by Dr. Roy Cordato
Senior Economist, Emeritas
From the VA system, to Medicare and Medicaid, to employer provided and individually owned insurance plans, the provision of and payment for health care in the United States is in chaos. And one thing that is crystal clear is that none of this chaos can be blamed on free market capitalism. This is because, while each of these systems is driven by a different model of economic organization, none of them are driven by the freely made decisions of private consumers and producers, i.e., the free market.
The economic organization of the health care industry in the US is a patchwork of differing approaches to central planning that includes socialized medicine, single payer medicine, crony capitalism, and, at the state level, protectionist, or what could be called mercantilist, medicine.
Lately we have been hearing a lot about the VA system, where veterans are facing long waiting times to receive care, and hospital administrators have been purposely misreporting these waiting times and reorganizing patient queues in order to receive salary bonuses. In addition, there is the possibility that patients may have died as a result of these abuses. The point here is that the VA system meets all the criteria of pure socialism, an economic system in which ownership and control of the means of production is in the hands of the government. The system is administered by a government agency, the Veterans Administration; hospitals and clinics are owned by the government; and employees, including administrators, doctors, nurses, physician assistants, etc., are government employees. The legal and institutional setting of the VA system is a near perfect example of socialized medicine.
Medicare, the federal health care program for people over 65, and Medicaid, a federal-state partnership to provide healthcare to the poor, are excellent examples of single payer systems, i.e. systems in which all or the vast majority of health care payments come from a single payer, the government. It should be noted that while many people, particularly those on the right, claim otherwise, single payer health care and socialized medicine are not the same thing. The similarities between the systems are that health care costs are borne by the taxpayer, and decisions about the allocation of healthcare, i.e. who gets what and how much, are made by the government, either federal or state. Of course these are core principles of central planning and form the common backbone of all healthcare systems in the US and in much of the world. But unlike socialized medicine, under a single payer system hospitals are in the hands of private institutions, both non-profit and for profit, and doctors, nurses, etc. are not government employees. The single payer system ultimately abolishes private health insurance.
What is considered to be the private health care market under the Affordable Care Act, i.e. Obamacare, is actually a system of crony capitalism. It is a system formed as part of a public-private partnership between the government and large health insurance companies, which enhances the coercive powers of the former and the market power, in the form of monopolies and oligopolies, of the latter. Under this system, the government makes nearly all of the key decisions about health insurance, i.e., what and who must be covered and, to a lesser extent, how much can be charged. In exchange, the health insurance industry is granted a guaranteed customer base. The latter is done through the individual and employer mandates, which force everyone, either through their employers or on the individual market through federal and state health insurance exchanges, to be covered by health insurance policies. The enforcer of this mandate is the IRS seeing to it that very few people escape the insurer’s grip. Moreover, to further sweeten the pot for health insurance companies, the government provides health premium subsidies for many of those who are not low income enough to qualify for Medicaid. These subsidies are paid directly to insurance companies. This is the essence of crony capitalism: government and the business it is regulating, scratching each other’s back with each of them gaining increasing power over consumers.
There is one more element to this collection of economic systems that dominate health care markets. It is the protectionist or mercantilist structure of regulations found at the state level. These are laws that are primarily meant to protect existing health systems and insurance companies from competition. The biggest beneficiaries of "health care mercantilism" are existing hospitals, which are protected by certificate of need (CON) laws. These laws are an all-encompassing form of central planning for health care facilities, including hospitals, clinics, nursing homes, surgical centers, etc., and their main purpose is to limit competition. CON laws do this by creating very high and expensive barriers for new entrants into these markets. In addition to CON laws, states also generally protect existing insurance companies by preventing consumers from purchasing health insurance across state lines and by mandating what coverage has to be provided, regardless of the desires of policyholders.
The point here is not to cover these arrangements in detail but to highlight the fact that there is no aspect of the US health care market that is not dominated by government control, and this was the case well before Obamacare. The crony capitalism of Obama’s Affordable Care Act represented an overhaul of the regulatory system, not the creation of it. To even suggest that the US has or has had a free market in the payment for and/or provision of health care is either ignorant or willfully misleading. The problems of the system, from excessive costs to lack of coverage and portability can all be traced to previous government intrusions and the domination of institutional settings like the ones outlined above. They have nothing to do with free health care markets. But then again, progressive politicians and policy wonks may not understand this. If your only tool is coercion, then all problems look like too much freedom.
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