The Promise and Peril of Free Market Health Care

As steadily rising health care costs have outpaced economy-wide inflation in recent years, the United States health care system appears increasingly unsustainable. Among the many hotly contested visions of reform is the implementation of free market health care, i.e., a system in which health care goods and services are freely negotiated between patients and health care providers. While proponents of this reform claim that it would improve the cost and quality of care, the nature of essential health care services and American values necessitate cooperative interplay between government involvement and well-regulated free market forces.

         Even in a purely theoretical sense, free market forces could never fully prevail in the health care industry. Those who argue that the free market element of competition would lower health care costs overlook the implications of inelastic demand, i.e., the idea that consumers will always require the same amount of care, regardless of cost. As ongoing population growth in the U.S. guarantees continued high demand for health care services, providers will likely still receive the same number of consumers even when health care efficiency and quality are low, and costs are high. Conversely, in a free market, the consumer is not forced to engage in a transaction if a price cannot be agreed upon.

         In a true free market model, sellers have the right to not sell goods or services to a particular buyer if they cannot agree on transaction terms. However, in a developed nation like the U.S., people regard health care fundamentally differently than they do other goods such as luxury cars and expensive houses. While a car dealership has every right to refuse to meet a customer’s demand for a lower price, U.S. hospital emergency rooms are obliged to provide urgent care to patients regardless of their ability to pay for such care. And while a house owner has every right to sell his property to the highest bidder, doctors cannot move wealthier patients up on an organ-transplant list when demand exceeds supply.

         Especially after the Affordable Care Act enshrined health care as a public responsibility, most Americans view access to essential health care as an integral part of the Constitutional right to life. In a free market, sellers are motived to maximize profit by expanding their customer base through offering high quality, efficient, and affordable products. Thus, from the sellers’ perspective, offering the best products is merely the means; maximizing profits is the end. However, as the ER and organ transplant cases demonstrate, American society views defense of the inalienable right to life—not profit maximization—as the ultimate goal of providing essential health care services. Because of this fundamental incompatibility between health care services and the free market model, a civilized society that values the right to life above all simply cannot entirely apply all free market principles to health care.

         In the health care sector, consumers are always at a resource disadvantage because they lack the medical expertise to determine the necessity of care and predict its accompanying costs. Though information dissymmetry and pressing health concerns limit patients’ ability to comparison-shop, an inherent privilege in the free market, free market forces have the potential to improve the process of receiving non-essential or non-urgent medical care. For such care in a hypothetical quasi-free market, U.S. patients would be given prices upfront when they see physicians so that they may then decide whether to search for lower prices elsewhere. Providers would publish their prices for common services such as PET scans and compete with one another on pricing. The options of consumers would not be limited to providers within the networks of their insurance companies, and they would subsequently possess a wider range of choices accompanied by more buyer power. Indeed, price transparency for basic services would allow many patients seeking non-emergency medical aid to secure more affordable care. For example, a patient who requires an x-ray in his annual physical checkup would inarguably benefit from being able to compare the services and prices of multiple imaging diagnostics providers in his area.

         Even in this freer market, the U.S. government would have to impose regulations that make comparison-shopping more feasible. At present, bills from hospitals, doctors’ offices, and insurance companies are full of cryptic abbreviations and jargon. If a patient cannot even understand the bills after the service has been provided, he cannot reasonably comparison-shop beforehand. Without moregovernment legislation requiring health care providers to communicate to patients with layman’s terms, the health care industry will be happy to keep the details of their services and pricing relatively opaque. Only when information about the health care services becomes readily and publicly available can Americans expect the effects of free market forces to align with society’s interests as a whole.

         The realm of emergency care is another area in which the U.S. must strengthen rather than weaken government regulations. For instance, the government should play a bigger and more active role in collecting taxes to establish a national essential health care fund that provides access to the financially disadvantaged and provides health insurance to people with genetic preconditions. “Free” is the key word in “free market model,” where sellers have the freedom to make money-based decisions on sales in a way that health care providers do not. For example, it may not be financially desirable to provide health insurance to children with pre-existing medical conditions that are expensive to treat, but as per the ACA, insurance companies cannot deny coverage to people on the basis of their genetic predispositions. If the government takes care of providing funds for essential health care services to poor people and essential health insurance to people with pre-existing conditions, private companies could operate and compete with one another in a truly free market model, making room for the best of both worlds.

         In a completely free market, buyers have the right to decide whether to buy goods and services based on financial considerations. Unconditionally applying this free market principle to health care would yield very undesirable outcomes. For example, if young adults who have statically high chances of remaining healthy were allowed to put off the purchase of insurance until later years, the insurance pool would consist of older and sicker people. As insurance premiums would consequently escalate, fewer people would be able to afford insurance, and even more people would delay buying insurance. The only way to break this vicious circle is to make buying insurance mandatory for all so that everyone benefits from lowered premium costs—the exact goal of the ACA. As the U.S. government strips providers of the right to sell essential health care based on financial calculations, it’s only fair that buyers must also surrender their right to choose whether to buy essential health insurance. These seller-buyer situations are merely two sides of the same token. Refusing to buy essential health insurance while still demanding unconditional access to essential health care is not only morally wrong but also economically unsustainable.

         If we were to allow patients to decide freely whether to buy health insurance for themselves, the insurance pools would inevitably get older and sicker, which would act as a disincentive for insurance companies to remain in the health care market. As insurers and then hospitals finally pull out, demand would surpass supply to an unsustainable extent, resulting in the total collapse of the entire health care system. Essentially, the U.S. can only maintain its insurance-funded system of health care so long as the government imposes regulations that require every citizen to purchase basic health care insurance.

         In summary, a fully unregulated free market for health care is fundamentally incompatible with the conflicting motives of the industry’s buyers and sellers and the U.S. notion of health care as a basic human right. Americans need more, not less, government involvement in both passing new legislation and establishing national essential health care funds to ensure full access to all. With the government playing its proper role, the resulting well-regulated free market forces have a greater potential to benefit society at large by promoting both price transparency and healthy competition among health care providers.

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