Universal Healthcare – an Economic Disaster
Given the recent announcement of a new, long term plan for the NHS it seems like an opportune moment to revisit the topic of universal healthcare. The essay below is a new version of a previously published piece, with some sections revised and elaborated, while figures and references have been updated.
Universal Healthcare – an Economic Disaster
By Duncan Whitmore
“Universal healthcare” (that is, an alleged “right” to “healthcare” provided in some form by the state) is a mainstay of social democratic thought – so much so, in fact, that the UK’s NHS is taken as a given, with any kind of proposed healthcare reform couched in terms of improving “our” state-funded health service rather than ever considering whether it should exist in the first place.
However the consequences of universal healthcare are grave indeed, including spiralling costs and ever increasing numbers of sick – pretty much the effects of the welfare state in general. This is without even considering the ethics of forcibly confiscating the money of one person to benefit another, although this essay will focus on the economic aspects of what is, in effect, the socialisation of medicine.
A preliminary question to ask is that if healthcare should be provided by the state then why shouldn’t everything else? If the state can work such wonders in the health industry then why don’t we spread this unfettered glory to all areas of the economy?
This is not the place to discuss at length the impossibility of the rational allocation of resources under a fully socialised economy, nor the lack of incentives which necessitate the creation of a climate of force and fear in order for production to continue. But for anyone who believes that healthcare should be socialised, does he/she additionally believe that everything else should be run by the state also? If direction of resources by a central body is good enough for healthcare why is it not for the rest of the economy? All of the arguments that apply to “free” and “universal” healthcare could just as easily be applied to anything else. Why not “free food” or “free televisions” or “free football tickets”?
The typical response is likely to be that healthcare is, in some way, an “essential” service the provision of which should not be left to the alleged “vagaries” of the marketplace. The problem with this, however, is that there is no such thing as an “essential” good or service when it comes to economic evaluation.
In the first place, good health and treatment for diseases, accidents and the like are ends like any other. There is a finite number of resources with which to meet these ends and so they must compete with other ends that individuals hold dear. There would be little point in having a first class healthcare service if, to pay for it, you could not afford any roads, shops, schools, etc. Indeed, the fact that all of these latter things are produced at all indicates that there comes a point when we wish to stop spending money on “essential” healthcare and start spending money on “non-essential” things. If we continue to spend on healthcare instead of, say, producing televisions when we want televisions then we are, quite literally, wasting resources.
More precisely, humans do not evaluate whole classes of goods such as “all of the water in the world” or “all of the healthcare in the world”. Rather, each of us values specific units of specific quantities of specific goods at specific times. If a man fractures his leg in Ipswich then he may need a plaster cast immediately in an Ipswich hospital, and so this good would be valuable to him; but a chemotherapy machine in Aberdeen available next year would not be. Thus, from his point of view, more spending on chemotherapy machines in Aberdeen available next year would be wasteful spending, whereas more plaster casts available now in Ipswich would not be. And, moreover, if he remains healthy then any spending on any healthcare products at all will, to him, be wasteful. Declaring that “healthcare” is “essential” overlooks this kind of detail.
The economic problem, therefore, is not whether healthcare is more “important” than, say, televisions or football, and so we therefore divvy up the economy between the “essential” services to be run by the state and the “non-essential” services to be run by the marketplace. Rather, economic valuation is a unified whole, as is the concomitant designation of available resources. Achieving this designation can occur through one of two possible options – either through voluntary trade, which leads to the allocation of resources through the pricing, profit and loss system; or through state diktat where all resources are directed by the will of bureaucrats.
There is also, of course, the ethical dimension of free and equal access to healthcare for everyone in the event that they “need” it. As we shall see, however, the only reason why this is pressing is precisely because of the economic effects of socialising medicine – it is not a pre-existing problem. We might also point out that this ethical argument begins to erode itself when you realise that the NHS will now pay for things like dance lessons to help tackle “loneliness”.1
This aside, however, let us proceed to examine the effects of providing “universal healthcare”. To be clear the definition of “universal healthcare” we shall consider for this essay is that the cost of treating medical conditions shall be borne (in some way) by the state, i.e. the taxpayer. Healthcare costs are not, therefore, paid for or borne by the sick individual at the point of need. Different jurisdictions have enacted this in different ways and to different degrees but the principle is the same.
Non-Contributory Demand for Life-Saving Treatment
The typical justification for “universal healthcare” runs something like this: a person, through no fault of his own becomes gravely ill; treatment is so expensive that this person cannot afford to be cured and so has to die (or is driven to bankruptcy by the effort to save his life); such a situation is intolerable in a modern, progressive society, and so enacting universal, state-provided healthcare will mean that anyone who gets sick can be treated, however rich or however poor.
This emotive image of why “universal healthcare” is apparently needed is so engrained in the popular psyche that it is almost always the first line of rebuttal to any questioning of the concept. However, even if this type of medical need was prevalent (which, as we shall see, it is not) there is no justification for the state to step in and solve it.
Let us summarise the key assumptions:
- That no individual has any participation in causing his medical need (or, at least, that any participation can be mitigated);
- That the medical need is expensive as judged by the individual’s means; and
- It is not possible to state in advance precisely who will require this treatment.
From this we can see that the state has done nothing more than enact a compulsory insurance scheme – for it is precisely the purpose of insurance to spread the risk of a costly event that you cannot help. People are forced to pay into the system through their taxes and only if they suffer from any illness do they receive any benefit out of it. But why must the state provide this? Why must everyone be forced into a one-size-fits-all system? Why can’t private insurers, tailoring healthcare packages towards a range of needs and suitabilities, do this by attracting customers voluntarily?
A typical rebuttal of this would proceed along the lines of looking at the height of healthcare insurance premiums in the US. The reason why this is a fallacious example will be discussed below. Here we will deal with one concern – that of higher premiums for those more likely to become ill through, say, genetic disposition or for any reason for which the individual concerned cannot be held responsible. Is it not unfair for this person to have to pay higher premiums? It’s not his fault that he is lumbered with this greater risk so why should he pay more?2
The obvious answer is that while his risk of incurring illness is not his fault it is also not the fault of anyone else either. Why is just to force everyone else to pay for the unusually susceptible person’s healthcare but not the person himself? It is indeed unfortunate that the individual concerned is prepossessed with a greater likelihood of illness but why should everybody else be forced to bear this burden? Indeed, when you strip out all of the emotive content of illness, pain, and possible death, the argument basically boils down to X having something that Y needs so Y, via the state, should just be able to take it.
One could also argue that helping one’s “fellow” human being promotes kindness and caring, and so such redistribution should be permitted on these grounds. But such kindness and caring is only on display if one donates funds to help the sick voluntarily. A moral action has to have been chosen, otherwise it is just a plain action, bestowing neither merit nor condemnation on the donor. Leaves display neither morally good nor morally bad behaviour when they blow in the wind. If you reduce human action to that of dead matter controlled purely by external events then morality of that action is an empty consideration. If anything, forced charity is likely to begat bitterness and hatred as other people benefit from one’s hard earned money against your own wishes.
Contributory Demand for Life-Saving Treatment
There is, therefore, no justification for forcing people to pay into a system merely because they might get ill through no fault of their own. However, it becomes almost unnecessary to elaborate on this further when we see that a vast proportion of the demand for life-saving medical treatment consists of needs that are generated by at least some kind of contribution from the would-be patient himself. In other words that the individual’s lifestyle has in someway caused, contributed to or aggravated a need for life-saving care.
In 2017 there were 533,253 deaths in the UK. Of these the primary causes were:
- Cancers – 28%;
- Heart or Circulatory Diseases – 25%;
- Respiratory Diseases – 14%3
Together these three causes accounted for fully two thirds of all deaths in the UK. Yet these illnesses do not strike down random victims as the result of an unlucky lottery. Only 5-10% of all cancer diagnoses are attributed to genetic defects, i.e. luck of the draw. On the other hand, a whopping 90-95% of cases are attributed to lifestyle and environmental factors, including smoking, drinking, poor diet, obesity and lack of physical exercise.4 Heart disease, the second biggest killer in the list above (and the biggest worldwide), is nearly always caused by an individual’s lifestyle, pretty much the same factors as for cancer – so much so that around 90% of diagnoses are deemed to have been preventable.5 And respiratory diseases, taking a distant, but still significant third place in the list, have the same major lifestyle inputs but with the obvious, particular risk factor of tobacco use.6
Therefore the largest causes of death in the UK are those that, far from springing out of nowhere, are attributed to the lifestyle and/or the environment of the individual. In other words, an individual has a very large element of choice as to whether he is likely to end up in need of life-saving medical treatment.
It seems unlikely that the architects of universal healthcare, past and present, took this fact into account. For whether one pursues a course of action depends on its costs versus its benefits. These elements cannot be raised or lowered without precipitating a change in people’s behaviour, all else being equal. People will do more of something if its cost is lower relative to its benefit than if its cost is higher relative to its benefit. In short, increasing costs reduces demand and lowering costs swells demand.
When, therefore, people have to face the costs of their own choices the result is that these costs will be accounted for in their actions. In a world without universal healthcare if someone does something that will result in life-threatening illness then this person risks having to pay the full cost for bis medical treatment himself. (Insurance would be useless in this scenario as it is impossible to insure against events over which the insured has control – unless this control can be rendered obsolete so that only a risk of the insured event independent of control remains.) The result is a very strong disincentive towards the pursuit of lifestyles that will result in the need for such treatment. Further, to the extent that preventative treatments (including choices such as diet, exercise, etc.) are less costly than remedial treatments there will be greater expenditure on the former as a method of protecting against having to pay for the latter at some point in the future.
However, if the cost of life-saving treatment through universal healthcare is reduced to either a very low level to the individual (or is removed entirely) then precisely what has happened? The cost relative to the benefit of pursuing lifestyles that lead to ill health is lowered. Pursuing such a lifestyle therefore becomes a significantly more attractive proposition. The individual may still be paying through his taxes or through some kind of compulsory insurance scheme, but the key difference is that his payment is now separated from his behaviour. Whereas before he only paid if he actually got sick, now he has to pay regardless, and the amount he pays bears no relation to precisely how many medical services his illness may demand. In short, you can get as sick as you like and you will not pay a penny more or less for your treatment.
There will still be costs, of course; illness will still cause pain, interruptions to the normal course of living, and the possibility or likelihood of death, and all of these elements will still weigh as psychic costs in the mind of the acting individual. The key point, though, is that relatively costs have decreased and relatively pursuing lifestyles that will result in sickness are more attractive.
This is brought into sharper focus when we realise that the cost of preventative treatment is generally not covered by universal healthcare. Universal healthcare promises to treat you if you get sick but the costs of stopping yourself from getting sick in the first place still have to be borne by the individual. (As a general rule prevention of illnesses is costly even if only psychically. So even if, for example, the NHS spent money on disseminating information about (or even funding) healthy lifestyles, there is always a degree of discipline required in the abstinence from or moderation of certain harmful but pleasurable pastimes such as smoking, drinking, taking recreational drugs, etc. and in sticking to a diet and exercise regimen.) Relatively, therefore, preventing illness has become more costly than treating it and so there will be less prevention of illnesses, all else being equal, and more illness. The overall result will be an increase in the demand for the treatment of illnesses as the now relatively lower cost of treatment versus the relatively higher cost of prevention causes people to pursue lifestyles that are more likely to lead to illness. Obesity rates, for example (which themselves are dependent upon the major lifestyle choices of diet and physical exercise) have ballooned in the last half-century with more than 12.6 million Britons categorised as obese as of 2017, while in the US, the country with the world’s highest standard of living, the condition afflicts fully one third of men, women and children.7
Indeed, since the appearance of universal healthcare more than half a century ago, there has been a general shift in the healthcare industry from being one of preventative medicine to being one of remedial medicine, furnishing treatments that don’t often attack the root of the problem but rather try to control the effects of symptoms. In the ten years to 2008, the percentage of Americans taking at least one prescription drug increased from 44% to 48%; by 2013 the figure had accelerated to 70%. So now, more than two thirds of Americans are taking at least one dose of medicine in a country with an increasing obesity rate and with a current obesity rate that tops the list for the English-speaking world. To put it crudely, state run healthcare is turning us all into fat, pill-popping invalids.8
But it gets worse than that. We mentioned above that one of the great fears of getting sick was the unbearable cost. But an increase in demand leads to an increase in costs, all else being equal. Healthcare is so unaffordable not in spite of the fact that people get sick but because the very system is inducing people to demand more and more of it. What else do you expect when you do the equivalent of paying people to get sick?9
Between 1997 and 2009, total healthcare spending in the UK rose from £54.89 billion to £150.6 billion – the latter consuming 8.8% of GDP10:
Further, not all of the need for life-saving treatment takes the form of an illness. The treatment of accidents and injuries also needs to be considered. On the face of it such incidents appear to be not necessarily blameworthy – freak happenings for which no one can be held responsible. However people are, to a degree, responsible for the conditions out of which accidents arise – conditions that prove injurious or fatal when combined with carelessness or absent-mindedness. In a world where an individual has to bear the costs of his own healthcare he would be ever-alert to reducing the possibility of accidents arising. The conditions for them to occur would therefore be substantially reduced. With universal healthcare, however, where the cost of remedial medical attention is reduced to zero, it suddenly becomes more costly to take this preventative action. All else being equal, therefore, there will be more hazardous situations that arise and hence more accidents. Not only will people carry out more dangerous or “thrilling” activities but the safety features introduced to regular activities will be minimised compared to what they otherwise would be. It is because of this that safety standards appear not voluntarily through market transactions but are arbitrarily imposed by state fiat in the form of numerous rules and regulations that hamper the activities of businesses and individuals before they can draw a breath. The overall result can only be increased demand for healthcare and hence spiralling costs.
Non-Urgent and Non-Life Threatening Need for Medical Care
Thus far we have considered only the most serious of medical needs. Before leaving the demand side of universal healthcare we should also turn some attention towards the less serious, minor ailments from which people suffer. If people do not have to bear any cost for medical care there is an increased tendency to use it either when no treatment at all is required or when a lesser degree of attention would resolve the ailment.
The NHS’s “Choose Well” campaign, launched in response to the heavy burden placed on under-priced (i.e. free) healthcare facilities, publishes a list of figures which, although a little dated, is still worth quoting in full:
- 51.4m GP consultations are for minor ailments alone, which would clear up by themselves, or with a little help from an over-the-counter remedy; this is 18 per cent of the GP workload;
- Nearly half of these consultations are generated by people aged 16 – 59 years;
- Up to 40,000 GP visits per year are for dandruff; 20,000 go to their local surgery for travel-sickness and 5.2 million with blocked nose;
- Since 2005/6, the number of First Attendances at A&E has gone up from 17,775,225 to 20,717,197 in 2010/11 (16.5 per cent);
- Two million people who go to A&E could either self-care or have been treated elsewhere in the community;
- 12 percent of people admit to having used A&E in the past even when they knew there was nothing seriously wrong with them;
- The estimated cost of treating people who go to A&E but who could have either self-treated or gone elsewhere is £136 million a year. This is the equivalent cost of 6,500 nurses.11
In addition to these figures, up to 35% of A&E visits in some parts of the country are related to intoxication from alcohol.12 Does anyone deny that if some kind of cost was applied to the use of medical facilities then all of these numbers would fall dramatically? And would people readily drink to an injurious level of intoxication if they had to pay for the resulting problems to be treated? The very reason that is cited for the alleged necessity of universal healthcare is that private healthcare is unaffordable, and yet it is the system of universal healthcare itself that causes and perpetuates the extraordinarily high cost through an uncontrollably inflated demand.
Alternative Rationing of Healthcare Facilities
Perhaps the sorriest tale of universal healthcare is that it isn’t “universal” at all. The additional demand leading to spiralling costs puts pressure on resources meaning that not everyone who demands them is able to receive them at the point of need. The result, in the absence of consumer prices, is that the state is forced to pursue alternative methods of rationing.
The most egregious example of this is the infamous NHS waiting list, where instead of having to pay in money you instead have to pay in time by waiting for resources to become available for you. What has been gained in having the service provided for free is the pain and agony of having to wait for treatment, which may never come if you happen to die in the meantime. With the free market if you are willing and able to pay for your treatment you at least have the option of getting it there and then, and the treatment would be far more affordable than it is under universal healthcare.
A further example of non-market rationing is the decision by health authorities not to fund certain treatments. A drug could be tried, tested and approved but the particular healthcare authority decides that it is not “worth” funding the drug as a result of aggregate statistical studies rather than what is suitable for the particular patient. Such a decision can quite literally be a death sentence to someone with a serious illness. Whether you live or die, therefore, depends entirely on precisely what you happen to be suffering from and the precise treatment that is required, not on your willingness to contract voluntarily for the specific services that you need from your healthcare provider. More on the pricing and rationing of drugs will be discussed imminently as we turn now to the supply side of the healthcare industry.
The State as Consumer and Provider
Under a normal, free market in healthcare, the patient would pay his doctor for services that they contract to be rendered. The patient’s appetite for healthcare will be tempered by what he is willing to pay for – none of those 999 calls for blocked noses or headaches – yet the doctor will also be keen to keep the cost of potential treatments low so his services remain affordable and competitive. This, in turn, is imputed back to the manufacturers of treatments who will lose custom if they produce drugs that are too expensive, ineffective or even dangerous. What results is a host of affordable treatments that are suited to the needs of the individual patient.
Under universal healthcare, however, this relationship is severed. Patients, as we have already stated, are now in the position of having an inflated demand for healthcare, their money having been confiscated by the state regardless of their need. Patients no longer care about price as this is no longer borne by them individually but by the multitude of taxpayers. However the revenue from healthcare provision still disappears into private hands – those of doctors and treatment providers such as drug manufacturers. Having been shorn of the discipline to keep prices low, maximising their revenues and profits becomes far easier. There will, therefore, be more of an incentive to maximise rather than minimise the cost of the services that are provided. Again, the result is rising prices.
In between the patient and the supplier sits the state holding the cash. Not only is the state, to a large degree, less responsible with funds than with its original owners (all losses and increasing and expenses can simply be borne by higher taxes, borrowing or inflation). But also as state bureaucrats are not the end users of the treatments that are produced there is no way for them to determine whether certain treatments or courses of action are worth spending their funds on. Instead of the voluntary relationship between a patient and his doctor tailoring the appropriate needs towards the individual patient, the state must take refuge in aggregate scientific studies concerning the treatment’s effectiveness and make a purchasing decision accordingly.
One problem with this is that, because of the physiological heterogeneity of patients, such testing is relatively ineffective. As Robert Higgs puts it:
Largely because of the differences among patients in their physiological responses and their psychological inclination to accept various trade-offs, the typical medical product produces a range of expected outcomes among its users. No amount of pre-market testing can eliminate such uncertainties.13
More importantly, however, the drug companies themselves are the ultimate experts in the science of treatment whereas the state and its regulators are not. Shorn of any personal experience of treatment benefits, the state has to rely on the science that the healthcare suppliers churn out, and there is every incentive for the latter to proceed down the route of ensuring that this science results in products that are more expensive than they would be on the free market. The result is a cosy relationship between the state and the largest pharmaceutical providers that results in a stifling of competition for medical services. Indeed, as soon as someone from outside of the pharmaceutical lobby appears with a treatment that threatens the profits of the big drug companies everything is done to discredit them, as can be witnessed from the endless harassment of The Burzynski Clinic and its heterodox approach to treating cancer. Similar vitriol is fired at anyone who questions medical orthodoxy that just happens to require profitable drug production (such as the effectiveness of vaccinations). In short, all patients, regardless of what is personally effective and preferable for them, are forced to accept expensive, one-size-fits-all, laboratory-concocted medicines and procedures from “Big Pharma” that have received the sanctifying blessing of the state.14
This is not all, however, because the state’s own incentive structure serves only to make treatments more expensive. Private providers of healthcare services on a free market would have every incentive to ensure that affordable and effective treatments are brought to market as soon as possible. If they fail to do so then they risk losing business to competitors. To put it bluntly a doctor whose patients all die will lose customers to other doctors who can treat them. When the state, however, is the sole provider and its services are funded by taxes it never faces the possibility of losing customers or revenue if it fails to perform. The speed with which new treatments are brought to use is therefore diminished and, in fact, there is every incentive to perpetuate endless rounds of testing in the name of “value for money” and “safety”.
The reason for this is that if a patient dies because the state has not yet brought a treatment to market the death can be blamed on the illness itself, with future patients unable to take their custom to more able healthcare providers as a result of this failure. If, however, the state approves a drug and it turns out to be ineffectual or, worse, actually hastens illness and death, then there is not only negative political publicity to contend with but also the individual politicians and bureaucrats themselves stake their own livelihoods on a drug approval. The result, therefore, is endless and unnecessary rounds of testing to make absolutely and devastatingly “sure” that drugs work and are safe. All of this adds to the already inflated cost, and casually allows would-be beneficiaries to die because a life-saving drug is held up in regulatory approval for no other reason than saving the skin of some faceless bureaucrat.15
This is not to suggest, of course, that efficacy and safety would never be considered on the free market – far from it. The important aspect to stress, however, is that there has to come a point where testing must stop and the drug is either abandoned or offered for sale. On the free market precisely where this point lies will, again, be determined by how much consumers are willing to spend on safety. What is being demonstrated here is that the incentive structure of the state is likely to increase the testing and experimental process beyond what would be seen on the free market and, hence, increase costs.
Additional Effects on the Demand and Supply Sides of Healthcare
There are further effects that the distortion of incentives causes to both the demand and the supply side of the healthcare industry. One is an ever-increasing scope of precisely what constitutes a treatable illness. Addressing one’s own personal weaknesses and failings is a costly business. If, on the other hand, you can have such shortcomings defined as a treatable illness or condition then you are magically absolved of all blame and responsibility for the said condition, and a plethora of free treatment is offered in response. Conveniently enough the suppliers, promised a gargantuan amount of state money if they can treat these “problems”, are eager to step in. This has been particularly true in areas such as psychological or mental disorders, possession of which formerly meant that one was simply bone idle, sociopathic, or – shock, horror – just not a very nice person. It is not within the scope of this essay to determine whether such apparent disorders are genuine and treatable, but one surely has to question whether their increased proliferation is due to honest developments in medical understanding or whether it is simply a ruse to relieve individuals of the responsibility for their odious personalities and bad behaviour while lining the pockets of the supposed treatment providers.
Indeed their is a distinct selectivity in classifying psychological issues as treatable conditions, and it seems that someone possesses a “disorder” only if it produces negative effects. But what if the effects are overwhelmingly positive? A person who has immense powers of concentration is as deviant from the norm as someone who cannot concentrate at all, yet we call him “talented” rather than “disordered”; a person who showers his friends with gifts and greets strangers with extreme courteousness steers as much away from typical behaviour as one that loots and assaults, except that we call him “generous” or “friendly”. If we were consistent should we not also treat these exceptional people for having “disordered” minds, or indeed, any person with a mind that veers away from the average and dull?
The Case of the United States
It is typical to assert that the high costs of the healthcare system in the United States, plus its allegedly grievous inequalities, are a strong argument against any free market in healthcare. The only problem with this is that the US does not have a free market in healthcare.
In the first place there is Medicare and Medicaid, which are state funded health insurance programmes for the elderly and the poor respectively. (One of the myths of the US healthcare system is that you cannot afford healthcare if you are poor. This is not true. It is the middle income earners, qualifying for neither of these two programmes, who may struggle to afford healthcare – something which even Bill Clinton admitted on his wife’s campaign trail.16) The effects of these upon demand for healthcare will be fully in line with our analysis above, with both programmes forming the lion’s share of the US government’s titanic unfunded liabilities, estimated at anywhere between $50 and $200 trillion in present value.
The second big problem is the whole boondoggle of insurance. The majority of the population under 65 is insured for healthcare by their employer, a sorry legacy of the Great Depression. Even Medicare and Medicaid are insurance based social welfare programmes, while the Patient Protection and Affordable Care Act (“Obamacare”), in a nutshell, tried its level best to create the environment of universal healthcare through the existing insurance infrastructure.
The problems with this are that, first, insurance, as we noted above, only works for events over which the insured has either no or a mitigated degree of control. If, however, there are events over which the insured does have control then insuring these activities simply becomes a carte blanche to carry them out. Healthcare demand and, therefore, healthcare premiums have to rise to cover the inflated costs. The state pours fuel on the fire by legislating to prevent insurers from excluding certain medical needs from coverage. Insurance businesses are effectively being told that whenever one of their customers voluntarily does X activity they must, in turn, fork out $Y. Who would ever want to enter a contract such as that? The only result can be a greater incidence of these medical needs and, consequently, that insurance premiums have to rise, driving them into levels of un-affordability. Even more costs are then heaped on top for administering the whole machine. Rather than simply being able to take cash from the patient, individual doctors have to go through lengthy and bureaucratic administrative processes to claim their fees from the patient’s insurance provider. It’s the equivalent of a shopkeeper having to fill in forms and send them away simply to get paid for selling you a newspaper.
Another problem is the whole issue of state licensing and restriction. The effects of drug regulation by the FDA are as we set out above. But state interference in the supply side of healthcare dates back to before World War I when the Flexner Report was published, having an enormous impact on the training of physicians that exists to this day. Dressed up, as always, as a concern for the consumer and for “standards”, the result was to restrict the number of people who could and do practise medicine. Murray Rothbard sums it up succinctly:
Flexner’s report was virtually written in advance by high officials of the American Medical Association, and its advice was quickly taken by every state in the Union. The result: every medical school and hospital was subjected to licensing by the state, which would turn the power to appoint licensing boards over to the state AMA. The state was supposed to, and did, put out of business all medical schools that were proprietary and profit-making, that admitted blacks and women, and that did not specialize in orthodox, “allopathic” medicine: particularly homeopaths, who were then a substantial part of the medical profession, and a respectable alternative to orthodox allopathy.
Thus through the Flexner Report, the AMA was able to use government to cartelize the medical profession: to push the supply curve drastically to the left (literally half the medical schools in the country were put out of business by post-Flexner state governments), and thereby to raise medical and hospital prices and doctors’ incomes. In all cases of cartels, the producers are able to replace consumers in their seats of power, and accordingly the medical establishment was now able to put competing therapies (e.g., homeopathy) out of business; to remove disliked competing groups from the supply of physicians (blacks, women, Jews); and to replace proprietary medical schools financed by student fees with university-based schools run by the faculty, and subsidized by foundations and wealthy donors.17
Finally, we may also mention the burdensome and expensive cost of medical malpractice insurance and litigation. Not only do these impose direct costs upon healthcare supply, but doctors and physicians may also practise “defensive medicine”, ordering swathes of unnecessary tests on a single patient just to eliminate any chance of being subjected to a malpractice lawsuit. Thus, demand for medical supplies is swollen and prices are raised further.
Reviewing this record renders it impossible to view the US healthcare system as bearing any kind of resemblance of a free market.
What Should be Done?
The most cogent, succinct and principled programme for restoring an efficient and affordable healthcare system is the four steps outlined by Hans-Hermann Hoppe.18 Adapting and adding to this for socialised medical systems in general:
- Private, voluntary insurance programmes should cover medical needs over which the individual has no control;
- Needs over which the individual has control should be paid for by that individual; prevention will therefore become more attractive than cure and medical costs will decline; people would lead stronger and healthier lives;
- Eliminate Government licensing and restriction of doctors and treatments, increasing their supply and allowing patients to determine precisely who they want to be treated by and how;
- Restore the role of private charity and mutual organisations in providing assistance to the less well-off19.
To the cries of subjecting the fortunes of the sick poor to the “vagaries” of private charity, the latter is already the only route if the state healthcare system refuses to fund a treatment because the cost isn’t “justified”. As we noted earlier giving voluntarily is also a moral good whereas being compulsorily deprived of your funds for enforced charity engenders bitterness towards and hatred of those in need.
This is the only way if anyone in the future is to enjoy an efficient, affordable and ethical healthcare service.
2To elaborate private health insurance would operate by categorising policyholders into definable classes, a class being a category of persons sharing a common characteristic. Of those in this class it must be possible for the risk of diagnosis of the insured event (i.e. the illness) to be quantified. A simple classification and quantification of an event would be “this year 1% of all men will be diagnosed with cancer”. By knowing the costs of medical care and the number of people who will require it the insurer is able to set the premium rate. It follows that if one class is at a greater risk of acquiring an illness than another class then the premiums for the latter will be lower. The most successful insurance operation is one that defines its classes and its resulting qualifications very precisely as those in less risky classes can be offered lower, more competitive premiums. It is these nuances of classification that are objected to if they are not the fault of the individual.
9We might add that recently jurisdictions have started targeting prevention as a result of their own spiralling costs. However these often take the form of paternalistic and invasive intrusions into people’s lifestyles such as bans and prescriptions of certain types of behaviour – we might mention the recent smoking ban and the suggested minimum price for alcohol in the UK as examples, classic cases of one state intervention arising because of the consequences of another. If healthcare wasn’t universal not only would unhealthy lifestyles be curbed but people would still have the freedom to pursue and enjoy them provided that they were prepared to pay for the consequences.
13Roberts Higgs, The US Food and Drug Administration – A Billy Club is not a Substitute for Eye Glasses, Ch. 9 in Idem, Against Leviathan: Government Power and a Free Society, The Independent Institute (2004), p. 59. The remainder of this chapter is a brilliant survey of the disastrous and deadly consequences resulting from the dictatorial stifling of diversity and perverse incentives of Government regulated medicine.
14We are not, of course, endorsing treatments such as those offered by the Burzynski Clinic, nor are we necessarily condemning vaccines and drugs that are produced by the large pharmaceutical companies. Our point is that under universal healthcare the needs and desires of the individual patient are necessarily supplanted by the profit motive of healthcare providers. Burzynski’s treatment may well be ineffective for the most part, but this is for the individual patient to decide, not a swathe of state bureaucrats in the pockets of “Big Pharma”.
15Higgs, pp. 61-2.
17Murray N Rothbard, Government Medical “Insurance”, Ch. 20 in Making Economic Sense, 2nd Edition, Ludwig von Mises Institute (2006), pp. 76-7.
18Hans Hermann Hoppe, A Four-step Health-care Solution, No, 4 in The Free Market, Volume 11, April 1993.
19Mutuals were once the mainstay of providing relief but have been rendered almost obsolete since the advent of universal healthcare. It is ironic that the supporters of mutual and co-operative organisations are of the ideological left and, hence, supporters of the welfare state as it is the latter that has driven mutuals to the fringes of economic relevance.