|Health care is best delivered by the market,
just like other important goods and services.
Much of the debate over health care policy begins with two mistaken notions, first that health care is different than other goods and services and therefore does not respond to normal economic rules, and second that it is “too important” to be entrusted to the anonymous forces of markets.
Health care services are delivered by markets
Markets exist wherever consumers are allowed to seek the greatest value for their money and producers are allowed to seek profits by providing what consumers want. The interaction of demand and supply creates prices, generates investment, and leads to innovation and progress. Even with current policies and regulations that distort the market for health care, we find normal economic forces working in the same manner as they do in other markets:
- Price controls lead to shortages. Medicaid programs set fees for doctor visits below market prices and often below the cost of the visit. As a result, there is a shortage of doctors willing to
treat Medicaid patients (Medicare Payment Advisory Commission 2003).
- Competition reduces prices. Lasik eye surgery and cosmetic surgery are two areas where providers compete directly and consumers spend their own money. While health care costs overall have risen dramatically in recent years, prices for Lasik and cosmetic surgery have fallen (Cannon and Tanner 2005).
- Consumers respond to price signals. Many experiments and other studies have found that consumption of health care changes when prices change. Health plans with increased cost-sharing reduce discretionary spending and unnecessary visits to emergency rooms (Wharam et al. 2007).
Health care is not too important for markets
The claim that health care is too important to be left to the market can be turned on its head: Health care is too important to be left in the hands of government bureaucracies that often are unaccountable and unreliable. We need greater reliance on markets and normal economic forces, not less, because health care is so important to so many people (Wilson 1989).
Access to and the provision of many important goods and services are generally left to markets, with charitable assistance limited to those who need it. Producers of food, for example, are free to supply whatever they want and sell it at whatever price the market will bear. Regulations help to ensure food safety and some subsidies are offered for a few crops, but beyond that the market for food is generally free from government interference. Food stamps, income subsidies, and private charity allow the poor to purchase
what they need in the same markets as everyone else.
Problems with a “right to health care”
The alternative to viewing health care as a service is to view it as an entitlement or right. This view resonates with some health care providers and political and legal philosophers, but it is a deeply
A right is a claim to be treated in a certain way by others, which places an obligation on others to act in certain ways. Negative rights – such as the rights to “life, liberty, and the pursuit of happiness” proclaimed in the Declaration of Independence – are rights to be free from interference and coercion by others, and
generally do not contradict the exercise of the same freedom rights of others. Positive rights – such as a claim to free or subsidized health care – are claims to the service, involuntary if necessary, of others. Positive rights therefore bring the risk of contradicting the freedom rights of others (Epstein 1997).
A “right to health care” does not appear in the U.S. Constitution or its Bill of Rights, or in any state constitution, or in the writings of the Founding Fathers or the British intellectual tradition they drew their inspiration from. This was not an oversight. Positive rights may require that goods and services be
produced involuntarily, under the penalty of law. Historically, this has not been an efficient or just way to produce goods and services.
Reformers looking to improve access to quality health care must start by understanding that health care services should be delivered by markets. The policymaker’s task is to enable normal economic forces to perform their tasks just as they do in markets for other goods and services.
Suggested readings: Epstein, R., 1997, Mortal Peril: Our Inalienable Right to Health Care? Reading, MA: Addison-Wesley Publishing Company; Goodman, J.C. and Musgrave, G.L., 1992, Patient Power: Solving America’s Heath Care Crisis, Washington, DC: Cato Institute.