"Socialized Medicine" Vs Free Market Healthcare: A Critique — Part 2

This is part 2 of a critique of Chuck Braman's argument for pro-capitalist healthcare, The Real Right to Medical Care vs. Socialized Medicine. To read part 1 click here.


About halfway through the section of his blog post entitled The Right to Medical Care and the Causes of the Medical Crisis, he turns on Medicare and Medicaid:

These programs were instituted to make the increasingly expensive medical care more affordable to the poor and the elderly. However, since such programs represent an even further collectivization of costs than collectivized insurance, drawing their funding as they do from the entire body of taxpayers rather than from a smaller body of insurance holders, they have lead to the pricing of medical care beyond the reach of the uninsured middle class. As a result, their implementation has lead to the current call for complete socialized medicine.

As per the investopedia article I cited in part 1, it is not Medicaid and Medicare that are primarily driving up the cost of healthcare, it's other factors that are the result of a for-profit system. There are arguments however, that Medicaid and Medicare contribute to rising healthcare costs by settings prices too high for services which the private market then is influenced by. Chuck's view is that this is what makes many people think the solution is to have the government pay for all insurance. I argue that this misses the point.

Private healthcare costs are going up because of price gouging by the hospitals and medical equipment providers mainly because with healthcare—especially emergency healthcare—you don't have the option of shopping around. You don't know what tests are needed or how much they will cost. You're in a state of panic, pain, fear, and ignorance. You're not a doctor. You're not in a position to be negotiating the cost of things with doctors and nurses. You're not in a position to be shopping around for the best deal. This is a completely different kind of market from buying shoes or a new TV. And people like Chuck do not realize that. Or if they do, they foolishly think it doesn't make a difference.

Chuck then machine guns through eight different reasons why he thinks socialized medicine fails and why past implementations of socialized medicine are the reasons why the existing system is failing. Let's break them down one by one.

First, of course, is the increase in prices which necessarily follows when one is able to bid on a limited supply of goods and then pass the expense off to an anonymous group. Such bidding on government-supplied goods leads inevitably to government-imposed price controls and rationing as the only possible means of controlling costs, followed thereafter by the government's further refusal to allow anyone to bid the price up any further even using their own money.

Limited supply of goods? Are we talking about the limited supply of doctors due to medical licensing? There will always be a limited supply of goods. Does Chuck think that the supply is artificially limited due to licensing? Would it be fixed by allowing anyone to practice medicine? Chuck doesn't define socialized medicine, and he makes no acknowledgment that it's different from single payer. On single payer, the doctors, nurses, hospitals, device and drug makers are still privatized. But without cost controls in place, they can jack up the prices to as high as can be. That's why in the US you see cases of $629 band aids. And this is why the cost of prescription drugs, as well as almost every kind of test costs more in the US than other counties, and this makes healthcare costs about twice that of all other developed countries as a percentage of GDP.

Source: Mother Jones

The free market also allows rationing. When a health insurance provider says they're going to impose lifetime caps, that's rationing. When they deny coverage to people born with preexisting conditions, that's rationing. I don't understand why so many free market types think rationing is only a thing governments do.

Second is an increased demand for medical care, in the form of increased visits and increased services.

This is a popular argument. It says that when you make healthcare available you get more people using it, and when more people use it, it makes it more expensive. There is mixed data on this as far as I know. But is the solution to simply have poor people not have healthcare? That's costing us in many ways. And if the free-market solution is for charity to pay for people's healthcare costs, then wouldn't that increase the demand also? There are several options on the table for a single payer system to address this. One is by making people pay something at the point of service, like a low co-pay, just like how many people on private insurance plans do today. Many countries with universal healthcare have such a model. Single payer does not require all services be completely free at the point of service.

Third is the recent phenomenon of irrational standards for malpractice and radically increased malpractice awards. This follows from the notion that if medical care is a right, then a right to medical care as such means a right to the best medical care available. As a result, providing a patient with anything less than the best, most expensive medical care comes to constitute malpractice, whether or not the doctor is being compensated to provide such care. Fear of malpractice lawsuits has lead to the new phenomenon of doctors practicing defensive medicine, i.e. conducting medically unnecessary tests to provide a record for their defense in the event of a lawsuit. Defensive medicine is estimated to account for more than one-third of the total cost of health care in the U.S. today.

This is a decent point and one I acknowledged as a driver in the rising costs of healthcare. We need solutions to this. We could consider a solution by Richard Jackson over on Jackson Healthcare:

1. Eliminate personal financial liability for physicians' unintended errors, so they can treat patients based on what's needed, not out of fear of a lawsuit.
2. Create independent, expert medical review boards to review claims and determine if negligent treatment has been provided to the patient.
3. Establish separate boards to award consistent, fair compensation to wrongfully injured patients.

It's possible that a single payer system can fix or at least lessen the problem. A report published by Physicians for a National Health Program argues that a single payer national health insurance program (NHI) could "significantly reduce the malpractice problem". They give 4 reasons why this is so:

1) Single payer NHI will reduce malpractice costs, because the costs of any medical care needed as a result of an injury will be covered within the NHI system.
2) Single payer NHI will foster a single data system, which has the potential to improve patient safety by enabling the disclosure and tracking of systems problems and thereby reducing medical errors.
3) Single payer NHI will eliminate financial barriers to access as well as any incentives for providers to avoid seeing complicated and sick patients or to withhold care. This will lead to increased trust between doctor and patient.
4) Options other than caps on non-economic damages must be explored including: (a) use of practice guidelines to help reduce negligence; (b) alternative dispute resolution mechanisms such as mediation and arbitration; (c) no-fault reform, providing compensation to patients whether or not the injury is due to negligence; (d) enterprise liability making institutions such as hospitals, large group practices, and HMOs responsible for compensating medical injuries, thereby creating incentives for institutions to improve the quality of care offered in their institution.

I can't say that they'll all work, but it's something. Chuck does not propose how the free market would solve the problem of defensive medicine, especially given how he proposes no licensing for doctors at all, which will increase incompetency.

Fourth is an intense demand created for prohibitively expensive new technology. Traditionally in medicine, as well as in any other field, new technology does not raise costs; initial buyers, who must pay out of their own pocket, are few, allowing the item to slowly develop a market as experience is gained in producing it, during which time its cost falls while its quality improves. Since costs for medical technology are collectivized, however, new, prohibitively expensive technology, which individuals would not be able to afford if they had to pay out of their own pockets, is demanded universally as a matter of right.

So here Chuck is saying that the way healthcare should work is by making people pay for expensive technology out of pocket instead of having the costs collectivized, which is what insurance does. He seems to be making the case against insurance entirely, which collectivizes costs. Or he's complaining about the existing "socialized medicine" we have collectivizing costs, which apparently according to Chuck is causing the problems that socialized medicine attempts to resolve. Chuck would apparently rather have expensive life saving treatment simply unaffordable to most people until costs can come down, like the way all technology gets cheaper. So if you're the unlucky person who needs a drug or procedure that is expensive because it's new, then you're out of luck. Better hope you can start a successful GoFundMe campaign.

Fifth, prices are collectively bid up on patented drugs which need not fear competition, while at the same time prohibitions against price discrimination prevent lower-priced versions of the same drugs from serving the market of the uninsured. (In addition, of course, FDA regulations greatly increase the development time of drugs and further inflate their prices.)

I don't mind an FDA ensuring that drugs have a basic level or testing and safety checks before hitting the market. The alternative is drugs hit the market and then we realize years or decades later that they're killing people. Chuck would prefer that. I do however think drug patent laws are absurd. Cheaper generics should be easier to hit the market. Any drug that has R&D funded by the government should be cheap. And most importantly, we should negotiate drug prices like every other country does. We don't. We're forbidden to in the US. And that's why the drug companies will charge he high prices they do. They say it's to cover the cost of R&D, but the fact of the matter is is that 9 out of the top 10 drug companies are spending more on marketing than they are on R&D.

Source: Washington Post

Sixth, lack of profit and loss incentives causes wasteful spending on expensive equipment. The government responds to such wastefulness by such means as requiring a certificate of need before it will authorize such expenditures. As a result, expenditures often end up being restricted on necessary as well as unnecessary equipment.

I've never heard this argument before. On a single payer system the hospitals and device makers are still private, and they still have a profit and loss incentive. If the government employs the doctors and nurses and owns the hospitals, that's another story. You could incentivize profit by financially rewarding hospitals that cut costs or drug makers that make useful drugs.

Seventh, government-imposed cost-controls on public patients leads to cost-shifting to private patients, which becomes necessary in order for physicians and hospitals to make up their losses. (Such cost controls include categorizing treatments into diagnostic related groups (DRGs), categories for which the government pays a flat fee, no matter what the actual cost of the treatment, which could be more or less than the fee according to the individual circumstances.)

What makes physicians and hospitals have to make up for losses is uninsured people using the emergency room as their healthcare provider. And Chuck's free market "solution" will lead to millions more people without health insurance, only making the problem worse. Chuck most likely wouldn't want hospitals to have to treat anyone who couldn't pay, so his solution to this would be let them die on the street.

Now it is true that the increase in the number of seniors due to the aging baby boomer generation is costing hospitals more because most of them are on Medicare, which generally pays less than private insurers. It is also the case that the administrative costs hospitals have have been increasing and could be reduced with a single payer system dramatically.

Eighth, the bureaucratic controls imposed by the government in order to contain the costs increase costs by increasing paperwork and administrative costs.

I'm not sure of the precise meaning here. It seems to be that Chuck is saying government intervention in healthcare increases administration costs. Just about all researches have found the exact opposite is true. The administrative costs for Medicare are at about 1.4-2% of operative expenditures or around 5% at the highest estimates, while for private insurance it is anywhere between 12-18% or 20-25% on the highest estimations.

Most ironically, and above all, the need-based right to health care and the collectivization of costs required to pay for it eliminates the real, rational right to care in the instances where those who would be able to afford to buy medical care now cannot do so.

Chuck wraps this section up with a critique of labors laws, which libertarians almost unanimously hate, and he mentions an ironic twist that I cannot fully get my head around. I will leave it up to the reader to interpret what he means, because it makes no sense to me, and end part 2 right here.