Tuesday, December 11, 2007

Brook and Lockitch: Free The Market

Modern Healthcare has published the following piece by Yaron Brook and Keith Lockitch of the Ayn Rand Institute. The original website requires registration, but the piece is mirrored on the ARI website:
Free the market; Government interference hampers healthcare reform

By Yaron Brook and Keith Lockitch
November 26, 2007

The Democratic presidential candidates are agitating to have the government do something about the spiraling cost of healthcare, especially the cost of health insurance, which is becoming prohibitively expensive for millions of Americans.

Insinuating that the free market has failed to produce affordable health insurance, they offer a variety of government "solutions," including proposals for universal coverage that range from systems of mixed public and private insurance plans to the outright socialism of a single-payer system.

But these proposals cannot and will not cure our ailing medical system because they misdiagnose the disease: It is not the free market that has caused the healthcare crisis, it is government interference in medicine.

The notion that America has a private, free-market medical system is a widespread misconception. More than 45% of total spending on healthcare in 2004 was government spending. Our semisocialist blend of Medicare, Medicaid and government-controlled, employer-sponsored health plans-with its onerous system of regulations and controls on medical providers-is the opposite of a free market.

Our system is built not on the premise that each individual is responsible for his own well-being and healthcare, but on the premise that healthcare is the collective responsibility of "society." Our system aims to relieve the individual of the "burden" of paying for his own healthcare by coercively imposing its costs on his neighbors. Far from being consistent with American individualism, this is the essence of collectivism.

In a system in which medical care seems free or is artificially inexpensive, with someone else paying for one's healthcare, medical costs spiral out of control because we are encouraged to demand medical services without having to consider their real price. For every dollar's worth of hospital care a patient consumes, that patient pays only about 3 cents out of pocket; the rest is paid by third-party coverage. And for the healthcare system as a whole, patients pay only about 14%.

Government-run healthcare, in particular, has fueled explosive cost increases. Prior to the inception of Medicare and Medicaid in 1965, healthcare spending was less than 6% of the gross domestic product. Today, it is 16%, one-sixth of the U.S. economy-with Medicare alone accounting for half the growth in healthcare expenditures. As spending explodes, the government cracks down by enacting coercive measures: price controls on medical services, cuts to medical benefits and a crushing burden of regulations on every aspect of the healthcare system.

These controls and regulations make it harder to offer medical services profitably, burying doctors, nurses and other providers in bureaucratic red tape and ultimately driving them out of the field. Drug companies are forced to cut back on the development of new drugs. Insurance companies are forced to restrict their policies. The shrinking supply of medical services, combined with an artificially increased demand, drives costs and insurance premiums still higher. This leads, in turn, to cries for still more government controls, which cause even more problems, and so on and so on, in a vicious cycle of destruction.

The Democratic candidates' proposals are just the latest iteration of this cycle-an attempt to solve the problems in our healthcare system by enacting the same kinds of destructive measures that caused the problems in the first place.

Although the proposals are couched in such positive-sounding euphemisms as "guarantee universal coverage," "ensure better preventive care," "modernize record-keeping," and "reduce waste and inefficiency"-there should be no doubt that what they would mean in practice is a massive expansion in government interference and further distortions of the free-market mechanisms that keep quality up and costs down.

Consider, for example, the goal of modernizing the healthcare system. It would be one thing for hospitals, doctors' offices, and insurance companies to modernize their procedures and record-keeping voluntarily, because they judged it an effective way to boost their productivity. It is a very different thing to attempt to impose "modernization" by government decree. All it can possibly mean in practice is a new flurry of regulations forcing medical providers to adopt government-approved technology, whether they have a use for it, overseen by a new government bureaucracy with all of its inevitably attendant inefficiency and waste. This would be like putting Amtrak in charge of modernizing train service.

Or consider the issue of universal coverage. A proper approach to healthcare reform would address the problem of skyrocketing insurance premiums by uprooting its fundamental cause: the shifting of responsibility for healthcare costs away from the consumers of medical services. A proper approach would remove the bizarre incentives that created our current employer-based system; lift the regulatory chains stifling the health insurance industry; and inaugurate a gradual phase-out of all government insurance programs, especially Medicare and Medicaid. Instead, the Democratic candidates propose to force businesses, insurance companies and taxpayers to simply shoulder the extra costs of herding every single American into our current collectivist system.

The solution to the healthcare crisis brought about by our hyper-regulated, collectivist medical system is not more regulation and more collectivism. We must remove government from medicine and put an end to the system that forces us to pay for other people's healthcare.

In freer industries, such as computers or shoes, there is no crisis of affordability or quality, because people don't demand free computers or shoes as a "right" to be enforced by government decree. We need to recognize that the same should apply to medicine; there is no right to healthcare-to be provided at others' expense. We must reject the proposals to expand collectivized healthcare-the Democrat proposals as well as those of the Republicans, who pay lip service to the free market but offer no fundamental changes to our current collectivized system.

What we need is a true free market in medicine, one in which the government's only role is to protect the individual rights of doctors, patients, hospitals and insurance companies to deal with one another voluntarily.

Yaron Brook is president and executive director of the Ayn Rand Institute, Irvine, Calif. Keith Lockitch is a resident fellow at the institute.

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