Will Free Market Reforms Fix Healthcare?

Dana S Kellis MD PhD FACP

“Redefining health care will require fundamental change.” Michael E Porter

fixingushealthcare.com

Tuesday, November 26, 2024

Dear Mr. President, Honorable Members of Congress and Distinguished Staff and Fine Citizens,

Creating goods and services with optimal quality and price can usually be accomplished by the free market system.  Alternatively, when a good or service is too important for national security or for citizen’s lives and protection, optimal quality can be achieved by the use of democratically-elected government oversight.  While government oversight may not achieve optimal pricing, subjecting such goods and services to electoral accountability, while not nearly as efficient as the free market approach, can be an effective approach to optimizing quality when the free market approach is untenable.  Examples include police and fire protection, military defense forces, non-toll roads, etc.  History has taught us, however, that trying to use both approaches simultaneously can lead to worse quality and higher prices than either approach on its own.  Examples include the Tammany Hall New York Police corruption scandal, the 17th and 18th century British Navy, and others.

Many economists and politicians recommend market-based solutions to the American health care crisis.  The free market has created favorable effects on many segments of the nation’s economy, resulting in America’s economic prowess when compared to non-free-market based economies.  Simply stated, in a free market, two or more providers of a product compete for customers.  Customers choose which product to purchase based on cost and quality.  When a free market is functioning properly, providers will decrease the price of their product and increase its quality in order to attract more customers.  This process eventually ensures customers will have the highest quality product at the lowest cost feasible.  However, in order for this system to work in this way, a number of requirements must be met to preserve fair competition between the providers and to allow customers to choose freely among the different providers’ products. Because health care fails to meet any of these requirements, neither cost nor quality  is optimized.  As stated, when a market does not function effectively, cost and quality can actually worsen, leaving consumers worse off.  This is not to say that providers always benefit from a dysfunctional market.  Often, the cause(s) of free market failure harm(s) providers as much or more than customers, leaving both worse off. 

Because health care doesn’t meet the requirements for a free market, the government has stepped in to try and correct cost and quality concerns through regulations.  Unfortunately, this has rarely been effective.  Hospitals, doctors and other providers end up spending lots of their resources complying with these government regulations, but because of healthcare’s complexity, such regulations rarely produce their intended effect without creating other, occasionally worse distortions in price or quality or both. 

Health care could theoretically be transformed to become amenable to benefits of the free market, although doing so would require unimaginable cooperation between politicians, health care providers, insurers, and others.  Hospitals and doctors would need to provide thorough and completely reliable quality and price information.  Insurance companies would need to go away, or markedly reform their approach to directing health care coverage.  Regulations would have to be markedly scaled back, including those protecting poor and uninsured patients.  We would have to, as a society, accept that some citizens would receive excellent care while others would receive no care based on their respective abilities to purchase care.  Patients would have to become educated sufficiently well to understand what they were purchasing, and what defines the quality of their care.  In summary, making health care truly market-based would require a dystopian society, examples of which we can find in some third-world countries today. 

The alternative to this free market system and its associated societal distortions is a government-sponsored model in which all citizens receive at least basic health-care services as a result of their citizenship, where “basic” is defined as those services proven to prolong and/or improve life.  There would certainly be room in such a system for private-pay services for those who desired them, such as cosmetic surgery and the like. 

The fact that the United States ranks poorly for both cost and quality of its health care when compared with other countries with government sponsored health care systems underscores the importance and reality of the arguments I have presented here.  If we as a country are to address the health care crisis, it must be through government-based reforms, moving away from free market ideology, and obtaining the cost and quality improvement currently lost to us because of our mixed free market and government sponsored system of health care. 

Respectfully submitted,

Dans S Kellis MD PhD FACP

fixingushealthcare.com

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