A Pure Free Market in Medical Services
12 reforms needed to bring economic freedom, providing individuals and families a free choice in medical care.
July 27, 2009
Fred Foldvary, Ph.D.
Economist

There are two directions for the reform of the U.S. medical services systems. One is towards welfare statism, the control of the medical system by the federal government, and the other is towards economic freedom, providing individuals and families a free choice in medical care.

Economic theory points to a pure free market providing the most productive and equitable economy and therefore medical services. Central planners lack the knowledge to efficiently allocate resources, and politics skews the outcome towards special interests.

Here are the reforms need to have a really free market in medical services:

1. Reform tort law. In lawsuits, the law should make the loser pay for the legal costs of the winner. If a patient sues a doctor and loses the lawsuit, the lawsuit should not impose legal costs on the innocent doctor. That would greatly reduce medical costs.

2. Legalize medical drugs. There would be no restrictions on medical drugs, including medical marijuana. The FDA could require warnings and information, but not ban any medicine.

3. Make taxation medically neutral. Given the current income tax, medical benefits should be subject to the same taxes as money income. Medical expenses should be tax deductible. So a $5000 medical benefit would be subject to the income tax, but the $5000 payment to either medical expenses or a medical savings account would be deducted from taxable income, leaving the income in effect tax free. Since there would be no tax advantage to employer-provided medical insurance, the system would shift away from that, towards individual responsibility.

4. Protect against genetic and childhood problems. Parents incur a moral responsibility when they choose to create a child. Parents would be required to buy genetic medical insurance for their children before they are born. This would be a lifelong coverage for any medical problems the child is born with. Parents would also be legally required to provide medical services for their children up to the age of adulthood (18 years of age), and these policies would continue to cover problems acquired during childhood. That solves the pre-existing medical condition problem.

5. When a child becomes an adult, he would be automatically be enrolled in a standard catastrophic medical insurance program created by a consortium of insurance firms, paid for by the individual. If one wanted to, one could quit the program. By default, most people would have protection from severe illness and injuries.

6. As a substitute for commercial insurance, people would create “friendly societies” or cooperative mutual-aid organizations to provide themselves with medical services, just as people create credit unions for mutual financial services. These societies would encourage good health and provide genuine health care, with discounts for exercise, healthy diets, and not smoking.

7. There would be a constitutional “law of the market” which would require that all products be safe, healthy, effective, and environmentally friendly, unless stated otherwise. The public would be warned that the excessive consumption of meat, fat, salt, sugar, and white flour ruins their health. They would be warned that crop monoculture, pesticides, and excessive fishing and tree cutting are destroying the earth’s ecology.

8. Medicare, medicaid, and other federal welfare programs for the aged and poor would be replaced by vouchers for medical services, paid for by the states. All legal residents would get a voucher. The voucher would pay for the standard catastrophic medical insurance program or other medical expenses. That solves the medical care affordability problem. Such vouchers would not be needed in a completely free market, since a pure free market would make labor tax free and abolish poverty, but given the current system, with its poverty, vouchers would take us to the frontier of a free medical market in medical services.

9. Adults who refuse to purchase medical insurance would be legally responsible for any medical expenses they incur beyond that paid by the medical voucher. Bankruptcy would not eliminate this liability.

10. Schools would be encouraged, and governmental schools required, to teach good nutrition. That would include the benefits of a whole-plant diet, moderate sunlight for vitamin D, and what is known about vitamins, herbs, minerals, enzymes, and other supplements.

11. For optimal health, there would also have to be policies to reduce environmental pollution, including pollution from discarded and flushed medical products. All levels of government would have polluter-pay policies, so that pollution would be subject to either lawsuits or pollution charges. A pollution charge would be required to be paid by local agencies which do not fully neutralize medical waste.

12. A pure free market in medical services would have to include a free-market fiscal policy. Taxes on production, consumption, and exchange would be replaced by levies on pollution and land value. Higher wages, and keeping one’s full earnings, and lowering costs, would make organically-grown food, adequate housing, and protective medical services that much more affordable.

These twelve reforms would greatly reduce medical expenses, respect the right of individuals to choose their services, and fix the problems that now make medical services a sick system. Otherwise, if the USA treads the path of central planning, the result will be governmental rationing that will both deny choice and inflict suffering on those unlucky persons whose medical conditions the medico-bureaucrats decide are not worth treating.

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Fred Foldvary, Ph.D.
Economist

FRED E. FOLDVARY, Ph.D., is an economist and has been writing weekly editorials for Progress.org since 1997. Foldvary's commentaries are well respected for their currency, sound logic, wit, and consistent devotion to human freedom. He received his B.A. in economics from the University of California at Berkeley, and his M.A. and Ph.D. in economics from George Mason University. He has taught economics at Virginia Tech, John F. Kennedy University, Santa Clara University, and currently teaches at San Jose State University.

Foldvary is the author of The Soul of LibertyPublic Goods and Private Communities, and Dictionary of Free Market Economics. He edited and contributed to Beyond Neoclassical Economics and, with Dan Klein, The Half-Life of Policy Rationales. Foldvary's areas of research include public finance, governance, ethical philosophy, and land economics.

Foldvary is notably known for going on record in the American Journal of Economics and Sociology in 1997 to predict the exact timing of the 2008 economic depression—eleven years before the event occurred. He was able to do so due to his extensive knowledge of the real-estate cycle.