by Matt Kibbe
ADVOCATES OF CENTRALIZED MEDICINE ARGUE THAT MARKETS HAVE failed to meet people’s needs, and (because, they’re always telling us, health care is different) government must step in to do it. But this argument never holds up. Every alleged instance of market failure turns out, upon examination, to be an example of government failure. Whether it’s railroads, energy production, or health insurance, the culprit behind the flaws in the system will invariably be a misguided government regulation or benefit scheme that impedes competition and keeps consumers from making the right choices.
The price-signaling system works to allocate resources to those who need and want them. Where the price system appears not to be working, look closer: you’ll find the government behind the curtain, pulling levers and pushing buttons, trying to displace the personal knowledge of millions and millions of Americans regarding the best decisions for their families.
In top-down systems run by third parties who don’t know you and will never care about you, patients get lost, subjugated to someone else’s purposes.
HEALTHY COMPETITION
SURE ENOUGH, THERE IS AT LEAST ONE AREA IN HEALTH CARE TODAY where we can see patient freedom working effectively: cosmetic surgery. That’s because insurance companies don’t typically cover it; it’s a “self-pay” market. So third parties like insurers, employers, and governments aren’t meddling in the doctor-patient relationship. The result? Continuously falling prices and continuously rising quality. Exactly what we’d expect in freely operating markets where the patient (the customer) controls the dollars.
One of the best examples is laser eye surgery, more commonly called LASIK. At the time of its approval in the 1990s, it cost upwards of $2,000 per eye.30 Today you can get it done for $1,800 per eye, on average,31 and as low as $500 in some cases, with success rates approaching 100 percent. Faster lasers, larger spot areas, bladeless flap incisions, intraoperative pachymetry, and “wavefront-guided” techniques have significantly improved the speed, reliability, and comfort of the procedure for patients. That record of increasing value compares extremely favorably with other areas of health care that are typically covered by insurance. In areas dominated by third-party payment, it’s not the value that goes steadily up, year after year, but the cost.
The paternalist types will protest: well, maybe economic freedom works for optional services like cosmetic surgery, but surely we can’t trust people to be in the driver’s seat for their own care when it comes to serious ailments like cancer and heart disease! Actually, we can. It’s true most of us have never been to medical school. But when it comes to making health care decisions for ourselves, there’s no reason why we can’t make prudent choices with the help of our doctors, without interference by third parties.
When you walk into a typical modern grocery store, what do you see? An incredible, almost bewildering array of products. How did that remarkable cornucopia come into existence? Who decided how much shelf space to devote to tomato soup, as opposed to candy bars? Why does one brand get more space than another? Why are some products not offered at all? Who planned all this?
The answer, of course, is no one planned it. The miracle of the grocery store is generated out of the trillions of small decisions made by millions of individual shoppers every day. These choices are constantly shaping and refining what you find when you walk into Safeway or Wal-Mart. We aren’t all farmers or chefs, and most people don’t even pay that much attention to what groceries they buy. But driving up the quality of choices doesn’t require everyone to be an expert, nor does it take every single shopper scrutinizing every product carefully. Even if just a small handful of smart shoppers make careful discriminations between products, favoring those of highest value and eschewing those of lower value, the effect is sufficient to be transformative. These informed consumers’ choices signal to the grocer: stock more of this, less of that; provide more shelf space for this, less for that. It’s awesome. Especially for us lazy shoppers, who get to glide along in the wake of our neighbors who are more aggressive discriminators of price, quantity, and quality.
FOOD FOR THOUGHT
WHAT’S TRUE OF GROCERY STORES CAN ALSO BE TRUE OF HEALTH care. In fact, as it happens, one great example of health care innovation based on putting patients first can be found at Whole Foods Market. The chain’s cofounder and CEO John Mackey has empowered “team members” at Whole Foods to voluntarily choose high-deductible insurance plans coupled with Health Savings Accounts. The result has been better choices at lower costs. According to Mackey,
The combination of high-deductible health insurance and HSAs is one solution that could solve many of our health-care problems. For example, Whole Foods Market pays 100% of the premiums for all our team members who work 30 hours or more per week (about 89% of all team members) for our high-deductible health-insurance plan. We also provide up to $1,800 per year in additional health-care dollars through deposits into employees’ Personal Wellness Accounts to spend as they choose on their own health and wellness.
Money not spent in one year rolls over to the next and grows over time. Our team members therefore spend their own health-care dollars until the annual deductible is covered (about $2,500) and the insurance plan kicks in. This creates incentives to spend the first $2,500 more carefully. Our plan’s costs are much lower than typical health insurance, while providing a very high degree of worker satisfaction.32
John Mackey is an interesting cultural mash-up, best understood by imagining what might have happened if Ayn Rand and Jerry Garcia had procreated. Mackey would surely be their love child—half organic-food-obsessed, crunchy vegan hippie; half Declaration of Independence–reading, freedom-loving rugged individualist. On the one hand, Mackey is an advocate of what he calls Conscious Capitalism, through which he means to debunk the caricature of the revenue-maximizing-at-any-cost businessman. He believes that “every business has the potential for a higher purpose. And if you think about it, all the other professions in our society are motivated by purpose, beyond a narrow interpretation of purpose as restricted to maximizing profits.”
Mackey notes that “doctors are some of the highest paid people in our society and yet doctors have a purpose—to heal people—and that’s the professional ethics taught in medical school.”33 On the other hand, Mackey has become famous for saying things that could never pass Barack Obama’s lips: “America became the wealthiest country because for most of our history we have followed the basic principles of economic freedom: property rights, freedom to trade internationally, minimal governmental regulation of business, sound money, relatively low taxes, the rule of law, entrepreneurship, freedom to fail, and voluntary exchange.”34
Some progressives don’t quite get it. Describing Whole Foods’ founding grocer, The New Yorker observed, “The right-wing hippie is a rare bird.”35 Capitalists who care about their fellow man? Crazy! They react to Mackey in much the same way Al Sharpton does to black conservatives. What exactly is the Left afraid of—a little diversity?
That certainly explains the far Left’s unchecked aggression against what Mackey wrote against Obamacare in a Wall Street Journal op-ed in 2009.
While we clearly need health-care reform, the last thing our country needs is a massive new health-care entitlement that will create hundreds of billions of dollars of new unfunded deficits and move us much closer to a government takeover of our health-care system. Instead, we should be trying to achieve reforms by moving in the opposite direction—toward less government control and more individual empowerment.36
His critique of Obamacare was followed by an eight-point health care reform plan based on the company’s own experience. First, he recommended, government should “[r]emove the legal obstacles that slow the creation of high-deductible health insurance plans and health savings accounts (HSAs).” Daring to take this real-world experimental data to its logical conclusion, he went on to recommend other, even bolder ideas, such as equalizing the tax treatment of health insurance, regardless of whether you get it from your workplace o
r the yellow pages; increasing competition among insurers; repealing costly, unnecessary mandated benefits on insurance policies; tort reform; Medicare reform; and greater price transparency for consumers.
But what really got Mackey sideways with some was his willingness to address the wholly contrived point of faith among progressive Democrats that health care services are a government-granted right:
Many promoters of health-care reform believe that people have an intrinsic ethical right to health care—to equal access to doctors, medicines and hospitals. While all of us empathize with those who are sick, how can we say that all people have more of an intrinsic right to health care than they have to food or shelter?
Health care is a service that we all need, but just like food and shelter it is best provided through voluntary and mutually beneficial market exchanges. A careful reading of both the Declaration of Independence and the Constitution will not reveal any intrinsic right to health care, food or shelter. That’s because there isn’t any. This “right” has never existed in America.37
Unforgivable! The greengrocer’s apostasy against the Chosen One’s plan to take over our health care system was greeted by an organized boycott of Whole Foods. That boycott was in turn offset by a Tea Party counterprotest—a “buy-cott.”
PAGING DR. PAUL
EVERYONE KNOWS RON PAUL IS AN OUTSPOKEN LIBERTARIAN, BUT many aren’t aware that the Texas congressman is also a physician who has helped deliver 4,000 babies. Dr. Paul shares Mackey’s rejection of “health care as a right.” He also points out the silliness of the idea that a lack of government-promised care means that people should or would go without. At a Republican presidential candidates’ debate in 2011, Paul shared what would become a notorious exchange with moderator Wolf Blitzer of CNN. Blitzer asked a hypothetical question about a thirty-year-old man caught without health insurance when calamity hits, and he goes into a coma. “Who pays for that?”
“In a society where you accept welfarism and socialism,” responds Paul, “he expects the government to take care of it.” Responding to multiple follow-up questions, Paul explains that what this hypothetical man “should do is whatever he wants to do and assume responsibility for himself. . . . That’s what freedom is all about, taking your own risks.”
Blitzer: But Congressman, are you saying that society should just let him die?
Paul: No. I practiced medicine before we had Medicaid in the early 1960s when I got out of medical school. I practiced at Santa Rosa Hospital in San Antonio. And the churches took care of ’em. We never turned anybody away from the hospital. [Loud applause.] And we’ve given up on this whole concept that we might take care of ourselves and assume responsibility for ourselves—our neighbors, our friends, our churches would do it. This whole idea—that’s the reason the cost is so high. The cost is so high because we dump it on the government, it becomes a bureaucracy, it becomes special-interest, it kowtows to the insurance companies and the drug companies, and then on top of that you have the inflation. The inflation devalues the dollar. We have lack of competition. There’s no competition in medicine.38
This episode is a classic example of Bastiat’s “seen and unseen” in the debate over who gets what in the provision and allocation of health care services. Is “health care” an objective good that exists outside of the incentives to provide it, a fixed pie of treatments, medications, and services that can be reallocated, from the top down, by the smartest, most benevolent bureaucrats? Government promises, empty as they are, are seen as doing something for this hypothetical (and irresponsible) man in need of health services. What goes unseen is the destruction of the social contract between free people living in a community where you are expected not to hurt others and not to take their stuff. Free people support and help each other. Where health care is a government-imposed “right,” someone else will take care of it, so there is little responsibility for yourself or others in a bind. One thing that history teaches us is that a contrived right to everything in theory amounts to exactly nothing in practice.
But a right to health care prompts key questions: What standard of care? Do you get access to the latest innovations and treatments? Will there be new innovations, or will the government deem them too expensive? Will a competent doctor be available when your government-imagined right to see him discourages young people from becoming doctors in the first place?
Who decides these questions? In a government-run system, the patient certainly will not.
The news stories of the Blitzer-Paul exchange focused exclusively on a single rude audience member who screamed “yeah” when the CNN reporter asked if “society should just let him die.” Who might have that individual have been? We will never know. Maybe Robert Reich slipped past security?
THE UNSEEN
ALL OUR SYSTEM’S PROBLEMS—INFLATION, JOB LOSS, EXCESSIVE PAPERWORK, 47 million uninsured—are symptoms of an underlying disease. The disease has a name: centralization. In the health care system, that’s usually referred to as “third-party payment.” Too much of our health care is paid for by third parties. Too much control has been taken away from us, the patients, and is being wielded by others.
No one spends other people’s money as wisely as he spends his own. That insight is as true in health care as it is everywhere else. And in health care, the negative effects of letting other people spend our money have encouraged more centralization of the system, away from patients. It’s as tragic as it was foreseeable, and preventable.
Happily, it’s also reversible.
The most common form of health benefits coverage today is a fairly comprehensive insurance plan covering most hospital costs and doctor bills, as well as any medically necessary prescription drugs and medical devices. For most folks, the benefits also tend to be rich in terms of cost-sharing. The deductibles and co-pays—the portion of the bill we pay before our insurance kicks in—tend to be relatively low. That means our premium payment—the amount we make each month to keep our coverage in effect—must be relatively high. This is the basic trade-off with health insurance: we can have higher premiums with lower cost-sharing, or lower premiums with higher cost-sharing.
The lower-deductible kind of coverage so widespread today is great for those who want “more” benefits and don’t mind paying extra for them, up front. The higher-deductible kind is more economical; it makes more sense for people of lesser means. More important, the higher your deductible, the more of a role you’ll tend to take in your own care—because, in keeping with human nature, we tend to spend more carefully when, by doing so, we can save money for something else we’d rather have more.
The downside of the more generous, lower-deductible sort of coverage prevalent today is that it tends to encourage medical inflation. People consume more than they otherwise might—demand rises unchecked—because, once their insurance kicks in, any additional costs feel “free” to them. An extra test? Another office visit? Name brand instead of generic? Don’t worry, your insurance will cover it! Americans have become disconnected from the cost of their own health care. And it’s why in health care, unlike most other areas of the economy, prices always go up; they never remain flat or go down. We’re spending what feels to us like “other people’s money.”
How did things get like this? The answer lies in the tax code, specifically in section 106. That provision excludes health benefits from the income and payroll taxes—which is very generous treatment—but only if those benefits come from your employer. As a result of this government policy, more than half of Americans get their health coverage through the workplace. Which is odd, if you think about it, since no other country on earth does it that way.
The downside is that Americans without access to job-based coverage don’t get the tax break. They pay full freight. The 15 percent of the population that goes without coverage, either voluntarily or involuntarily, is, in a sense, the price we pay for having this peculiar system. To be sure, some of the uninsured have sufficient resources to protect themsel
ves, out-of-pocket. But for most, coverage is simply too expensive, relative to its value for them personally.
Section 106 is one of the great examples of how a seemingly small, “altruistic” change in the law can have massive negative repercussions over time.
Historically, this policy was a bureaucratic response to the unseen economic consequences of wage and price controls imposed by FDR during World War II. Bureaucrats at the War Labor Board were charged with enforcing a complicated system of wage and price controls, and faced pressure from employers and labor unions eager to get around those controls. The board decided to embrace the idea that fringe benefits up to 5 percent of wages shouldn’t be deemed “inflationary” and could therefore be excluded. That fateful 1942 decision was followed the next year by an IRS ruling that employer-provided health insurance, already tax-deductible as a business expense, didn’t have to be declared as income by workers. Employers seized on this new tool for attracting workers in a competitive labor market, and workers readily accepted the tax-free fringe benefits in lieu of cash compensation. By 1946, enrollment in employer-sponsored group health benefit plans had more than tripled, from 7 million to 26 million members.39 In 1954, Congress codified the new policy in the tax code.
With the advent of Medicare and Medicaid in the Lyndon Johnson Great Society years, the entire system began to evolve into one of reliance on third-party payers. By the 1990s, national health spending, public as well as private, had almost tripled, to 13 percent of the economy. Today, two decades later, health spending represents about 17 percent of output, or more than one-sixth of our entire economy, and it’s still rising.40 Now, by itself, that increase might not be a bad thing, if it simply means medicine provides more value than it did in the past. After all, who’s to say how much health care is “too much”? But while overall spending was going up, the share of health spending paid for by individuals out of pocket was falling dramatically, from close to half of all health spending in the early ’60s to only about one-quarter today.41 Meanwhile, government’s share is growing; today, it represents nearly two-thirds of all health spending.42