Notes on Healthcare, Part I: Fundamentals and the ERC-GAC

Opinions and arguments in the recently renewed debate over healthcare have been quite strong, and thus the debate has been a heated one. One need merely look, for example, at Rep. Joe Wilson’s outburst of “you lie!” during Obama’s speech on healthcare, or at the thousands of people who have spoken out at “town hall meetings” to debate such issues. Republicans and Democrats, it seems, are entering into a confrontation greater than any in the last few years, even though everyone speaks of the need for “healthcare reform.”

So it may be surprising to think about how much alike our members of Congress really think on healthcare. Politicization has created a huge debate out of, relatively speaking, small differences. Just about everyone agrees on certain major points. Such issues on which there is general agreement include the desire for universal healthcare insurance, a demand for a general government program on healthcare, a want to continue the Medicare and Medicaid programs, a need to reform both of these programs to cut their costs while not benefits, a stipulation that insurance companies not discriminate on the basis of existing medical conditions, an agreement that health insurance “costs too much” and that the insurance companies make “too much profit,” an agreement that large amounts of regulation, bureaucratization, subsidization, and government involvement in healthcare are all needed in the industry. But most fundamentally, there is roughly a consensus that having a free market in the healthcare industry would fundamentally be wrong. Even most of the congressmen who often talk about free markets are not proposing a free market for the healthcare industry.

Why is this so? What is their reasoning for these different claims and this virtual consensus? This is what I want to start analyzing in this blog post, but this is a huge issue: several large books could be written on the subject with still plenty left over to consider. And so we must begin with a fundamental insight into the general nature of the anti-free market thought process. This insight is that the arguments against the free market in the healthcare industry focus on supposed “exceptions” that the healthcare industry has with regards to the proper working of a free market, thus requiring government intervention because of these exceptions. There are, of course, those socialists who reject markets all together, but those arguments get less support than those that speak of “exceptions” to the general rules of markets in the healthcare industry, and so I focus more on the “exception” supporters.

One of the biggest so-called “exceptions” that healthcare poses deals with emergency medical care. The chain of reasoning goes something like this: Joe can’t afford health insurance because he’s too poor and it’s too expensive, or because he has some preexisting condition that causes the insurance companies to refuse to insure him. Joe then has to rely on emergency medical care for his healthcare. Emergency medical care is expensive, and Joe has no way to pay. Then because the emergency medical provider is taking on a large cost without remuneration from Joe, they have to raise their prices on all of their other, paying customers. Because the prices for healthcare go up, fewer people can afford them, and then there are more Joe’s out there who have to rely on emergency medical care and continue to drive up the costs, resulting in a vicious cycle. Let us call this vicious cycle the emergency room common-good abuse cycle, or the ERC-GAC.

The fallacy involved here is that this problem of free emergency medical service for those who cannot pay is a result of some market process. It is considered a “market failure” in a basic neo-classical analysis. This is particularly ironic given that many liberals/socialists constantly lambast businesses for callousness against the poor when it comes to making profits, because these liberals/socialist then turn around and blame the “free market” for providing free healthcare to those who can’t pay for it and then blaming the “free market” for the problems which result because of this. This is, of course, a problem resulting from government intervention in the healthcare industry, supported by the liberal/socialist sentiment that no one should be denied healthcare on the basis of ability to pay for it, as they see healthcare as a “right.” The government has passed laws that prevent hospitals and emergency rooms from turning away anyone in need, partially socializing emergency medical care, and now that this partial socialization is causing major problems in the industry, the liberals are proposing... why, more socialization of course!

In a free market, any hospital or emergency room that took in people who had no ability to pay and who are now expecting free medical care that then tried to turn around and pass those costs to its paying customers would be driven out of business by the competition of those hospitals who would not pass on other people’s costs to those with the ability to pay, and healthcare costs would stay low. The immediate objection that most people pose to this is that healthcare is a “right” and that no single person should ever be denied healthcare if they do not posses the ability to pay the full price for their healthcare. However, if there existed a free market in the healthcare industry, it would not mean that a large number of people, particularly the poor, would be unable to purchase healthcare. But due to reasons discussed further on, this would not be the case.

The second part of the ERCGAC has to do with insurance and people with preexisting conditions. This brings up the very important definition of the function of insurance, which is blatantly ignored in virtually any discussion on healthcare insurance. Insurance is something bought and sold in a market which guarantees the purchaser of the insurance policy to certain remuneration if a certain event happens to occur. The purpose, of course, is for people to reduce the amount of risk they take on in their life.