Monday, October 31, 2011

Free Markets and Free Medical Care

In my last post, I argued that health care (with some exceptions) is a private good. The benefits of these sources are obtained primarily by those who consume them, with little public benefit leaking out. As such, there is no "free rider" argument to be made for government funded health care. This makes health care different from education, which does have a large public good component.

Against this, there were some objections to the idea of leaving medical care to the free market.

In answering these objections, I wish to begin by pointing out that the current system in the United States is not a free market system. Consequently, you cannot raise objections to a free market health care system by criticizing the current system in the United States.

The medical industry is probably second only to the banking industry in its success in using government to transfer money from the poor and middle class to the rich. Lobbyists and campaign contributions from companies and special interest groups in the medical industry are responsible for countless regulations, programs, and mandates. Each one of these rules takes a little money out of each of our pockets and concentrates that wealth in the pockets of the business owners and special interest groups who sought those regulations.

The huge medical costs we experience in the United States are because thousands of these little wealth transfers add up. They add up to the point that the government is now transferring thousands of dollars from each middle-class pocket (who can afford to pay) to the rich, and the poor are priced out of the market entirely.

Nobody should be surprised to discover that one of the primary uses people have for our system of government is as a tool for transferring wealth and power from those who cannot afford political manipulations to those who can. We should not expect anything else.

But this is not a free market system. A free market system condemns using the government to force wealth transfers. The only type of wealth transfers that the free market allows are those that people agree to voluntarily.

Another set of objection to free market health care that fails assumes that a free-market economy is an unregulated economy. What is called a "free market" is not “unregulated”. It is actually a massive body of regulations.

All you need to do to see this is to consider the question, "What counts as informed consent?"

Even if we look only at free-market principles, it is easy to get bogged down in a swamp of ill-defined rules and exceptions that define “informed consent”. Can an 18 year old give informed consent? What about somebody who is 17.99 years old? How much information is necessary for informed consent? What types of force count as duress? If you are starving and want a cracker, if I ask for your home as payment, is that coerced? The complexities to free-market informed consent can compete with any government regulation for complexity.

So, then, here are two ways NOT to criticize a free market in medicine. One is by criticizing the current system in the United States – which involves thousands of forced transfers from the middle class to the rich. The other is by criticizing the concept of an unregulated market – since free markets are actually governed by a very complex set of rules.

However, if you want to make a valid criticism of free-market health care that actually sticks, try this one:

The free market is a system of "one dollar, one vote". Rich people have the power to bid resources away from poor people - even where the poor people have a more highly valued use for those resources.

I have described this in the past using a story about a poor mother who wants a bottle of water for her sick child and a rich woman who wants it to give her poodle a shampoo. The rich person can simply bid the price outside of the poor person's grasp. But the ability to pay $20 for a bottle of water without batting an eyelid does not prove that her use for that water has more value. It simply means she has more money to put into the bidding process.

We see this where rich people buy meat - thus increasing the demand for grain, bidding the price out of reach and off of the table of those who cannot otherwise afford it. Currently, we see the same thing is happening with rich people using food grains to produce ethanol - again bidding food grains off of the table of poor people around the world in the form of higher food prices. The same thing happens with gasoline - rich people bid the price up to force poor people to conserve.

Rich people, some of whom have a demand for medicine at any price (or almost any price) can get medical resources allocated to them simply by bidding it away from those who could not afford to otherwise pay for it. The fact that a poor person cannot outbid the rich person does not mean that the poor person has a lower-valued use for those resources. It simply means he doesn’t have the money.

We are told that, in the free market, those who value a particular good or service more use price to bid it away from those who value it less. Thus, resources always go to their most valued use. However, this is true only if we add the assumption that all people have the same access to money. The instant we change that assumption and allow different consumers to have different income levels, then some consumers have the power to bid resources away from those who value it more but can't pay as much.

This creates a real problem for free market medical care in societies with widely different income levels. What we will find is a situation in which poor people simply cannot afford medical care even for basic needs because rich people have bid the resources out of their ability to pay. As the wealth gap widens, the situation gets worse. And the wealth gap is widening, so the situation is getting very much worse.


geekalot said...

I have to disagree with this post. I think that healthcare for profit is reprehensible. Our system is basically designed to profit on the misery of people. Further, most doctors have to hire a small army of people just to handle all the paper work and red tape created by hundreds of separate insurers. Also, our system isn't designed to actually make people well because there is no money in that noble cause. Our system is designed to keep people sick, but not too sick. Dead people, after all, can't pay for expensive medications. In single payer systems a doctor only needs one person to administer their entire patient load. Just to be clear profiting on the misery of sick people is the worst kind of capitalism. I am all for free enterprise in most area. I am a small business person myself. But I cannot support your conclusions in this case. Sorry.

Alonzo Fyfe said...


I have to ask . . . what is this conclusion that you claim not to be able to support?

I presented three arguments against a free-market in medicine. I argued that two of these arguments are unsound, but the third is sound.

So, where do you disagree?

Are you claiming that one of the arguments I assert to be unsound is actually sound? If this is the case, which one?

Or are you claiming that the one argument I claimed to be sound is actually unsound. In which case, where is the fault?

Emu Sam said...

Once upon a time, in China and perhaps other places, people didn't pay for health care; they paid for health. That is, they paid their medical practitioner regular fees as long as they were healthy, and stopped paying for as long as they were sick.

I do not know how this could work when health care can run to hundreds of thousands of dollars for a single person. What if one doctor was suddenly responsible for caring for fifty such people who might never get better? She would probably choose to skimp on health care and let them die faster, because she wouldn't be able to afford any other choice.

Far better to spread the risk even further with systems such as insurance or government.

Geekalot, you say healthcare for profit is reprehensible. What do you think all the healthcare practitioners are doing? To be sure there are some who donate all their time for no profit. Far more doctors, nurses, technicians, etc. trade healthcare services for profit - for food, a nice house, a regular vacation, the ability to send kids to college.

You probably meant something else by that statement, because I doubt you see a problem with even hospital administrators being able to support a certain lifestyle in return for making healthcare go a little smoother.