A Catholic, Free Market Approach to Healthcare

A Catholic, Free Market Approach to Healthcare October 22, 2007

We have written a number of posts on health care here at Vox Nova.  I invited frequent commenter Blackadder, who most of you know from various comboxes, to articulate more at length his own view on the matter.  I thought at the time of the invitation that he would be a fine representative of those who advocate a market approach to health care.  I believe he has articulated his position well, and without further ado I offer his view.  ~M.Z. Forrest 

We’ve heard a lot of criticism in recent months about the failings of the U.S. healthcare system. It’s expensive. The U.S. spends 16.5% of GDP on healthcare, more than any other industrialized nation, and nearly double what is spent by some. Yet in terms of health the U.S. is only around the middle of industrial countries. Around 45 million people in the U.S. lack health insurance, and many Americans are reluctant to switch jobs, or are apprehensive about losing their jobs, because they would lose their health insurance.

To some extent these problems are overstated. For example, of the 45 million uninsured in America, the vast majority are either: a) already eligible for government healthcare, b) making more than $50,000 a year, c) are between the ages of 18 and 34, and spend more on entertainment than they do on out of pocket medical expenses, or d) are illegal immigrants. And while the U.S. does have lower health outcomes than countries in Western Europe and Canada, this is due to factors (such as the higher rates of homicide, car fatalities, and obesity in the U.S.) that cannot be blamed on the healthcare system itself. Still, the system is far from perfect, and if there was an alternate way to structure our healthcare system that could lead to cheaper, more efficient, and higher quality care, we ought to seriously consider adopting it.

One alternative previously discussed on this blog is the so-called “single payer” system, wherein all healthcare is paid for by the government. Under this system, the government would not itself run hospitals or employ doctors (though it would pay their salaries).On the other hand, it wouldn’t simply be providing health insurance either. Healthcare costs would mostly be paid for, not by patient premiums, but by tax dollars.

At first glance a single payer system may seem quite attractive and in keeping with the principles of Catholic Social Thought. Upon reflection, however, I have come to think this largely illusory.
It is said, for example, that having the government provide free healthcare would promote the common good. A single payer system, however, does not provide free healthcare. Doctors, hospitals, medicines, MRI machines, all of these still must be paid for, and having them paid for with tax dollars destroys many of the ordinary market incentives that serve to reduce costs and spur innovation. The U.S. already has a single payer system for the poor (Medicaid) and the elderly (Medicare). Far from being models of efficiency, the programs are hugely expensive. So expensive, in fact, that the U.S. government currently spends more per capita on healthcare serving 27% of the population than most other countries do on their entire system. Medicare alone has unfunded liabilities of $65 trillion dollars.

In order to control costs, governments that have adopted a single payer system have had to institute rationing of care, and given that a single payer system in the U.S. is likely to be far more expensive than in other countries, while our tolerance for increased taxes is likely to be lower, this rationing is likely to be severe. Not only that, but we can expect this rationing to fall hardest on those members of society who are most vulnerable. Those with common illnesses or in politically powerful groups are likely to fair best under a single payer system, while those who lack influence (read: the poor), or who have uncommon or politically unfashionable illnesses are likely to fair worst. Given the high cost of care for the elderly, the pressure for “voluntary” euthanasia as a means of rationing under a single payer system is likely to be unbearable.

Single payer healthcare also seems out of step with the principles of subsidiary and solidarity. In Section 48 of Centesimus Annus, John Paul II spoke out against increasing government interventions outside of its traditional realm. Such interventions, he said, had given rise to a “Social Assistance State” which “leads to a loss of human energies and an inordinate increase of public agencies, which are dominated more by bureaucratic ways of thinking than by concern for serving their clients, and which are accompanied by an enormous increase in spending.” He went on to note that there were certain types of assistance, such as care for the sick and elderly, that required more than a material response, and that government interventions were therefore not in keeping with the principle of subsidiarity.

By taking over functions that used to belong to the family, church, and voluntary associations, the state has broken down the authority and power of these mediating institutions between the state and the individual. The result is that people increasingly are unrooted, isolated, and socially adrift. Many of these institutions have become frayed and particular affections and loyalties have broken down, leaving people isolated and dependent on the state for protection (ironically, people who oppose this are often called “radical individualists”). State intervention outsources charity and replaces real social solidarity with the fiction that sending tax dollars to Washington bureaucrats (or, rather, being in favor of others sending their tax money to Washington bureaucrats) is somehow charitable. People who believe it is the government’s responsibility to care for the poor are less likely to give to charity or volunteer their time, regardless of how much the government is actually spending on fighting poverty (let alone how effective that spending is). This is, I think, not a coincidence.

But if single payer is not the answer, does this mean that we just have to live with the problems of the current system? Not necessarily. There are a number of ways that our healthcare system might be improved that don’t involve a government take over. Some possibilities might include:

* More doctors: It is basic economics that if you want to decrease the price of something, you should increase the supply. High healthcare prices, therefore, could be brought down by increasing the number of doctors and other healthcare providers in the U.S. Currently the supply of doctors is tightly controlled by the A.M.A. and the A.A.M.C. which have put a number of significant obstacles in the path of individuals who want to become doctors or practice medicine, and often they are aided and abetted in this by the state. Loosening some of these requirements could lead to a larger supply of healthcare providers and thus to lower health prices.

* Encourage competition: Another way to lower prices is to increase competition. Right now it is illegal to buy out-of-state health insurance. Removing this requirement could therefore potentially reduce the price of health insurance in some states.

* More High Deductible Policies: While having health insurance to cover catastrophic illness or injury makes sense, the logic of having insurance for ordinary health costs is less so. In fact, millions of Americans pay more in insurance premiums (directly or indirectly) than they would paying for their healthcare expenses out of pocket. Use of high deductible health policies would not only save them money, but could also help to bring down health costs generally. When people pay for their healthcare themselves they are more likely to price discriminate, which creates incentives for healthcare providers to cut costs and lower prices. Further, to the extent that such policies are no longer tied to employment, people will be less reluctant to change jobs and less apprehensive about losing their jobs due to the health insurance issue.

* Encourage healthy behavior: It is said that an ounce of prevention is worth a pound of cure, and this saying is true. Significant increases in healthcare costs are associated with conditions, such as obesity, that are largely preventable. The trick, of course, is to find a way of encouraging healthy behavior that doesn’t either create a nanny state or produce perverse incentives. We could tax smoking, for example, or pay people to lose weight, but if we aren’t careful, we may find that we have grown as depending on the revenue from those taxes as smokers are on nicotine, or that by creating financial incentives for people to lose weight we have also made gaining weight (which can then be lost) more desirable. The law might be able to move things in the right direction by allowing insurance companies to charge higher premiums based on health risk factors such as smoking or weight, or by encouraging coverage of such things as gastric bypass surgery (I should say that I’m generally opposed to government mandates for health insurance, as they increase prices while offering often dubious benefits). Ultimately, though, the solution to these problems is primarily cultural. People need to be taught to master their desires, and unless they do, any legal changes will only be dealing with the symptoms of the problem, rather than the disease itself.

* Means testing for Medicare: Seniors are, on average, the wealthiest age group in America. Some of them, in fact, are fabulously wealthy. Yet under Medicare, even billionaires have their healthcare provided at taxpayer expense. Given the massive budget shortfalls Medicare is facing, the most sensible option is to restrict benefits to those who cannot otherwise afford them.

No doubt there are many other possibilities as well. This is one of the advantages of markets; they don’t rely on the single intelligence or creativity of any individual, however brilliant, to solve a problem. So, in that spirit, I’m open to further suggestions.

I invited frequent commenter Blackadder, who most of you know from various comboxes, to articulate more at length his own view on the matter.  Thank you Blackadder for taking the time and effort to offer this commentary.  ~M.Z. Forrest 

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