus, more companies were pressured to offer health
insurance policies to their employees, contributing to yet further
increases in the price of health care and leaving health care
further out of reach for the uninsured.
As it tends to do, the federal government decided to “correct” the
damage of its prior intervention through yet another, more
disastrous intervention – the introduction of managed care and
health maintenance organizations (HMO’s) in the 1970s. Indeed,
advocates of socialized healthcare who point to the inefficiency and
patient mistreatment that occurs under HMO’s as signs of “market
failure” mysteriously overlook the fact that HMO’s were a government
creation – a response to an earlier perceived “market failure” which
was also brought about by the government. HMO’s offered many
Americans lower insurance premiums; but along with that came
restrictions on the kinds of health care patients could get, the
physicians they could see, and the quality of care they would
receive. Furthermore, HMO’s exacerbated the disconnect between
patients and physicians – plunging American healthcare into the
current third-party-payment system. Of course, as in any system, he
who pays the money makes the rules; hence, many Americans today
justifiably feel out of control of their own health care decisions
and unable to receive the care they need and would have obtained on
a free market.
In the meantime, the government did more to exacerbate the rising
cost of healthcare by becoming a major health insurer itself. The
government currently controls the market for health insurance for
the elderly (through Medicare), the disabled and unemployed (through
Medicaid), and even many working Americans (through massive
subsidies to health care providers and insurers). Many analysts
estimate that the government now pays for as much as 50% of
Americans’ health care expenditures!
Government subsidies to health care have the same effect on costs
incurred by patients that government aid to higher education has on
costs incurred by college students. By subsidizing health care, the
government raises its overall cost – first, to the unsubsidized and
then to the subsidized as well – far above free-market levels. This
is one reason why today those without health insurance are almost
always bankrupted when they undergo any serious medical treatment –
while those with insurance pay premiums that increase much faster
than incomes. Moreover, Americans are steadily seeing their health
care choices dwindle as increasing government control results in
rationing of health care by the state. After all, he who pays the
money makes the rules. Whenever the government pays the money for
health care, it will be in charge of deciding who gets what – and in
many cases, who lives and who dies.
The only solution to the current health care crisis is to get the
government out and allow the market to restore the once-existing
direct financial relationship between physicians and patients.
Socializing health care will not reduce Americans’ costs; indeed, it
will make all health care even more costly than it is now – funded,
of course, by a gargantuan increase in taxes. Only removing the
source of the upward-spiraling prices – government regulation and
subsidization of health care – can place this vital service within
most Americans’ reach.
Gennady Stolyarov II is
Editor-in-Chief of
The Rational Argumentator, a magazine championing the principles
or Reason, Rights, and Progress. His works have been published by
Le Quebecois Libre,
Enter Stage Right Magazine, the
Ludwig von Mises Institute,
Rebirth of Reason, and other organizations. Mr. Stolyarov can be
contacted at
gennadystolyarovii@yahoo.com.
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GrasstopsUSA.com 2007
