The difficulties of free market health care

A free market in health care as called for in this video from the Mises Institute would be great, however there are three things that make it difficult:  health care is based largely on crises, competition in the industry is already very restricted and a lot of purchasing decisions are made in highly emotional situations.

Here is a transcription of the last sentence which is the main point.


“If we would just allow the free market to work, if we could eliminate the third-party payer system, the government subsidies on the expenditure side that drive prices up there’s no reason why a truly free market in health care goods and services couldn’t be just as effective in the U.S. as the market for computers, the market for software, the market for automobiles or the market for anything else.”


One of the things which distinguishes health care from computers, software or automobiles is that health care is largely based on  crises.  Generally most of us seek health care services for an emergency.  We go to a doctor because he/she has specialized knowledge that will help us out of the crisis.  This of course gives the people in the industry a great deal of power over us and creates potential for exploitation.

We go to a doctor for the specialized knowledge but we also go because doctors have a legal license to prescribe the magic pills that sometimes cure us or limit the symptoms of our illness.  To me a free market requires perfect competition   One of the ways the health care industry uses its power to exploit is to get governments to pass legislation which restricts competition.  Governments restrict competition through licensing, copyright and patents all of which are very  much a part of the health care industry.

The third factor which makes the health care industry different from  others is the deep emotions involved with injuries, pain and end of life.  When we purchase health care we are often experiencing deep emotions.  Once again this creates potential for exploitation.

So, how do we deal with the health care industry and how do we ensure everyone has proper access.

If we  were all perfect people we would reduce the demand for health care by living a healthy lifestyle.  We would also all manage our finances so that we always had funds available for emergencies.

As we are not all perfect then insurance, a third-party payer,  becomes an option to consider.  But most of us think and act mostly for the short-term and insurance is expensive and for the long-term.  For me this leaves a dilemma.  I don’t like the government saying we have to have to purchase insurance but neither do I like to see people suffering although I believe ultimately most of us have to take responsibility for our actions.

The man from the Mises Institute says “if we were to allow the free market to work”.  To try this would put us into a power struggle with health care practitioners who benefit from a lack of competition.  In a crisis situation where help requires specialized knowledge, the customer is not always right.

If we do want to take on these guys, then one approach would be to challenge the licensing.  I rather like Milton Friedman’s suggestion of certification rather than licensing.  Certification could be by different agencies and with different standards.  It would be up to customers to check the certification of the people with whom they deal.

In conclusion, it is not clear that a free market in health care is even possible let alone could it be as effective as the markets for computers, software, automobiles or anything else.  Sometimes there are no satisfactory answers.

The power of professionals

This week’s The Economist has two articles on medicine and doctors in China which prompted the following thoughts.

One of the more fascinating courses I took in university was on the sociology of work where the professor spent some time talking about what makes a professional.

We go to a professional when we are in a crisis and the professional has specialized knowledge which can help us.

This gives professionals a great deal of power over us and it encourages them to let us think they know more than they do.

It also means some of them are able to take advantage of us and it appears this applies to doctors in lots of countries.

The way for us to deal with this is to try to live a reasonable lifestyle (exercise and good diet) and when our turn comes, try to accept it gracefully.


If you liked this post your are invited to comment, press the like button and/or click  one of the share buttons. If you disagree you are invited to say why in a comment.  While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

A taxing idea for weight loss

Here’s an article claiming strong support for a proposal to tax junk food and use the proceeds to subsidize healthy foods  as a way to help people lose weight.

How does one define junk food?  A vegan would likely consider meat  in that class.

As agriculture is heavily subsidized  the first thing would be to remove all subsidies from all food and see what happens to prices and eating habits.  It could be that junk foods are more heavily subsidized than healthy foods.

Economic theory and anti-smoking graphics

So the tobacco companies are going to court to try and stop a government requirement that they show graphic anti-smoking images on cigarette packages.

I don’t smoke and I don’t like to see other people smoking.  Nor do I like to tell others not to smoke

I also like the perfect competition model which says that all participants in a market should have complete information about the products and the market conditions.  I believe it is good for governments to require firms to publish information about their business so that consumers can make informed decisions according to their own values.  This is probably the best and maybe the only way governments should interfere in the economy.

So are emotional pictures a part of the required knowledge about a product that is highly addictive?  What other information about the industry should its customers know?

Who is responsible for our health?

These thoughts started with reading an article about government requirements on food labelling.

To what extent should we take responsibility for our own health and what is the government’s role in encouraging or forcing us to live a healthy lifestyle and to provide medical services?

Most of us do things which may eventually contribute to our demise. It’s easy to know what to do to improve our health but often extremely difficult to do them. It can also be difficult to sit back and watch another person do something we think is wrong. Sometimes even for little things.

He or she who pays the piper calls the tune. When we hand over responsibility for health care,   the government and its bureaucrats could seek the right to dictate our lifestyles. If you smoke you will probably require more  health care and the rest of us have to pay for it – or at least there will be less for other people.

Economics provides partial guidance. Perfect competiton requires perfect knowledge. Therefore governments should require that as much information as possible should be available to all citizens with respect to all aspects of healthy living. This includes food labelling,

If we had a perfectly competitive economy medical insurance would be private and people who smoke probably would have to pay a higher premium. As to drivers with lots of accidents.


The $200 hamburger

The other day I read a suggestion that the true cost of a hamburger, including subsidies and externalities, should be about $200.  The next day I had a hamburger for lunch and figured I was getting a real bargain.

Whatever the true cost of a hamberger,  paying  the full costs of our food out of our pockets would probably help deal with a lot of environmental and health issues.

Financing Jack the robot

The high costs of some medical treatment is an issue.  A recent news item reported a procedure which cost $93,000 and extended life expectancy by four or five months.  An recent article in the Vancouver Sun reports on a $3 million surgical robot for which future operating funding is uncertain.  A friend of ours reports the new cancer medication she is taking would leave her bankrupt if she weren’t a test cast.

If we can expect the recent economic growth trend to continue unabated after the current short recession, then we should all expect to receive the lasted medical treatment.  However, if the current depression is the start of an extended down  trend or even a levelling of the economy, then not everybody will be able to have the most up-to-date treatment.  (See my post on Economic policy, least squares and the Elliott wave.)

Personally I try to get some exercise, eat mostly healthy food, balanced by some not so healthy food, and hope that when my turn comes I will be able to accept it gracefully

Counterfeit drugs

The Economist recently ran an article on the evils of counterfeit prescription drugs and the ways companies (and governments and the Vatican) are trying to stop them. Fake drugs can make diseases worse and can even be fatal.

Somehow or the other we all have to find a way out of this world. Sometimes one thinks the health care takes advantage of the emotions surrounding this issue to exploit people.

It may be that the fake drug trade indicates the extent to which drugs are beyond the means of so many people. .The drug companies are concerned about the “lost revenue” from so many sales they would not have in any case because of the high costs.

One of the features of perfect competition is perfect knowledge – about production techniques as well as about prices. Therefore we should be hesitant about patent and copyright legislation.

One of the arguments for copyrights and patents is that it encourages innovation. However, if the Romans had had copyright, we would not have the Bible. If the Elizabethans had had copyright legislation we would not have Shakespeare’s plays and music students have told me the same applies to classical music. I have even read that the British industrial revolution happened in spite of patent legislation because it was not effectively enforced.

If we were to repeal copyright and patent legislation drug prices would come down, there would probably be more new drugs, especially for the most serious diseases rather than those of the rich peoples of the world. We might also have some incentive to prevent disease by living a healthy lifestyle.

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