Healthcare Without Government Interference

Every so often I read something that just makes me see red and this statement from John Stossel’s article on healthcare reform at Reason.com was one of them:

When politicians interfere with free markets, unintended consequences harm everyone, except the companies that lobby hard enough to protect themselves.

Although the article is about healthcare insurance the clear implications of the statement are that a) without government interference there would be a free market in healthcare and b) we’d be better off if that were the case.

Malarkey. To both. Has the man never heard of asymmetrical information? There is not now a free market in healthcare and hasn’t been at least since 1906 when the Pure Food and Drug Act was passed. What’s more we wouldn’t want a free market in healthcare.

Under a free market in healthcare there would be no certification that medications were safe and effective and the absence of patents would provide fewer incentives for research and development. If antibiotics were ever developed, they’d have stopped being effective due to indiscriminate use (that’s already going on in some places in the world). There would be no malpractice lawsuits to protect those who’d been injured by doctors who didn’t follow the standards of their practice. The elderly would routinely be beggared by their healthcare expenses. There would be no metropolitan sewer districts or mosquito abatement. No regulations for innoculating children or dogs against communicable diseases.

The list of beneficial interferences in healthcare by government is so large that you’d think you wouldn’t need to mention it but apparently you do.

Should some regulations be abolished? Of course. Here’s an example: certificates of need should be abolished. They’re anti-competitive and clearly raise the cost of healthcare. They were intended for a different age.

What I believe most people who talk about a free market in healthcare mean is that they want to be able to pick and choose the regulations they’d prefer to have and I believe that’s prudent. No regulations at all? I blanche at the thought.

3 comments… add one

  • Brett

    Stossel pretty much turned into an ideological libertarian years ago. His belief in free markets is as much a matter of faith as it is knowledge.

  • Malarkey. To both. Has the man never heard of asymmetrical information?

    Bryan Caplan would argue that this objection isn’t all its cracked up to be. In theoretical models the predictions for things like car insurance and used cars is that the good drivers/cars are driven out. That we need mandatory car insurance to bring in the good drivers…but that isn’t how or why we have mandatory car insurance laws. It is to make sure the bad drivers have insurance and such drivers are routinely subsidized by the good drivers.

    As for used cars, there are gains to be had from trade, so there are incentives to find ways to deal with asymmetrical information. One way would be a money back guarantee. This would signal that the car dealership has the good used cars…otherwise why the guarantee? Another would be to have an independent mechanic check out the car before purchase.

    The empirical studies on health insurance often show a distinct lack of adverse selection and instead advantageous selection. That health insurers, like the car insurers can find the bad risks and exclude them from the low risk pool.

    In the end Caplan argues that health insurance could be a good like most other goods. That it isn’t “special” and that claims to the contrary don’t stack up to the empirical evidence.

    Under a free market in healthcare there would be no certification that medications were safe and effective and the absence of patents would provide fewer incentives for research and development. If antibiotics were ever developed, they’d have stopped being effective due to indiscriminate use (that’s already going on in some places in the world). There would be no malpractice lawsuits to protect those who’d been injured by doctors who didn’t follow the standards of their practice. The elderly would routinely be beggared by their healthcare expenses. There would be no metropolitan sewer districts or mosquito abatement. No regulations for innoculating children or dogs against communicable diseases.

    Yes, an anarcho-capitalist system would have problems like these. They also would not have problems with rent-seeking, tax wedges, and so forth. Which is better….hard to say since we’d have to try and add up all the benefits and costs with each system and try to get the answer. And there is the issue of would the market create some sort of legal system or not?

    But I’d agree with the basic gist of what Stossel is saying, but would word it somewhat differently:

    Often when politicians intervene in the market there are both good and bad outcomes associated with that interventions. Other times, the intervention is outright rent seeking which harms the consumer, and our legislative processes by undermining our faith in them. Limiting such intervention is probably the wisest course of action.

  • Limiting such intervention is probably the wisest course of action.

    And that I agree with completely.

    A completely free market anarcho-capitalist system on the one hand and a command priced socialized system on the other aren’t the only alternatives. Coming up with a system that allows you to decide which interventions are prudent and which aren’t is a lot harder and doesn’t fit on to a bumper sticker as well.

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