The Unfettered Market for Health Care

by Russ Roberts on November 11, 2004

in Health

The Washington Post is on a mission to save health care from the ravages of the unfettered free market.  On today’s editorial page, we hear from George Silver, an emeritus professor of Yale and a health official in the Johnson Administration:

Today’s dysfunctional health care system is a palpable example
of the lessons that come from our national obsession with markets at
all costs. In the face of explosive evidence regarding the toll our
choices have taken on our ability to protect citizens from the cost of
illness and promote the well-being of our most vulnerable populations,
our political leaders cling to them. Americans deserve better. During
more than 60 years of work in public health and health policy, I have
reached some conclusions about how to achieve meaningful forward
movement in our seemingly unending national health reform struggle.

Health care reform is hardly the first issue over
which the federal government has confronted the need to introduce a
level of discipline and control over the private market to protect the
public’s health and meet our desire for stability and reliability.
Government has faced similar challenges in the areas of banking,
industrial safety and transportation. Surely health care is as
important to society.

Markets at all costs?  Has Mr. Silver been paying attention during those 60 years of work in public health?  For the last 40 or so, starting with that Johnson Administration he worked in, America has systematically reduced the role of markets in virtually every area of health care.  The government’s share of health care expenditure has steadily increased.  Samuel Baker at the University of South Carolina has a nice summary here taken from government data.   In 1960, Federal spending on health care was about 10%.  Today it’s about 30%.  Throw in state expenditures and you get up to about 40%.  Throw in the subsidy to spending from being businesses and individuals deducting spending from taxes and you get to 60%.  And that doesn’t include state mandates, requirements that private insurance cover particular items such as eyeglasses or counseling that raises the cost of private insurance beyond what it otherwise would be.

The most dramatic example of how little a role markets play in health care is out-of-pocket expenditure.  In 1960, 50% of all spending came out of the consumer’s pocket.  Today it’s 10%. 

Silver is right about one thing.  It’s is a dysfunctional system.  How could it possibly perform well when the people who spend the money are not the people who consume the product?  To suggest that the solution to this dysfunctionality is to increase the role of government and reduce the role of the individual is to suggest that someone who finds himself in a hole should not only keep digging but replace his shovel with a backhoe.

Today’s op-ed follows this book review from earlier in the week and this column from two weeks ago that make the same point—boy, do markets fail in health care.  Maybe they do.  It sure would be nice to find out.

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