Cal Abbo’s Oct. 3 op-ed (“Market-run healthcare system puts profits over patients”) rightly condemned the avoidable suffering caused by our dysfunctional healthcare system. But the system isn’t dysfunctional because of inherent problems with free markets. It is dysfunctional because poor government policy has repressed market dynamics, most particularly competition.
Abbo correctly points out that demand for insulin (and many other life-saving medications) is inelastic, meaning that people buy close to the same amount even if price increases steeply.
But this is only a problem for consumers if there is limited competition among the suppliers of a good or class of good. My demand for food is also relatively inelastic, but if Kroger tries to charge me $50 for a loaf of bread, there are many other stores eager to win my business with more reasonable prices.
Competition is the consumer’s guardian.
But competition within healthcare markets is weak, and mainly because government policy makes it so. A few manufacturers are able to charge sky-high prices for insulin because the federal patent system gives them near-monopoly power. Firms have been known to maintain such power through ruthless legal strategies, including suing potential competitors and “evergreening” patents with insignificant product improvements.
Existing hospitals and medical service providers pull off the same trick, for instance by using state-level “certificate of need” laws to limit competition. If an entrepreneur wants to open a new health facility in Michigan, increase the number of beds in a hospital, or start providing certain new medical services, she needs to get permission first from an arm of state government, which works off review standards developed by a committee mostly composed of industry insiders. On a more general level, but on the same theme, professional organizations of existing doctors work to limit the number of new doctors.
And there are, of course, many other ways government policies distort healthcare markets — the most salient probably being the bias built into the tax code towards employer-provided health insurance, which is often insensitive to patient needs.
Since some companies and individuals profit handsomely from government-granted privileges, they lobby hard to keep and extend them.
So Abbo is partly right to sense that many profit and price phenomena in our healthcare system are antisocial. What he doesn’t reflect on is that they can only exist because of existing government intervention in the market.
We wouldn’t help a poisoned patient by giving him more poison — why should we try to fix our tortured healthcare system with yet more government involvement, potentially stripping even more power away from individual patients? We need more real free enterprise in healthcare — not less.
Christopher Martin is an associate professor of economics at Hillsdale College.