One of the preeminent books in libertarian circles is Crisis and Leviathan, by Robert Higgs. His central thesis is that government uses crises (real or imagined) to increase the scope of its control. The newly created controls may be relaxed a bit once the crisis passes, but they never return to their pre-crisis levels. Dr. Higgs refers to this as the “ratchet effect.” War is the most common excuse for the expansion of government power, but I believe we’re seeing the ratchet effect in action today in the area of health care as well.
We may not have a fully gun-run medical industry yet, but a quick review of the news over the past few months reveals countless stories of government using health care as an excuse to expand its regulatory power. City councils across the country have passed bans on trans-fats and smoking. Democratic presidential candidate John “Opie the Commie Redneck” Edwards has proposed a socialized health care plan that would have Americans forcibly frog-marched into the doctor’s office. Maryland officials are threatening to jail parents for not vaccinating their children. The list is endless.
All of this is completely predictable, of course. After all, everyone has a bone to pick with the health care industry (Ouch! Doctor, it hurts when I make stupid jokes!). High cost, poor service, complicated plans, and let’s not forget the untold millions of people who go without health insurance. The whole thing seems out of control, and the natural reaction of many is to turn to the government for a solution. This makes the health insurance industry as easy a target for politicians as Big Oil. But much like complaints over gasoline prices, no one seems to ask the all-important question, “Why?” Why is this particular industry so problematic?
Is it the greed of the HMOs? Could be. But then again, why would HMOs be any more greedy than, say, life insurance providers? Or shoe manufacturers? And why have they waited until now to get so greedy? Why weren’t they this greedy back in the 50s or 60s? Maybe they just heard about greed for the first time, and thought they’d give it a go. Or maybe they just now realized that since everyone needs health care, they can charge us whatever price they want. They finally figured out that we consumers are powerless before their monopolistic might.
Or maybe – just maybe, mind you – the perverse incentives and unintended consequences of ever-increasing government regulation of the health care industry have driven costs up to the point where consumers now feel the pinch without understanding the underlying causes.
One of the problems with American health insurance is that for most people, the insurance is tied to their job. Lose the job, lose the insurance. Ever wonder why this is the case? Because after World War II, many of FDR’s socialist New Deal price and wage controls were still in place. Economically illiterate bureaucrats of the time were worried that the return of millions of GIs to the private sector would drive up salaries too quickly, so they enacted controls to freeze wages. Since employers were prevented from offering higher pay, they had to look for other means to attract quality workers. They began to compete with each other on the basis of fringe benefits instead (yes, employers compete with each other for workers). One of the benefits they included was health insurance. Over time, what was originally a fringe benefit became a standard practice. And on top of that, the government offered tax incentives which further strengthened the link between one’s employer and one’s health insurance.
Not happy with your HMO? You can thank Ted Kennedy and Richard Nixon for that. HMOs were a government invention, not a free market creation. If you’re not happy now, just wait until everyone has the same HMO – the federal government. At least now you can choose between various insurance providers. That freedom will be gone once the United States follows Cuba’s example and makes going to the doctor as helpful as a trip to the Department of Motor Vehicles.
Let’s look at another hot topic associated with health care – its cost. Insurance is about pooling risk. Federal regulations, however, place limits around the ability of health insurance providers to do this. Insurance companies are not allowed to “discriminate,” even though risk pooling is by definition discriminatory. For example, I’m a white guy who doesn’t use illegal drugs. However, the federal government requires my health insurance cover me for problems like sickle cell anemia and drug rehab – services that I will never need. This can only drive the cost of the service up. In a free market, I would be able to contract with my insurance provider only for those health issues that I might actually face, which would lower the cost. I would also be able to contract only for catastrophic care – those critical health issues that would wipe me out financially. For everything else, I could pay cash. After all, that is the purpose for insurance in the first place – to contract with a company that pools risk in order to mitigate the impact of major disasters. Not as a pre-payment plan for everything from a hangnail to a stroke. Instead of being forced to accept coverage for any and all possible ailments, I could focus on actual risk factors – like carpal tunnel syndrome caused by writing endless screeds about government interference in the marketplace.
Are we seeing a pattern here? Politicians intervene in the free market. Those interventions create problems which the politicians blame on the free market. They then promise to solve those problems with additional interventions, but the situation just gets worse.
Health insurance is a service just like any other. Even if we accept the idea that health insurance is a vital service that everyone should have, it does not follow that we should turn to the government provide it. In fact, that would be a reason to keep government out of it entirely. The nature of the free market is to drive down cost and expand the availability of a good or service that is in demand. The nature of socialism is to drive up cost, reduce quality, and immiserate the consumer. Keep that in mind the next time you hear a candidate explain his or her grand new vision to “fix” the health care mess. And keep in mind how that mess was created in the first place.
