Foldvary on Free-Market Health Care
|September 5, 2002||Posted by Fred Foldvary under Archive, Progress Report, The Progress Report|
Free-Market Health Care
by Fred E. Foldvary, Senior Editor
With a pure free market for health care, each family would purchase health and medical services and insurance, just as they do for life insurance and insurance for cars and houses. Medical care would be less expensive, and people would be able to afford it, since untaxed wages would be much higher. Since these services would be bought directly by the consumers, there would be no problem about portability – one could keep the service when one changes jobs.
Most folks agree that health care is now too expensive, and it is too much tied up with one’s employer. Sometimes the providers don’t seem to care much about serving their customers. Some reformers think that the “free market” for medical care has failed, and they advocate a “single payer” government provision. But this leaves the rationing and decisions in the hands of government officials and bureaucrats, and the special interests that influence them, rather than with the consumer. Rationing leads to long delays for some types of operations, or never doing it at all.
Why is medical care provided by employers in the US, rather than purchased directly by the customers? Because of the income tax. Medical insurance is a tax deduction for employers, but not normally tax deductible for employees. Also, medical coverage paid by the employer is not counted as taxable income for the employee. So the tax incentives are for employers to provide it. But that leads to less consumer choice, and to the portability problem when the employee changes jobs. Also, many smaller firms do not provide the insurance, making it more expensive for these employees, since they pay for insurance with after-tax income.
In order to have true free-market medicine, the income tax would be entirely eliminated and replaced by market-based public revenue from user fees and land rents. Then there would be no tax advantage for employer-based health insurance. But even with an income tax, the incentive for employer financing can be eliminated by eliminating the tax deduction for employers’ medical coverage. That way, consumers would buy health services and insurance just as they do other goods and insurance, and without any tax bias.
Medicare for the elderly and Medicaid for the poor are the major federal health programs. The government considers people either too poor or too foolish to provide for health care in their old age. The poverty problem could be eliminated by not taxing wages and by not overly restricting enterprise with regulations. Most folks would not be so foolish as to not have savings or insurance for their old age, but for those who are, then the traditional remedy has been local county hospitals and charity. Even for the poor and foolish, it is not necessary to have a sweeping federal system that penalizes the productive and wise as well, and costs taxpayers billions of dollars annually in fraud.
For a pure free market in health care, there would also need to be legal and regulatory reforms. Litigation increases medical costs, as doctors have to pay for expensive insurance against law suits, and they perform extra medical tests to protect them from law suits. These legal costs would be reduced by switching to the English system, where the loser in a lawsuit pays all legal costs. The government could also make it easier to sue without a lawyer.
Another reform that would reduce medical costs is to legalize medical practice by nurses, midwives, and alternative medical providers. Consumers should be informed about the credentials of the care provider, and various types of treatments could be certified as accepted or not by medical societies and governments. But then let consumers, especially adults, make their own choices. The Food and Drug Administration should legalize all treatments, so long as consumers are informed on the credentials and acceptance of the treatments by the medical establishment.
Another key reform in reducing medical costs is a stricter enforcement of laws against fraud. Suppose a doctor keeps prescribing pills that don’t really cure the disease, but keep the patient paying for his examinations and medicine, when some other cure would eliminate the need for the pills. This is fraud, and should be severely penalized. Such fraud can be reduced by having impartial medical agents examine treatments and then help patients sue for malpractice if the doctor is exploiting the patient.
Healthy food and lifestyles are the best type of health insurance. With consumers directly paying for health care, insurance companies and HMOs could offer discounts for healthy living, as they do for nonsmokers. Evidence of healthful habits shows up in medical exams. Schools should also educate children in healthy living.
We can see that a true free market in health care would involve reforms in many areas besides medical care – tax, legal, and regulatory reforms that would involve a major governmental and legal restructuring. This is not done, because many special vested protected interest would lose their privileges and subsidies. So reform only comes about at the margins, such as limited medical savings accounts.
It’s the same old story. Significant improvement requires major constitutional and legal changes, and the powers that enjoy privileges and subsidies will act not only to prevent these changes but to make people think only about changing policy with the system rather than challenging the whole system.
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Copyright 1998 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieveal system, without giving full credit to Fred Foldvary and The Progress Report.