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“Virtue is more to be feared than vice, because its excesses are not subject to the regulation of conscience.”     Adam Smith

January 4, 2007

Specific Healthcare Changes

by Adam Selene

A recent post on healthcare inspired a long thread of comments. In that thread I was critical not only of changes that many people advocate to our system, but of our current system itself. Our current system is a disguised socialism. Sure, the government does not directly run the system, unlike the single payer model in the UK or national model in Canada. However, between the arbitrary regulation (that is, it is not general purpose laws that all citizens can operate within predictably), price fixing and government funding, the system is de facto socialized. The key feature of a socialist system is central planning by government agents, and we have that in spades in our healthcare system.

One of the commenters on the post asked me what I favor as a solution. My response was that we should deregulate and allow the free market to dictate. One of the primary complaints about socialized medical systems is rationing by bureaucrats. Rationing is a way of saying that scarce resources are being allocated, but the resource consumer doesn’t get to choose how they are allocated. All economic systems have rationing. One of the key differences between a centrally planned system and a free market is who makes the rationing choice. In a free market the consumer makes the choice, based on need and price. In a centrally planned system, someone that the consumer never meets makes the choice, based on what they perceive to be the need of the consumer.

Here are some very specific things that could be undone to deregulate healthcare.

  1. Remove the Veteran’s Affairs price fixing (which is misleadingly referred to as negotiating). By law, drug manufacturers have to give VA a price that is 24% below wholesale or they are banned from selling to VA, Medicaid and Medicare. That’s an interesting way to negotiate. Guess what happens? Some drugs don’t get sold to those entities, including the best medications for Parkinson’s and Multiple Sclerosis. Price controls always lead to resource scarcity and increased prices.
  2. Remove the Medicaid price fixing. By law, drug manufacturers must give Medicaid agencies the best price they give anyone else, even if the agency (Rhode Island, for example) doesn’t purchase enough volume of the drug to negotiate that price in a fair market. This, again, has led to an increase in prices and resource scarcity.
  3. Get rid of the HIPAA transaction regulations that everyone has to comply with. This has led to significantly increased cost for everyone in the market except for the insurance companies. If standardized transactions are good, the market will bring them about.
  4. Get rid of Medicaid and Medicare entirely, reduce the federal tax rates by the amount that saves. The states can provide low income health care assistance where needed. Medicare, especially, is horrible. Everyone over 67, regardless of economic status, has to go on Medicare (i.e. single payer).
  5. Stop giving tax and regulatory incentives to employers to provide healthcare benefits. These have led to a system where we buy health benefit plans, rather than health insurance based on risk. Consumers are not purchasers in our current system. They have no incentive not to over consume. We have created a commons and we are suffering the tragedy of the commons.

I’m sure I will hear screams and howls. Think of the children! How can you leave the elderly and poor to fend for themselves! I need to go to the doctor for my runny nose!

We have three major deregulation and/or price control scenarios we can look at: Airlines, telecom systems and gasoline. All three of these were either under significant price controls, had significant regulation or a government created monopoly (or all three, in some cases) in the 1970′s. By removing government regulation and intervention into those industries and allowing market forces to act, we have seen their prices come down and their services and availability go up. We pay less for these goods and services today than we did in 1980 in inflation adjusted dollars, yet have more resource availability and better resources to consume. There is no reason to believe that healthcare is not subject to the same forces and would not benefit as well. If nothing else, we would avoid the arbitrary regulation and central planner rationing that we are seeing today, and which can only get worse on the path we are on.

Update: As Kevin rightly points out in the comments, I missed a big piece of the regulatory environment. So, at Kevin’s suggestion, I’m adding:

6. Abolish all state and Federal laws mandating what medical conditions insurance companies must cover.

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22 Comments

  1. Let me add another:

    6. Abolish all state and Federal laws mandating what medical conditions insurance companies must cover.

    Comment by Kevin — January 4, 2007 @ 9:55 am
  2. I sort of thought that was part of #5, but it’s an excellent point. Looking at how I wrote #5, I can see that I left out that very big chunk of deregulation.

    Comment by Adam Selene — January 4, 2007 @ 10:10 am
  3. Adam,

    There is another side to this coin as well, and that is the federal and state regulation of practice of medicine and prescription drugs. Getting rid of alot of that, and especially allowing people to buy medications known to be generally safe over-the-counter (such as anti-cholesterol drugs like Lipitor) would cut down on costs as well.

    And I agree with you about getting rid of HIPAA. From a patients’ point of view, its a pain as well. My wife can’t talk to my doctor’s office (and I can’t talk to hers) without filling out more forms than I care to count. Pointless.

    Comment by Doug Mataconis — January 4, 2007 @ 11:39 am
  4. How about this as well, abolish the VA hospital system and instead, give vouchers to veterans to buy private health insurance.

    Comment by Kevin — January 4, 2007 @ 11:44 am
  5. You guys are gonna get all anarchist on me now!

    Comment by Adam Selene — January 4, 2007 @ 11:52 am
  6. Oh sh*t! I’m out of luck!

    Comment by VRB — January 4, 2007 @ 4:56 pm
  7. I don’t see how your plan would cover high risk person like me. I can’t purchase long term care insurance for any amount of money now. Just who would cover me. I am not poor, but neither am I well to do. I guess I would have to give up everything to stay alive. I am not a rare person either.
    Lipitor is a bad example. It has too much risk to be sold over the counter. The possible side effects are real. It is not cheap now, it doesn’t work for every body, so how would the cost come down? Higher volume, I doubt it.
    I don’t think airlines are a good example of deregulation. There are people that live in certain areas that subsidize the major destinations. Service and comfort have not improved unless you think flying in a fiberglass crop duster with chickens has? Actually flying is not the best mode of transportation within certain distances.

    Comment by VRB — January 4, 2007 @ 5:18 pm
  8. I was surprised to see one of the biggest interventions completely left out:

    7) Abolish state medical licensing boards, or at a minimum abolish state imposed limits on the number of graduates medical schools are permitted to put out.

    The AMA lobbied for, and effectively controls the medical licensing boards in all states. They limit the number of doctors to maintain a medical practitioner to population ratio of 247 per 100,000. They do this while 10 qualified applicants are applying for every 3 seats at medical schools (according to a back of envelope calculation I did several years ago) and are being turned away.

    A critical component of a free market are low barriers to entry and exit. The AMA ensures that the barriers of entry for prospective doctors is set fairly high, in order to ensure a shortage which keeps prices high.

    As a Rothbardian Anarchocapitalist, I want to see the whole government licensure thing go away, to be replaced by private licensure. However, even the compromise of allowing anyone who wants to to apply for a state license, and allowing medical schools to train as many people as they want would be an improvement over the current situation.

    Comment by tarran — January 4, 2007 @ 6:51 pm
  9. VRB, Lipitor prices are higher than they have to be for the reasons above. Will it ever be cheap? I don’t think so, but certainly could be much less costly than it is now.

    Personally, I would expect the states would implement coverage for high risk folks that couldn’t afford healthcare on their own. Especially the states that have a more left wing tradition.

    Comment by Adam Selene — January 4, 2007 @ 8:22 pm
  10. Tarran, while I’m on your side on licensing boards, I would argue that simply implementing those 6 suggestions would make a tremendous difference. Not only that, it would place tremendous market pressure on the providers that does not currently exist.

    Comment by Adam Selene — January 4, 2007 @ 8:24 pm
  11. Adam,

    Lipitor, and its competitor drugs will not go down in price until the patents expire.

    But that’s another issue entirely.

    Comment by Doug Mataconis — January 4, 2007 @ 10:08 pm
  12. VRB,

    If I want a drug, whether it’s Lipitor, Synthroid, or anything else that might be medically beneficial, why should I need a prescription to get it ?

    Comment by Doug Mataconis — January 4, 2007 @ 10:10 pm
  13. At least you would need someone to recommend it. Can you understand the inserts and can you order test to determine if it would be causing muscle damage if its Lipitor? By the time you would notice the symptoms it could be late to do anything about it. Dosage is important too, not everyone would take a standard dosage, that would be determined by test also. There are other interactions with drugs, so when would you know when to consult the pharmacist. You can be responsible if you have all the knowledge, it is now possible for all people to have the knowledge of a doctor, pharmacist and lawyer too.

    Comment by VRB — January 5, 2007 @ 5:42 am
  14. Doug, I don’t agree about drug pricing. Yes, some of the cost of those drugs is caused by patent laws that are excessive, but not all. The VA, Medicaid and Medicare intrusion and price fixing/controls are also responsible for it. When Lipitor must be sold to Rhode Island Medicaid at the best negotiated price available, what happens is that the best negotiated price goes up for Lipitor, not down or static.

    Comment by Adam Selene — January 5, 2007 @ 8:15 am
  15. VRB, monopolistic practices and laws around access to drugs are certainly a contributing factor in pricing. There is a difference between getting advice from a doctor on what drug to take and needing a permission slip. Prescriptions are one of the worst features of the Nanny State. Not only does it limit liberty (you are not allowed to choose, you may only take those drugs the State and a State licensed doctor decide you may take), but it also drives up prices through scarcity.

    Comment by Adam Selene — January 5, 2007 @ 8:16 am
  16. Okay let me throw this out there, what about drug reimportation? The Lew Rockwell crowd supports it with the justification of willing buyers and willing sellers. Meanwhile CATO and every other self-described free market organization opposes it as subsidies.

    Comment by Kevin — January 5, 2007 @ 8:45 am
  17. Adam, why have doctors at all?

    Comment by VRB — January 5, 2007 @ 8:51 am
  18. Adam,
    I thought prescriptions were suppose to let you and the phamacist know precisely what you were suppose to take and how to take it. It helps the pharmacist give you all the information you need. Personally, I wouldn’t care what you take or when, but I do need help in understanding my medications. All the interactions and I don’t trust online help. If I am suspicious of the doctors opinion, I ask more questions or go to another doctor.

    Comment by VRB — January 5, 2007 @ 8:59 am
  19. Adam,
    I can’t seem to finish my thought, but I wonder if you use a state licenced plumber or electrician to do that kind of work at your house or do you do those things yourself. Managing their health care for some people can nearly be a full time job, having to do research and managing their drugs would be another. I didn’t think that everyone has to be a polymath to enjoy liberty.

    Comment by VRB — January 5, 2007 @ 9:11 am
  20. VRB,

    A prescription is good for that reason. But there’s the opposite side of the coin, where you cannot buy a drug without a prescription. So while it’s nice to have for informative purposes, it’s also a gateway that in order to get medication, you *MUST* go through a licensed doctor and pharmacist, rather than having that as one route and your own judgement as another.

    Comment by Brad Warbiany — January 5, 2007 @ 9:14 am
  21. VRB,

    The analogy of choosing between a state-licensed plumber and doing the work yourself is flawed.

    To make it a correct analogy, it would have to be illegal to do the work yourself, to use a non-licensed plumber to do the work, and that if any plumbing work would be done on your house, that it *MUST* be done by a state-licensed plumber.

    The problem is not with state licensing. The problem is with legally requiring that you must go through that state-licensed practitioner to receive service.

    Comment by Brad Warbiany — January 5, 2007 @ 9:21 am
  22. I’m not suggesting that you, or anyone else, should not consult a professional’s medical opinion when you need it or want it. What I’m suggesting is what Brad outlined so nicely. There is a vast difference between choosing to consult a professional and being required by law to get a permission slip from someone that the State deems is a professional. And considering the number of wrong prescriptions that doctors hand out, I’m not all that enamored of our mandatory permission givers.

    By the way, I do most of the work around my house, except electrical wiring. I’m reluctant to burn my house to the ground. However, I don’t insist that my electrical workers have a state license, just experience and references.

    Comment by Adam Selene — January 5, 2007 @ 11:01 am

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