The High Costs of Healthcare in the Free Market

The jury is still out on Obamacare. Opinions vary.

If somehow it were shut down or largely gutted, what would be done to curb the spiraling costs associated with healthcare in America’s free market economy? If the Affordable Care Act goes forward untouched, will it be able to address the problem based on “market incentives” rather than by “government decree,” as one columnist noted?

What’s the solution to making quality healthcare affordable? I believe we all want quality, affordable healthcare. What we differ on includes consideration of responsibility. Who is responsible for making healthcare affordable? The individual? Businesses? The government? The medical community? The insurance industry? Pharmaceutical companies? The religious community? Nobody? If nobody, who will pay? If individuals, since according to some, individuals are all there really are, who will advocate on their behalf, especially those without sufficient money or mental prowess to advocate for themselves and who aren’t eligible for Medicaid or Medicare?

With the latter point in mind, should healthcare be regulated like utilities? This calls to mind a New York Times article on healthcare’s high costs:

A major factor behind the high costs is that the United States, unique among industrialized nations, does not generally regulate or intervene in medical pricing, aside from setting payment rates for Medicare and Medicaid, the government programs for older people and the poor. Many other countries deliver health care on a private fee-for-service basis, as does much of the American health care system, but they set rates as if health care were a public utility or negotiate fees with providers and insurers nationwide, for example.

“In the U.S., we like to consider health care a free market,” said Dr. David Blumenthal, president of the Commonwealth Fund and a former adviser to President Obama. ”But it is a very weird market, riddled with market failures.”

Consider this:

Consumers, the patients, do not see prices until after a service is provided, if they see them at all. And there is little quality data on hospitals and doctors to help determine good value, aside from surveys conducted by popular Web sites and magazines. Patients with insurance pay a tiny fraction of the bill, providing scant disincentive for spending.

Even doctors often do not know the costs of the tests and procedures they prescribe. When Dr. Michael Collins, an internist in East Hartford, Conn., called the hospital that he is affiliated with to price lab tests and a colonoscopy, he could not get an answer. “It’s impossible for me to think about cost,” he said. “If you go to the supermarket and there are no prices, how can you make intelligent decisions?”

Instead, payments are often determined in countless negotiations between a doctor, hospital or pharmacy, and an insurer, with the result often depending on their relative negotiating power. Insurers have limited incentive to bargain forcefully, since they can raise premiums to cover costs.

“It all comes down to market share, and very rarely is anyone looking out for the patient,” said Dr. Jeffrey Rice, the chief executive of Healthcare Blue Book, which tracks commercial insurance payments. “People think it’s like other purchases: that if you pay more you get a better car. But in medicine, it’s not like that.”

Who will look out for the patient?

Ron Paul maintains that the solution to providing quality, affordable healthcare for everyone is to make it possible for individuals to look out completely for themselves. He argues that Obamacare is not “socialized medicine,” as some of the program’s opponents claim, but “corporatized medicine. ” Paul writes that critics of nationalized healthcare must go all out and “advocate for a complete free market in health care,” adding, “Some will say it is unrealistic to advocate replacing Obamacare with a pure free-market system, but in fact it is unrealistic to expect anything less than a true free-market to provide quality health care for Americans at all income levels. Continuing on the ‘middle of the road’ in health care by mixing free-markets with government spending and regulations will only continue to take us on the road to socialized health care.”

Can a society of individuals go it alone? What do you think? Can we get there together, or like businesses that falter in a free market economy, will some individuals’ health inevitably falter and fail by falling through the cracks? Is socialized or corporatized medicine the best solution? Or will they only lead to higher costs, where quality, affordable healthcare is never reached? What do you think?

Join me at The Institute for the Theology of Culture: New Wine, New Wineskins’ conference on Healthcare this Saturday, October 19 to further engage these issues.

This piece is cross-posted at The Institute for the Theology of Culture: New Wine, New Wineskins and at The Christian Post.

About Paul Louis Metzger

Dr. Paul Louis Metzger is the Founder and Director of The Institute for the Theology of Culture: New Wine, New Wineskins and Professor at Multnomah Biblical Seminary/Multnomah University. He is the author of numerous works, including "Connecting Christ: How to Discuss Jesus in a World of Diverse Paths" and "Consuming Jesus: Beyond Race and Class Divisions in a Consumer Church." These volumes and his others can be found wherever fine books are sold.

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  • dcpdx

    It seems ironic that healthcare in a “free” market (the U.S.) is hampered by a lack of knowledge, especially in light of the Nobel Prize in Economics given to three men who won, in part, because of the assumptions about market efficiency (knowledge in and of the marketplace). An inefficient market would give rise to the healthcare mess we have in the U.S.

  • Loren Sickles

    I believe that as long as the public discourse continues to give credence to the myth of “free markets” the debate surrounding health care in this country will continue to focus on untenable solutions. Paul Ryan throws that metaphor around to keep his loyalist at his side knowing full well that the oligarchies of our economic system will never allow anything even closely resembling a “free” market to come into existence.

    I am increasingly concerned with dueling belief systems of the institutional American Christian church. On one hand we believe that we serve a personal, gracious and loving God (kingdom of heaven). On the other hand we believe that we serve an impersonal, harsh and demanding god (free market economy). One predates human existence and does not depend on our involvement to be true. The other is socially constructed and exists because we choose that it exist. Which would we be wiser to align ourselves with? Kingdom of heaven values or economic myths?

    • dcpdx

      spot on!

  • Simeon Andrews

    Finding the costs of a medical treatment in advance is incredibly
    difficult. I am currently finding this out because my wife is having
    some medical treatments done here in the USA, but my insurance company
    is based in an Arab/Persian Gulf country (where I work) and expects to have an itemized list of costs before it agrees to a procedure.

    I talked to the doctor’s office here, they could not even tell me how
    much their office would charge for any given visit; they said since they
    didn’t know exactly what would be discussed, they did not know how it
    would be billed. Not to mention that they had no information of how the
    hospital would bill treatments on their end. When I called the hospital
    and asked them how much their charge for a thyroidectomy would be (this
    is aside from the surgeon, assistant surgeon, and anesthetist), they
    could not give a straight answer. All they could do was look at their
    records and say that two recent patients with thyroidectomies got
    charged betwen $17,000 and $26,000. No explanation as to why there was a
    $10,000 discrepancy. We received a bill for around $18,000 after the procedure.

    This is not a nefarious plan. The US
    healthcare system simply likes to be unconstrained by thinking about
    cost while delivering care. Therefore, it provides care, and then later
    adds up the cost of what it delivered. It knows that unexpected
    complications arise, making some procedures more complicated than
    others. It’s somewhat analogous to how most mechanics work. We take the
    car in, and pay by the hour for the work they do, because we know
    sometimes things take more time, sometimes less.

    However, this
    all gets back to exactly what you say: there seems to be absolutely no
    connection whatsoever between market forces and health care. Patients
    often pay only a fraction of the cost of care, and many times the
    fraction they pay is unrelated to the actual cost of care. Health care
    providers usually get paid for whatever they do, eventually, by someone.
    Insurance companies try to spend less, but as you say, they can also
    raise premiums if necessary. The people paying the premiums try to pay as little as possible, but generally have few
    options if they want decent coverage.

    As a case in point: My wife
    will soon be having a treatment with radioactive iodine. In
    preparation, she could either go off her thyroid medication for two
    weeks, which would make her feel cold, unenergetic, and mentally
    lethargic for two weeks. Or, she can pay $2500 for a shot taken the two
    days prior to the iodine treatment. Neither method is more effective;
    it’s a question of suffering vs. a lot of money. And patient choice all
    comes down to what the insurance company will cover, usually, or how
    deep one’s pocket already is.

    So: either we need to really run this as a free market economy and healthcare providers have to be upfront about their costs, or we need to find a way to do this that fully recognizes that this is NOT based on free market economics in the least. The wort case scenario, I think, is the current one: to treat it like a free market economy when it isn’t. There are good arguments to be made for both options, and I think there are Godly ways of doing both. If we pick a “free market” based system, we can still act benevolently toward those who are unable to meet costs on their own. If we pick a more directed or governed system, we can do so in a way that takes into account the individual as well (to some degree). But I think it is time to fish or cut bait.

  • Bill

    The current healthcare industry is over regulated and not truly free to operate in a free market mode. Here’s how we could end up with a superior system for all that is truly more affordable and delivers better care:

    1) Throw out all of Obamacare, there is not enough worth keeping to salvage any.
    2) Get rid of many of the healthcare regulations that limit free trade.
    3) Add a new regulation which makes an insurer liable for the insured’s lifespan for any injury or illness incurred while insured. This will ease the minds of the insured from worrying about losing a job and insurance due to sickness or injury.
    4) Add a second regulation which removes liability for the insurer from any illness or injury the insured incurred before being insured.
    5) Decouple insurance from the employer. This is a failed experiment that came about due to FDR trying to control the free market.
    6) Use charities to care for those who fall through the cracks. Or if we must keep failed gov’t systems, stick with Medicaid and live with subpar service.

    Items 3 and 4 work with human nature to motivate people to carry insurance unlike Obamacare which uses the force of government.

    In general, the vast majority of health expenses should be taken care of out of pocket by the person seeking health care. This is the way to truly unleash the free market. Insurance should only be for catastrophic events. However, this shouldn’t be regulated, natural market forces will lead to this (very high cost for Cadillac plans).

  • Lofty142

    Employers owning the health insurance policies is not a free market.

  • Nathan Bubna

    There’s no realistic path to a free market right now. Too many people too late in life to plan and prepare to stand on their own, too many already out of control prices, too big of pharma corporations, too entrenched of lobbyists, and the hardest of all to change, a culture of patients and providers that sees it as inappropriate to ask/think/talk about costs for critical care until after the fact.

    And while i prefer free markets for most things, there are societal services that are so heavily composed of inelastic demand that it keeping free market solutions stable or practical in the long run is nigh impossible. This is why we provide public fire and police departments, for instance. Health care is a similar creature to police work. It involves both routine prevention and crisis management. The demand for routine prevention may be elastic enough to keep a free market going (consider the high number of non-police security guards), but when it comes time to handle crises or manage chronic conditions, it makes more sense to have a government-managed service in place instead of a free market.

    Thus far, i sound like an advocate for single-payer, right? I’m not though. My problem with single-payer is the scale. And it’s a really big problem. Pun intended. The vast majority of police in this country work for a city or a county bureau. This is crucial and should be a model for govt-run health services both because one size does not fit all and bureaucracy does not scale. With myriad police forces, you still get inefficiency and corruption. But those are givens so long as humans are involved, what decentralization gives you are:
    A) reduced scale of damage by a corrupt person can cause
    B) increased accountability due to locality
    C) less bureaucracy (organizations are pyramids and volume grows faster than base as base increases)
    D) an organizational-level free market (different cop bureaus can learn from other’s failures, equipment providers can’t capture all of them with legislation, etc)

    Single payer would get you none of those, plus a central point of control to make it much, much easier for industry/corporate lobbyists to pull strings.

    So, basically, i’m in favor of socialized health care, at least for chronic/crisis medicine, but i want it to be local, not national. I have ZERO faith that a massive centralized program can do better than a free market, but i do think local, mini-single-payer programs could pretty easily outperform a free market on average considering the high amount of inelastic demand involved in health care.

  • pmetzger

    Friends, thank you for sharing your various multi-faceted reflections. I appreciate the amount of thought you have devoted to making these points available to my readership. There is quite a lot of material here upon which to reflect. Gratefully yours.