The healthcare sector is a tragic example of Mitchell’s Law in action, with politicians expanding the role of government in response to problems (rising prices and inefficiency) caused by previous expansions of government.
The solution is free markets, and Hannah Cox points the way in this short video.
Ms. Cox is definitely correct to use cosmetic surgery as an example of how free markets work.
I’ve previously cited great research from Mark Perry showing how prices for various procedures have risen by less than the overall consumer price index.
And far less than prices for the parts of the health care system where government plays a big role (in the table, see the section outlined in red).
The bottom line is that we get lower costs and greater efficiency when buyers and sellers directly interact without lots of interference from government.
Ms. Cox also wrote about this topic to augment what she said in the video.
If you’re somehow under the impression that the problems with our healthcare system were created by “capitalism,” you have been lied to. …If we were to cut the insurance companies and the government out of the picture, prices would naturally have to fall to meet what the market could actually afford to pay. No more $100,000 knee surgeries. A model of this can easily be found in the plastic surgery industry, which is a rare niche in the healthcare market that both the government and insurance companies have largely not touched. Because it is seen as an elective service, insurance does not cover these services, and therefore the government hasn’t been able to get its grubby hands on the industry. And because of that, the quality of service has consistently risen while the prices have fallen simultaneously. …True capitalists want the entire healthcare system to look like the cosmetic industry. But that can only happen if we get the government out of the way.
Economists refer to the problem Ms. Cox is discussing as “third-party payer,” and it exists because government policies (everything from the tax code’s healthcare exclusion to programs such as Medicare and Medicaid) have crippled market forces by creating a big wedge between buyers and sellers.
How much of a wedge?
Well, consumers directly pay for only 10.5 percent of healthcare expenditures.
P.S. Here’s my first-hand story of dealing with the problems caused by third-party payer.
P.P.S. Regardless of one’s views on abortion, it’s another example of how markets can work in healthcare.
P.P.P.S. This video from Reason is a compelling real-world illustration of how markets can succeed in the health sector. And here are two other excellent videos.
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Image credit: CMSRC | CC BY-SA 3.0.
