Markets versus State Healthcare Systems: Some Points of Contention

by Tommy Grant

This article was originally published by Łukasz Jasiński at The Mises Institute. 

In discussions concerning improving access to medical services, the question of increasing public expenditure—along with introducing new technologies or further regulations—is often raised. These and other proposals are oriented toward public solutions as if a market-based alternative was completely groundless. However, market-based solutions may not only be a “complement” to public systems, but they may also have the potential to be used on an even larger scale—to entirely replace public systems. To make this possible, it is necessary to resolve several misconceptions about the two systems that limit the discussion of possible changes and their effects.

The Public System Is “Free,” Which Makes It a Better Option

At first glance, the allure of “gratuitousness” is tempting. Medical services that are relevant to the patient’s health seem to be covered by government insurance. However, this is not the case. The main reason is that even the government insurance must be paid for. This “payment” is a compulsory insurance premium or tax. Proponents of public systems are probably focused on the fact that the insured receives access to a range of benefits. They cannot, however, deny that the funds for these benefits are paid for by the insured or taxpayers themselves. In this case, it is more about an indirect payment (directed to a third-party payer) than a total “gratuitousness.”

Another issue is the important observation that the forcible transfer of income is not the only form of “payment.” It can also include queues (time expectations) for services, their rationing, or their declining quality. All these factors result from both a nonmarket demand stimulation and supply limitation at the same time. In matters of the size and allocation of funds for specific purposes, it is not the patients who make those decisions but the politicians. Interestingly, many countries have introduced various forms of additional payments, such as deductibles, copays, or coinsurance. Such modifications are intended to reduce the demand for medical services. Political decision-makers often deem these additional payments to be “optimization” or “rationalization” measures, but in fact, they implicitly acknowledge the superiority of market solutions (prices).

In addition, it should be mentioned that the very term “free,” despite its popularity, is quite unfortunate and may be misleading regarding the idea of the abundance of medical services. It would be better to replace it with the more-economic phrase “free of charge.” Such a semantic procedure would allow for attention to be paid to the widespread rarity of most goods and services.

“Healthcare Is a Right, Not a Commodity”

This is a popular phrase often used in anti-market-solution campaigns. This phrase is, in a sense, a derivative of the previous point—the reluctance to pay for medical services becomes the so-called right to healthcare. In fact, the problem is turned around because it amounts to forcing suppliers and other entities to comply with providing goods and services to a select group of beneficiaries.

Meanwhile, the market-based healthcare system with its changing structure of financing access to medical services is a rational response to finding the right balance between uncertainty and risk. Not all events are insurable or insured. Hence, private insurance providers, in addition to health insurance, also offer medical subscriptions or direct payments. Meanwhile, unfettered competition keeps prices at increasingly affordable levels and prevents the creation of monopolies.

The most interesting thing, however, is the fact that market solutions achieve what public systems do not—the aforementioned “gratuitousness,” thanks to a widespread and decentralized network of charitable institutions that are not subject to top-down regulations.

These market solutions allow the network to aid those most in need quickly and effectively. In such a case, the “contribution” of those in need equals zero. Indeed, only market-based solutions based on compassion and voluntary exchanges provide “free” access to healthcare.

The Population Is Aging and People Are Living Longer with Chronic Diseases—Hence the Need to Further Develop Public Systems

It is true that the phenomenon of an aging population must not be underestimated. However, it does not mean that the market cannot have a major share in the supply of solutions in this area. In fact, people will need increasingly better access to doctors, medical services, and medicines. Therefore, this need is a clear signal for entrepreneurs to increase their commitment to healthcare. If institutional restrictions were lifted, it would be possible to allocate the capital appropriately. Enabling the search for profits in this area would allow for the creation of an appropriate network of suppliers that would systematically replace public entities.

In the future, for example, people will acquire an increasing number of media streaming services, but no one is raising the issue of their provision by public entities. Health systems are no exception. The market also effectively delivers medical services (to the extent of its capacity) when government programs fail.

Furthermore, the issue of negative demographic trends is raised mainly due to the increasing problems of public systems. Often, in this context, the new “challenges” they are facing are being discussed. However, this issue is just naïve and illusory semantics. In the market-based healthcare system, demographics do not matter. A person who has access to a range of services offered by private entities does not rely on the demographic structure but on their own resourcefulness and savings or on the help of others in the population. As a result, thanks to their savings, they provide entrepreneurs with capital, which results in an increased supply of goods and services in the future.

Nevertheless, this is not the case with public systems. More young and healthy participants of such schemes are subsidized by a smaller number of beneficiaries. It seems then that such a system works. However, when different conditions (of an economic, social, or cultural nature) lead to changes in the demographic factors, the number of people at working age per beneficiary decreases, which leads to pressure on rationing or the introduction of increases in public expenditure. Therefore, an increasing redistribution of resources for the necessary consumption takes place, which comes at the expense of private expenditure and savings, leading to capital accumulation. Society, or at least a part of it, is then less aware of its own resourcefulness and foresight.

Indeed, an aging population in the context of public systems only leads to an increase in taxes, “premiums,” and the restriction of access to services, as well as to a decrease in the quality of services. Such a scenario results in a greater likelihood of social tensions.

Development and Implementation of New Technological Solutions Will Improve the Functioning of Public Systems

New technological solutions undoubtedly have an impact on the healthcare system. In this case, however, the question must be asked: Was there no “technology” available in the past? Of course, there was. Technology, despite the many benefits of its use in healthcare, will not change the nonmarket (i.e., inefficient) nature of public systems.

Indeed, these systems significantly marginalize or completely displace the participation of direct payments. Healthcare is supposed to be “free.” The dominant role of the third-party payer means that the insured covers only a negligible part of the expenditure. Thus, they cannot estimate the true cost of medical services well enough (and often, this is the case). They may think that the services are cheap and accessible.

In such cases, the natural conditions increase the demand for medical services, especially those that are the most technologically advanced. This leads to larger purchases of these technologically advanced services by government institutions, which increases their prices (rationing such services is an alternative). Such a scenario can be easily translated into more “standard” services like, for example, dinner at a restaurant. What would happen if a waiter told a customer that the restaurant or someone else would cover 95 percent of their expenses? What if all the guests were informed about such a possibility? Would the supply of dishes on the menu increase?

Another consideration is the imposition of various restrictions or quality norms by government agendas. For a new technology to be launched, it must first go through several stages, which increases the costs of its production. Producers can also expect higher prices because the patient does not pay directly out of their own pocket. I am not denying here that technology, in general, has a positive impact on our lives. I am just saying that public systems limit technology’s positive effects.

Conclusion

The introduction of market-based solutions on a wider scale in the healthcare system requires a change in the perception of the unfettered market not only as a kind of “addition” to the public system but also as a viable alternative to marginalize or replace it entirely. To reverse these proportions, the advantages of such a market-based system should be systematically promoted, and various misunderstandings or misconceptions about it—long ingrained in the public consciousness—should be clarified.

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