How Capitalism Will Save Us (57 page)

Innovation is flowering in less-regulated nations such as India, where an increasing number of Americans are seeking low-cost care. John Goodman says that these hospitals, which specialize in serving
“medical tourists,” provide “high-quality care in facilities (and by physicians) that meet American standards” at one-fifth to one-third the cost in the United States. In addition, they offer customer-friendly conveniences including “package prices that cover all treatment costs, including physician and hospital fees, and sometimes airfare and lodging as well; [and] electronic medical records.”
¹⁵

Why are such innovations produced mainly by free markets? Because government simply does not have the bandwidth of a marketplace where thousands of individuals and companies are testing myriad ideas until they come up with the best solution. Galen Institute president Grace-Marie Turner writes,

I
llness isn’t voluntary. For that reason, some argue that health care is not like other markets. You can’t always choose when and how you will use medical care the way you can choose to take an airplane flight. You can’t bargain for the best price, obviously, when you are being rushed to the hospital.

People who buy into the Rap on capitalism say the fact that health care is “different” is one reason why costs are so high and government involvement is needed. The balance is tipped unfairly against consumers.
This is especially true, they say, when it comes to older and lower-income people, who need health care the most but who may be least able to make the right decisions about their care and coverage.

Yes, people may be incapacitated when they need care. There are unique conditions in every market. But the same Real World economic principles still apply: the best way to deliver the greatest level of benefit—i.e., quality services for the lowest cost to the most people—is through a market that allows people the broadest latitude to figure out ways to meet one another’s needs, where both consumers and producers have the greatest number of options and free choice.

Such conditions do not exist for virtually anyone in today’s statedominated health-care system. The choices not only of consumers, but of doctors, hospitals, and insurers are dramatically restricted. Patients have to buy expensive insurance plans that limit how and where they see a doctor. Doctors and hospitals are locked in to making their money from third-party payments from both private and government insurers whose reimbursements function like de facto price controls and govern practice decisions.

This rigid system keeps them from coming up with better pricing solutions and new ways of delivering patient-friendly care. That’s not just because hospitals and physicians have to answer to insurance companies—but because price controls prevent them from getting the information they need to respond efficiently to the market. Have you ever wondered why it can be so difficult to find out the cost of an individual hospital procedure? Or why, when you finally do get a price, it seems to be beyond all reason? It’s not just because of Medicare-driven cost-shifting. It’s because hospitals really don’t know what it costs to serve an individual patient—because the individual patient is not their real customer. Thus, they don’t keep track of the kind of information about consumer demand in the way that, say, Starbucks or Walgreens does.

But third-party pay and cost shifting are only part of the story. State governments have added yet another layer of distortion by locking in nonessential coverage with their own regulations. Known as “mandates,” these regulations dictate the services your medical insurance must cover, whether you really want them or not.

Mandates vary from state to state. For example, about one-quarter of states today require that your health insurance cover acupuncture and
marriage counseling. No matter if you’re single—or if you view acupuncture as more mysticism than medicine. If you’re in a state with this mandate, you still pay for this coverage. Insurance companies have to price their coverage on the assumption that you
might
avail yourself of these services—even if you never do.

Imagine if the government forced you to buy food you didn’t want when you shopped for groceries. Your bills would be enormous. That’s what’s happening in health insurance. Because of mandates, the cost of insurance in heavily regulated New Jersey is seven times higher than the same coverage in innovation-friendly Tennessee. The Center for Freedom and Prosperity, a free-market think tank, calculates that mandates in heavily regulated states can boost premiums by more than 65 percent.

A last comparison: In 2007 the average annual family premium in Massachusetts—which has a heavily regulated state health-care system that served as a model for the plan proposed by the Obama administration—cost close to $17,000. In New York it cost more than $12,200. In lightly regulated Wisconsin, the average family premium is only about $3,000.

Heavy state regulation of insurance also means that coverage cannot be sold across state lines. The result: smaller insurance risk pools. The funds available to cover you are not based on your insurer’s clients across the country. Risk pools are based on the size of your company’s workforce or your insurer’s clients within your state. The limited size of risk pools is one reason some patients with expensive conditions may get dropped by their insurers—their particular risk pool isn’t large enough.

Keeping sales of insurance confined to individual state markets also means that there is less competition among insurance companies—and higher premium prices.

All of this would change if you, the patient, were directly buying your insurance and health care. We discuss how consumer-driven reforms, such as making health savings accounts widely available and legalizing the selling of insurance across state lines, would restore sanity to the pricing of both medical care and insurance. Without the distortion of third-party payment, health care would not be so “different” and would begin to offer the variety and choice of other markets.