For more than a decade now, the American political system has focused incessantly on healthcare and health insurance. High-profile tragedies have directed public ire towards American healthcare and insurance companies and now foster support for a central plank in the Democratic Party’s implicit platform — Medicare for All.
Critics of America’s free market healthcare and health insurance systems generally ignore the various regulations and incentives that hamstring what would otherwise be a competitive system, and they fail to perceive the unintended consequences of past and proposed legislation in the medical sphere.
While relatively free in certain regards, America’s healthcare and insurance systems are far from optimally competitive markets.
The Affordable Care Act, for example, prohibits insurance companies from explicitly altering the risk profiles of their insurance plans and requires all Americans to purchase insurance, even citizens that prefer not to. Insurance regulations require coverage of pre-existing conditions or events like pregnancy, coverage that does not constitute “insurance” by definition.
By forcibly inserting insurers as a middleman into most provider-patient transactions, the United States overrides consumer preferences, weakens patient cost-sensitivity, and creates incentives that facilitate the higher prices interventionists lament.
The profit motive alone can’t be the culprit for these higher prices, as competition from firms like Walmart and CVS Pharmacy have significantly reduced primary care costs for vaccines and other basic medical operations in recent years.
Insulin production has received special scrutiny in recent months, and it is a particularly tricky subject to address. The main issue confronting potential insulin manufacturers — would-be competitors to the three current producers — is the exorbitant cost of developing new insulin products. Insulin is a biologic medical product, meaning it cannot be made cheaply like generic chemical pharmaceuticals.
Institutional barriers raise this cost even more. Current patent law allows firms to extend their patents, and FDA regulations require each new type of generic insulin, called biosimilars, to undergo trials and testing almost as if they were entirely new drugs. The fixed costs involved with this research and regulatory compliance are extraordinarily high.
Prices may seem unreasonable to some, but they are necessary to incentivize pharmaceutical research and production in the first place. The necessity and efficacy of the FDA’s regulations are another matter, but critics of “Big Pharma” ought to at least acknowledge that the invisible hand can’t allocate resources adequately with such regulatory restraints.
Reform-minded Americans ought to consider policies that liberalize the insulin market. Loosening regulations or patents on biosimilars and allowing consenting patients to purchase products with lower safety standards would certainly facilitate lower prices. Alternatives to the FDA, like private certification firms, would also incentivize safe drug standards while streamlining the research-market pipeline for new drugs.
To see the broader consequences of intervention beyond the FDA, we need to only look at the U.S. Department of Veterans Affairs. Terrifying government death panels are not just the stuff of dystopian fiction: Numerous waiting list-related deaths have haunted the VA, and its facilities are notorious for poor cleanliness and short-staffing.
If the VA isn’t convincing enough, we can look to Europe as well.
In 2017, the British National Health Service condemned Charlie Gard, a 1‑year-old, to death by prohibiting his travel outside Britain for experimental treatment, even when his parents raised the money to afford it. Many centralized European countries also face rampant bribery to jump waiting lists and suffer from corrupt bureaucracies that administer health services.
These phenomena are representative of the scarcity that motivates all economic activity.
When governments prohibit markets from rationing resources, scarcity doesn’t just vanish. Resources must still be allocated, and without the price system in these markets, care and treatment is allocated through time (waiting lists), illegal activity (bribes or black markets), or the whims of bureaucrats who consider themselves both morally and economically competent enough to run entire markets.
Despite the best efforts of legislators, individuals and firms inevitably respond and adjust to the realities of scarcity, changing their behavior in ways unpredicted by politicians.
Some advocates of greater government intervention in American health services contest that no one should die from “preventable” health conditions. On the surface, this sounds ideal, and it is.
Clearly, we all want Americans to live long and healthy lives. This contention, however, when examined critically, is actually quite vague. What exactly constitutes a “preventable” health condition? After all, most conditions are likely “preventable,” but only at great cost. And no commitment, however laudable, is worth prohibitive costs to achieve.
Blind commitment to such intuitively appealing ideals inevitably comes with unforeseen costs and unintended consequences. A commitment to eliminating all “preventable” medical deaths through any centralized system will require sacrificing the work preferences of doctors; the preferences of insurers, the insured, and the uninsured; and the foregone productive capabilities of all the resources employed in such mass coercion.
F.A. Hayek wrote, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” All proponents of Medicare for All should consider the limits of what they or their representatives can control, understanding that the system they loathe is in many ways the result of the political forces to which they now appeal.
Trevor Vogel is a junior studying economics.