What’s wrong with our healthcare system in the United States?
Healthcare in the United States is an extremely complex system. There are so many different facets, it is impossible to give an exhaustive list of all the things that could be improved. But here are some of the fundamental flaws with the current system:
1. Health insurance is a fundamentally bad way to deliver healthcare.
Too often, the debate on healthcare focuses too much on providing health insurance over actual healthcare. Structurally, insurance is a risk pool. This structure is, by nature, inefficient and expensive.
For one thing, this distorts incentives. Economically, being healthy is not rewarded (as much as it should be) since you are paying a premium every month regardless or whether you use it or not. Secondly, it puts an unnecessary barrier between the patient and the doctor. A system where someone pays directly for a service is going to be subject to the forces of competition, which would lower prices over time.
Right now, the competition acts mostly in the price of insurance rather than the price of healthcare services. This has allowed healthcare prices to continuously go up since there are no competitive forces keeping it down. Healthcare providers in such a system often overcharge for services and products, sometimes because they can and other times because they are trying to recoup losses for denied claims, people who show up without an ability to pay, etc. Insurance companies also have an economic incentive to deny claims to policyholders or deny coverage to people who have preexisting conditions in order to keep prices low.
Where insurance does work and where I think it should be used is for emergency, life-threatening situations that are unforeseen.
Reporter John Stossel explains the basic concept.
I’ve actually experienced some of this firsthand myself. A few years ago, I got into a car accident that made me go see the chiropractor to relieve some neck pain. At the time, I had PPO insurance with a low deductible. I remember the chiropractic office at the time trying to charge me as much as they could and trying to get me to come often so that the insurance “would kick in” and cover the rest so I wouldn’t have to worry about the cost. This fundamentally flawed system drives up prices! I can’t imagine I’m the only one who’s experienced this. Shortly after I settled that, I switched to a HSA medical savings account. I regret not having done that sooner. Now, I get to keep my money year after year and not pay for a premium that I mostly don’t use at my age.
2. High Prices
An article from Forbes shows how much prices have risen in healthcare, despite falling with the price of other goods.
Another Forbes article shows the average inflation in healthcare year-over-year compared with the Consumer Price Index (CPI), which tracks inflation over a wide variety of goods and services. 2008 is the only year in recent memory in which the CPI outpaced inflation in healthcare.
I think this is mainly due to the way healthcare is structured as insurance.
3. Regulatory Burden
Some standards are necessary to insure that the drugs that make it out onto the market are safe for consumption, but too many burdens (particularly by the FDA) can keep good drugs off the market and drives up the cost of developing new drugs. People ought to have the freedom to try experimental drugs, especially in life-threatening situations. Other regulatory burdens, such as a ban on importing some drugs from other countries (something Sanders and Cruz during their debate agreed was bad), drives up prices.
4. Employer Based Insurance
In 1954, the IRS made health insurance premiums paid by employers tax exempt. Since then, employer based health insurance became extremely popular and had an unfair advantage over individual plans. This unfortunately created a situation where:
- If you lose your job, you lose your health insurance.
- The tax subsidy has disproportionately benefitted large companies that pay higher wages. Since those who have lower paying jobs typically aren’t provided health insurance by their employer, they are forced into the more expensive individual market.
What are the pros and cons of a single payer system vs. a free market system?
For a single payer healthcare system there are a couple potential benefits that could result (relative to our current healthcare insurance model in the United States):
The main positive that a single payer healthcare system has is that the poor and lower middle class (those typically unable to afford insurance or pay out of pocket) as well as those who are already sick are able to receive healthcare without it being a financial burden on them. This doesn’t mean it’s free. It’s just paid for by those who are healthier or wealthier.
The other potential benefit of a single payer system comes from having a large “economy of scale.” This means if you have more people using an insurance product,
- Prices will average toward the middle of what everyone uses. A system that uses a larger number of people will tend to have a more realistic average of what people typically spend. Prices will also fluctuate less in a large group if a small segment of that group is using more or less healthcare.
- The amount of bureaucracy required relative to the number of people using it will be lower when compared with the bureaucracy for a smaller group. This can generate cost savings from less money being spent on bureaucracy compared with private insurance. Medicare, for example, reports that it spends about 2-3% on overhead costs, which is very low compared with private insurance. However, some analysts will argue that this number is deceptive in the way it is calculated and does not account for other government agencies shouldering much of the administrative burden that private companies have to bear themselves. Regardless, when you are using an insurance based model, having a greater number of people using the same system has the potential to be more efficient.
Free Market Healthcare
Before I delve into this section, I need to make an important clarification that gets overlooked by proponents of single payer healthcare. People will often blame the free market for the drastic rises in the cost of healthcare over the past several decades. But let me say this unequivocally: we have not had free market healthcare during this time!
During this time, we have used an insurance based model to deliver healthcare, which is socialist in nature. It’s true that we’ve had somewhat of a free market in the health insurance industry. (Although, even then, government restrictions have driven the price of insurance up by limiting buying plans across state lines and forcing insurance companies to include coverage of certain illnesses that only a segment of the population is going to receive.) But at best, you could say that we’ve had a quasi-free market, quasi-socialized healthcare system. This is especially true when you consider large portions of our health insurance market are covered by Medicare and Medicaid (socialistic, government run systems).
With that being said, let’s look at the many benefits of a true free market healthcare system:
1. Decreasing prices over time
When competition is present, prices will be lower overall and high prices will decrease over time. This is true of every other facet of our consumer economy. We shouldn’t expect healthcare to be different. When this hasn’t happened is when there are other forces (government or otherwise) putting barriers in the free market.
As I said before, the reason prices haven’t been falling in our current system is largely because we use an insurance model that virtually eliminates competition. Socialized economies can only control prices through wage and price controls instituted by the government. These have never worked long term when the market value of a good or service differed significantly from what the government sets.
The free market system of our country vastly outproduces other countries with socialized medicine in terms of advancements in medical technology and new drugs being developed (although this has narrowed in recent years). Like it or not, the profit motive drives pharmaceutical companies, medical device manufacturers, and researchers to spend lots of money on medical research and development.
3. Availability of healthcare
Our country has the highest treatment rates in the world with many diseases. This is partly because the supply of doctors, hospitals, and other healthcare providers are allowed to fluctuate with demand. In countries with socialized medicine, you often see rationing, especially for procedures that require specialists. This is done not only to control costs but also because there is more demand than the supply of doctors able to provide these services. Very often in response to rationing, you will see people from other countries with socialized medicine travel to the US to get treatment they need sooner than their country can provide it.
4. Quality of healthcare
It’s hard not to argue that the US has the best available healthcare in the world. We have doctors with the best medical training and medical technology on the cutting edge of research.
5. Freedom and Consumer Choice
You are given the freedom to have insurance or to not have insurance, to choose what you want covered and not covered, to see whatever doctor you want, and to seek out any service you may want or need. No one is forcing you to pay for a healthcare service you didn’t ask for or don’t use.
Evaluation and Conclusion
The only detraction to a free market system is that income does play a role in the ability to access healthcare services. I would love it if everyone, regardless of income level, could afford similar healthcare. But this isn’t how the real world works for any other consumable product, whether you are talking about nonessential products like cars and electronics or essential products like food or clothing. Why should healthcare be different?
There is no perfect healthcare system that fits everyone’s needs — at least not at this point in our history. With greater technological development and decreasing prices, healthcare will become more accessible and more affordable to everyone. But where we stand now, the benefits of the free market system vastly outweigh any potential benefits that could come from socialized medicine.
Links to my other articles on healthcare: