Insurance is the problem, not the solution
I could start with some anecdotes about pharmaceutical and medical-procedure prices in the USA, and about much more reasonable prices that I and many others have encountered abroad. But why bother? Every American knows that healthcare-related prices in the US are insane. This crisis needs no introduction.
I should point out, though, since many Americans seem to have forgotten, that this crisis originated long before the risibly named Affordable Care Act took full effect in 2014 (ostensibly to help fix the situation, although of course it made it even worse). Thus, any enduring solution needs to cover not only the problems the ACA a.k.a Obamacare introduced, but also the more fundamental problems that have been festering for decades.
Some of the reasons for America’s grossly inflated healthcare prices are obvious, of course. A law from 1986, for example, forces most hospital emergency departments to provide screening and stabilizing care regardless of patients’ ability to pay—which means that paying customers foot the bill via higher prices. The cartel-like organization of American doctors, and the American tort system with its lottery-like jury awards—the costs of which are, again, passed on to healthcare consumers—have also clearly contributed.
But there is one feature of American healthcare that towers above all others as a source of high costs. I am referring to health insurance, which generations of Americans have been gaslighted into seeing as a critical necessity.
Insurance makes sense in principle as a way of covering extreme medical expenses. But American insurers long ago began covering even minor healthcare costs, and that gross overreliance on insurance has allowed the entire structure of healthcare prices to drift ever-upward.
Insurance inflates prices by inserting profit-making insurers into what should be relatively simple, transparent, cash-on-the-barrel transactions. It erodes buyers’ sensitivity to cash prices by replacing those prices with streams of smaller premium payments. (Via the same behavioral mechanism, the dominance of credit-based purchasing has lifted the cash prices of houses, cars and higher education.) Employer and government/taxpayer subsidies for these premiums reduce buyers’ sensitivity further by hiding true prices.
Potentially worst of all is the “moral hazard” of costless consumption that insurance introduces. Imagine an insurancized grocery system in which customers pay for their shopping up to the deductible limit, but thereafter can fill their shopping carts without further cost—what effect do you think this would have on grocery prices?
Obamacare has worsened these problems with its cost-hiding government subsidies and its mandate that insurers cover pre-existing conditions. The latter rule also has vitiated the fundamental risk-pooling advantage of insurance.
On the whole, Obamacare seems to have been designed to move the system—in a way that would be hard to reverse—towards the socialized medicine model its architects see as the true ideal. What has really happened, though, is that the US healthcare system has become a worst-of-both-worlds arrangement, in which everyone nominally “has access to health insurance”—but the cost of that access is many, many time higher than it should be. I think it’s important to note as well that the relative impoverishment of the tax-paying, premium-paying Americans who have to foot the bill for the whole thing corresponds to a stupendous windfall on the insurer/provider side.
That the current system is defended fiercely by its beneficiaries, including not only insurers, hospital chains and Big Pharma, but also politicians who use Obamacare to buy votes, is to be expected. Unfortunately, their gaslighting is made much easier by the “experts” who—with only the rarest exceptions—continue to cling tightly to the assumption that insurance is the only valid basis for modern healthcare.
But as a reality check, consider what would happen if insurance and all other forms of cost-spreading and cost-hiding were banned in healthcare markets, so that patients and healthcare goods and service providers had to revert to simple, open, cash-on-the-barrel transactions. If you run a drug company that currently bills insurers hundreds of thousands of dollars for a course of some drug treatment, or if you run a hospital that has been charging similarly exorbitant amounts for a few days of inpatient care, would you keep your prices up at those levels, where almost none of your customers could now afford them? Of course not—you would now be in a normal, competitive market situation, where survival requires making products and services affordable. And by the way, roughly a million American “medical tourists” every year fly to foreign countries where cash-on-the-barrel payment for private healthcare is still the norm, prices are much lower, and quality of care is often superior.
A better way
That part of the solution is obvious, then. But what about Americans who could not afford healthcare even with the drastically lower prices of a de-insurancized, market-based system?
Until modern developments including Medicare and Medicaid made them largely redundant, charity hospitals were ubiquitous in the US, and often were supported not by government budgets but by private philanthropists and even community funding drives. Some of these hospitals had endowments large enough to keep them going indefinitely without further external funding.
How much would it cost to convert 20% of US community hospitals—roughly 1,000 of them—to fully endowed, free-care status? The annual operating cost for an average US hospital has been estimated at about $250 million. For a no-frills, 200-bed charity hospital, an estimate of $200 million annually is probably conservative, and could be very excessive if costs come down with the elimination of insurance. In any case, multiplying that $200 million by 1,000, then dividing by a standard 5%-of-endowment-per-year expenditure assumption, suggests endowments totalling $4 trillion. That figure, though it might seem huge, represents only about twice the annual cost of Medicare and Medicaid plus Obamacare subsidies—and of course it is just a tiny fraction of the philanthropic potential of America’s wealthiest.
Again, if a network of charity hospitals were to be endowed to this extent—or if all hospitals had endowments allowing the same proportion of free care—little or no further support would be needed to keep this charity-care system afloat. Charity hospitals and market hospitals together could replace the current Medicaid, Medicare and Obamacare-subsidy systems, removing entirely those gigantic taxpayer burdens.
Obviously, some important details would have to be worked out, including how to confine charity care to those who really need it, and how to transition to the new system. But overall and in the long run, it could hardly fail to be a significant improvement over the current arrangement—an arrangement that is not only unreasonably burdensome and stressful, and a major driver of socioeconomic inequality, but also an ever-present reminder to citizens of the inadequacy (thus illegitimacy) of their government and elites.
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