With the Senate’s postponement of the American Health Care Act vote, Democrats and Republicans seem more polarized than ever regarding healthcare. Yet, over what, I’m not sure. When it comes to the details, they appear to agree on more now than ever before. This is because both sides have decided on further intervention as the fix, choosing to keep the conversation focused on the topic of insurance, instead of addressing the costs, where the solution actually lies.
By examining some of the overlooked costs involved in our healthcare industry, we can get a better sense of what the real problems are. After all, had costs not gotten out of hand in the first place, we would not be having this discussion. Likewise, if we agree that costs are the problem – as we’ll see they are – then the act of getting more people insured is disingenuous, because it does nothing to combat the rising costs and serves only as an attempt to transfer the burden of payment through market intervention.
As I’ve discussed in previous articles, health insurance has already been egregiously twisted from the way it was designed to behave, being used today as a transfer of payment, rather than a hedge against the risk of a catastrophic cost. We don’t use our car insurance on routine maintenance because not only can we can control when that occurs, thereby removing the risk, but also because of how relatively cheap those services are. However, if oil changes suddenly soared to an unbearable level, we may find the government trying to meddle in the auto insurance market too. Attempting to regulate what’s covered, instead of looking at the cause of the sudden price surge. This same concept holds true in healthcare as well, so why the price increase?
Unfortunately, healthcare costs are affected by factors outside the healthcare market almost as much as from within. As Leonard Read famously pointed out in his essay I, Pencil, even the task of constructing something menial, such as a pencil, is affected in innumerably ways by other markets, with no one person on earth knowing its entire process from start to finish. This idea is the same for the healthcare industry, as we’ll see as we examine a few of the factors affecting the cost.
First, there’s the pre-requisites, both in education and licensing. Completing the necessary schooling to practice medicine today averages over $100,000, due in large part to the overregulation already affecting that market’s prices. Thus, restricting the supply of people able to pursue medicine, thereby raising costs. Then there are the licensing laws, filled with time consuming, expensive redundancies, all of which must be done if you hope to obtain the American Medical Association’s monopoly control of approval, again, further restricting supply.
After that, there are numerous aspects impacting costs from within the industry. The FDA for example, with its 3,000+ pages of regulation, has brought the price of bringing a new drug to market from $802 million in 2001, up to $2.6 billion in 2014. Then we have the increased costs of equipment that hospitals use. Where study after study shows that government intrusion drives up costs with attempts to ‘save American jobs,’ which only shields inefficient domestic manufacturing jobs from foreign competition, either through subsidy or regulation, thereby creating an artificially high price floor for many of the machines hospitals use every day. So far, all of the costs mentioned are passed onto the consumer in one way or another, but the cost of healthcare goes further than just what we can measure.
The final cost is unseen, but could be argued as the most important aspect of healthcare; choice. In economics, we call this the opportunity cost, the goods and services we give up by choosing to allocate our time and money elsewhere. For example, choosing to go to an emergency room, instead of staying at home and taking medicine. With the suppression of the market through over-regulation, choice has been severely diminished, and in nations with single-payer systems, it has been outright extinguished. We all remember the “If you like your doctor, you can keep your doctor” lie we were told about choice, but now we see in the UK’s NHS system, families losing the ability to choose what’s best for themselves and their children even with their own funding, instead having courts decide the appropriate rationing of care. As was said in I, Pencil, however, there will always be an absence of the mastermind, of anyone obtaining the ability to efficiently direct or dictate these countless actions into being. Of all the intrusions into the market regarding our healthcare, this mindset of central planning is by far the most detrimental.
As you can see, the costliest aspect of our health market is not a market failure, but government intrusion. Even with just this quick and simple breakdown of the costs involved in and around healthcare today, there is a significant portion of the blame coming from the forced interference from government into multiple facets of our economy, ultimately tying themselves back into our health costs. If we ever hope to solve our current dilemma, it won’t come from another mandate on the type of coverage offered by insurers. On the contrary, it seems undeniable that simply allowing these regulations to become optional could help to drastically drive down costs. Any solution that hopes to be viable, however, must focus on the outright removal of such directives, coupled with scaling back and removing regulatory burdens in the related fields as well, and the perverse incentives that accompany them.
Featured image: Dave van Englehoven
Thomas J. Eckert
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