Specific Healthcare Changesby 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.
- 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.
- 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.
- 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.
- 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).
- 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.