Health Care's Mainstream Myths by Capitalist Hero

Mainstream economists will tell you that the free market cannot solve the health care crisis because health care is not a normal good.  They will tell you that the disparity of knowledge between the supplier and the consumer is too disparate for the consumer to make an informed purchasing decision.  This is true but it is not unique to health care.  If my mechanic tells me I need a new Johnson Rod, then I buy a new Johnson Rod.  I know nothing of the inner workings of a car but my mechanic is honest and I trust him.  The same is true of doctors.  If a doctor is competent and honest then his practice will thrive.  If he is dishonest, incompetent, and fraudulent; then the free market will marginalize this bad actor.  Mainstream economists will also tell you that health care is an "inelastic" good and suppliers will gouge consumers desperate for health care.  However, clothing and food are inelastic but the market seems to work fine for these goods.  As long as taxes and subsidies are kept to a minimum and supply is allowed to equal demand, the free market will clear anything and everything; including health care.

Health care is a normal good but it is treated as an unassailable entitlement, and the health care industry is shielded from normal market forces by heavy federal and state subsidization and preferential tax treatment.    Most Americans and politicians believe that people should get as much health care as they need when they need it.  Getting everything need (or you think you need) whenever you want it turns out to be pretty expensive endeavor.  It gets especially expensive when you are paying with someone else's  money. 

"Health Insurance" is a misnomer. Most people's "health insurance" is actually a health maintenance program.  Insurance, in the traditional sense, is insurance against rare catastrophic events.  You need insurance against something that is unexpected.  If you expect a certain event, then you don't need insurance against it.  You simply prepare for it.  If you know that you need a yearly physical, you don't need insurance for it; you just need to save up to pay for the doctor's visit.  Insurance for an expected event is simply a savings plan.  An insurance company could insure for an event that is certain to happen by charging a premium equal to the cost of the event plus an administrative fee.  This scenario is only advantageous if you have somebody else subsidizing your premium. 

Another cornerstone of insurance, is that the risk is widespread.  This is why private entities don't insure against flooding.  Only the federal government will insure against flooding and premiums are kept artificially low by taxpayer subsidization. The guy that lives on the hill is not going to pay for flood insurance; and if he does then he is simply subsidizing the guy living next to the river.   Similarly a sixty-three year old man is not going to buy health insurance for pregnancy because there is little chance that he will get pregnant.  Similarly a twenty-three year old woman is not going to buy insurance for prostate cancer because it is unlikely that she will develop this pathology.  More basic, a healthy young person does not want to pay a punitive premium in order to subsidize an elderly unwell person, but the only way "health insurance" can possibly work is if the young and healthy subsidize the old and unhealthy.

To achieve universal healthcare the healthy must subsidize the unhealthy, and that means that insurance must be compulsory.  If not compulsory, then the young and health would opt out rather than pay a punitive premium.  That is a tough pill to swallow when you consider that the elderly are the wealthiest population subgroup while the young are the poorest.

 

We can do a better than a wealth transfer from the poorest to the richest among us?  Are there any free market solutions to the health care dilemma?  The answer is yes.  The free market can dramatically improve both care and cost, but will be vehemently opposed by the current recipients of the government largess.