Missing From Health Care-Incentives To Economize

Missing from all proposals for a health care law are incentives to economize. There is only one way to make health care more affordable and distributed more equitably.  Free market forces must be introduced into the health care market.

There are at least two myths that are perpetuated when the economics of health care are discussed. First is that health care services are in any way provided in a competitive market. Government already pays for over half of the population’s medical expenses. Health care is at least half socialized. In a free market setting physicians and nurses would not be licensed.  In a competitive market, there are few restrictions on entry into the industry.  All laws being proposed would make the health care industry even less competitive than it is.

Second, health care services are not paid for with insurance. They are paid for with a variety of payment management services and simply called insurance. Insurance pays for catastrophic losses.  True health insurance would not pay for a routine visit to a doctor any more than an auto insurance policy would pay for an oil change.  Payment management systems add about 33% to the cost of health care. 

Entry into the health care field will always be restricted and that is for the public good.  Still, there are ways to introduce competition into the health care market.  A very simple way would be to reduce the income tax rate on physicians for income that is received in cash.  On an introductory basis, tax rates as low as 0% on cash income could be offered.  Soon clinics would start charging less for cash payments.

It is possible for the government to sponsor a payment management service that actually introduces competition into the health care market. Plastic revolving charge cards could be issued to anyone with a social security number.  The cards could be used to pay for health care services and prescription drugs. Card users would be responsible for paying the bill in the same way a revolving charge card is paid but at a reasonable interest rate.  The government would guarantee payment to physicians. The bill would be far less than a monthly health insurance premium in all but extreme cases.  To handle extreme cases it would be possible to set a maximum monthly payment based on income.  The price of health care services would fall for at least two reasons. Individuals would have an incentive to economize and physicians would avoid the cost of processing insurance claims.

Assume that the goals of society are to make health care affordable and distributed equitably.  These goals cannot be accomplished without allowing self interest to operate in constructive ways.  Self interest is present in all types of markets. In a competitive market self interest provides incentives to economize.  Under socialism, self interest is a disincentive to economize.  True health care reform can only be accomplished by making the industry more competitive.  Only free market influences can increase the quantity and quality of health care provided.