Recently, JDWolverton posted a diary in response to my comment on her previous diary, which stated:
When did Americans start condoning making money off of illness?
My response was commented to, but my second clarifying response was ignored. No fault on JDWolverton, I have just decided to write this diary to provide a more thorough response to the previously mentioned diaries.
I still support my position that "making money off of illness is a bad thing" is a ridiculous idea, but I want to clarify the ridiculousness of it...
Before I get into the bulk of my argument, however, let me first agree with JDWolverton that there is a difference between profiting and gouging. The former is a product of a free-market where individuals are allowed to make voluntary, mutual, and consensual transactions, while the latter, in the situation of health-care, is a product of government policies encouraging excessive reliance on third-party payers.
Furthermore, JDWolverton admitted the government involvement in the health-care industry when he stated:
...I just question the need for greed in health care business. Medical businesses in the US do not operate in the "free market"...The US government manipulates Health Care businesses. I'm not sure we can undo all the laws or regulations that affect health care businesses, nor would we want to; but the status quo is not sustainable.
however, I must disagree with both assertions; one, we can undo all the laws and regulations that affect health care businesses by simply repealing them; two, we should want to, albeit without pulling a plug that leaves those reliant on the current system out on their ass, because it is in the best interests of the health-care consumer. Finally, we can all easily agree that the status quo is not sustainable!
So, in this diary I will attempt to prove the following points:
- The current gouging in medical care is due to a reliance on a third-party payer system.
- Without a third-party payer system, there is nothing wrong with "making money off of illness".
- The Federal Government's interference in the medical industry should be abolished.
The Problems of a Third-party Payer System
The current system of health care is a third-party payer system. In a market transaction, such as buying a computer, there are two actors involved; the buyer and the seller. There is a direct relationship that allows the buyer to know every aspect of the transaction. He can ask all the questions required and he can do outside research to find out whether he is willing to enter into this voluntary, mutual, and consensual transaction. Thus, we can say a typical market transaction is a first-party payer system (a system that involves just two parties just like we-1st person-includes two parties-you and I.): a system that has the requirements necessary to qualify for a free-market transaction.
In a third-party payer system, however, an outside party (the insurance company) steps into the first-party payer system interrupting the normal forces of a market-economy. Therefore, we are left with a system where the buyer purchases a product-insurance-from the intermediary party-the insurance company, and the intermediary then makes the purchase from the seller. It is clear in this type of system where the problem lies: the intermediary is spending other peoples' money, thus has no real-world (i.e. market) stake in the consequences of that decision.
If you need to buy a computer to start a new business, but are on a budget due to recent hardships, it would be foolish to give your responsibility for buying that computer to your wealthy uncle-who is still using your money-because you and he have different values, thus decision making processes: he could value the biggest, baddest-ass computer on the market or the best-bang-for-the-buck computer. Since you are giving the choice to him, he could choose either, and the first would surely ruin you in your current financial situation.
Now, let us look at a situation in the third-party payer health care system. When you, as a buyer in this system, require a service, you must notify your third-party payer of the service you desire. (Note that this is typically mandatory, as in Medicare, where you are contracted to not receive services from your physician without approval. That is, you are not allowed to make a voluntary, mutual, and consensual transaction without asking Medicare's permission.) The third-party then does its thing with the seller and they work out the price that you are paying for your service. Of course, you are not typically responsible for that full price, since it is covered (hopefully) by your insurance. So you are left with either a minimal co-pay or no payment at all, depending on the quality of your insurance. (Non-insured folks will be discussed below.)
The problem of gouging stems from this situation. You, the buyer, are not aware of the price of the service you are purchasing because you are not privy to that information until after the transaction has taken place, therefore the seller and the insurance company can collude to whatever price they desire because you will not be able to seek a competing provider.
The seller, whether doctor, hospital, nurse, or whatever, will attempt to set the highest price possible for two reasons: 1) people will attempt to get the most out of any given transaction because it is in their best interests to do so, 2) the seller has no interaction with the buyer as far as the price is concerned, therefore has no need to express sympathy, empathy, or compassion in their pricing.
The insurance company will also attempt to get the highest price possible because they also desire to make the highest possible profit on the transaction. They need to make a high profit both to cover the bureaucratic costs of running an insurance company and the cases of clients that actually need extremely expensive services, such as heart-transplants or chemotherapy. Not to mention pay their CEO's ridiculous salaries!
With everyone but the buyer involved in the system, we end up with the ridiculous examples of gouging that we've all seen or heard about, such as being charged $120 for a $20 wrist splint you could get from your local pharmacy.
Of course, there is the major problem in America of people without health insurance and the question of how we can get them this insurance. Well, I say, check the premise! If we can agree to the problems in a third-party (insurance) system, then why must we find ways to get more people into a system that is flawed by its most basic premise! Those of us that cannot afford insurance in its current state must demand a system that allows us to take responsibility for our own health care and gives us the freedom to make voluntary, mutual, and consensual exchanges when we are attempting to buy our health care services!
How a First-Party Health Care System Allows Profit and Affordable Prices
If we were to remove the current third-party system, we would be left with a system where the buyer and the seller have direct interaction, allowing the buyer to know exactly what kind of deal he is getting as well as allowing the buyer to choose another service provider if his current provider is charging more than he thinks the service is worth or he is able to pay. Clearly, a first-party payer system is in the best interests of the buyer, however, how will this system effect the seller?
While it's still in the seller's best interest to charge the highest price possible, he now has to consider what his competitors are charging, as well as the damage to his reputation that would come from attempting to charge someone 6x the price of simple wrist splint. Thus, while he still would attempt to make a profit running his business as a private practitioner of medicine, he would be required, as all businesses in a free market are, to keep his profits and prices reasonable, otherwise his business will surely fail.
The question arises then, what about those services that are exceptionally expensive, such as major surgeries or other major treatments. First, the consumer would have the option to easily get a second opinion because he would have to ask no ones permission to see another doctor. Thus we could limit the 7.5 million unnecessary medical and surgical procedures performed each year in the United States. Second, the prices of these procedures would drop according to the same factors that reduce the cost of simple medical care, or any other market-driven good for that matter: a profit-motivated drive to stay competitive and use the newest, most cost effective technologies that increase your profit-margins. Third, there is nothing preventing the existence of insurance companies, however, they would cease functioning as intermediaries and be at the whim of only the buyer, as in the case of most other insurance agencies, such as car insurance or home insurance. If your medical insurance company decides that it must set the price of your needed procedure without your input, find another provider!
Finally, it should be mentioned that we could possibly see huge innovations in the medical industry that are prohibited by the current market system. Currently, the sellers (primarily through the AMA) and the third-party are working hand-in-hand in the grossly profitable status quo, thus there is not much motivation for new methods in medicine that could reduce price, demand, or even need for the current medical methods. But imagine if we had our choices in what our medical treatments could be! Of course, there are going to be people who will be conservative in their choices and go with what has been proven, but there are always risk-takers.... the people that spend thousands on new energy technologies in an attempt to "get-off the grid", the people who decide to invest in wacky devices such as the Segway, etc. These people would be the ones willing to risk their money, even their lives if they are foolish enough, to try crazy new methods, or even ancient Eastern methods that Western science has been unable to prove! We may question their logic or even their sanity in decisions such as this, but in a free society, we must acknowledge it is their decision. The possibilities for innovation in these scenarios is boundless.
Why the Federal Government Should be Removed from the Health Care Industry
The most important question, however, is "what is wrong with government involvement in health care?" And the simple answer is, everything!
Many of the current solutions for our health care problems see the problem as the insurance companies who over-charge for premiums and co-pays, keeping insurance out of the hands of poor folks and the lower-middle class. Their solutions are typically some form of consolidation of the current industry under the Federal Government in a "single-payer" system where the government acts as the insurer and thus, you make only a single payment to the government, who then pays your medical bills, as in the Medicare system. Notice that this system is drastically different from the first-party payer system previously mentioned: there is still a third-party!
People will attempt to argue that while we still have a third-party, it's not a problem, because it's the government and the government won't be overcharging to make a huge profit like these for-profit third-party insurance companies do. Without questioning why bureaucrats would not overcharge in order to stuff their own pockets, I will focus primarily on the problems with placing government bureaucracy in such an important position.
First, government is well known for it's ineptness due to overwhelming size of bureaucracies. I personally like to look at the ridiculousness that is the California DMV, but people can also mention the long waits at the post office or the hurdles you have to jump through to start a new business(see the 64-page pdf at The California Business Portal). Now imagine this sort of ineptness when it comes to paying for your health care!
Second, because there will inevitably be tax-dollars in the government-insurance industry, we will be faced with a problem of budget deficits in the down-times of our current monetary-system's boom and bust cycles. During these times, bureaucracy will have two options: streamline and become more efficient, or deny/postpone necessary procedures for the insured citizens that are outside of the budget. We cannot assume that the government bureaucracy will streamline because bureaucracies are not elected, thus are not held accountable for their actions. Not only that, but history has proven that it is any government bureaucracy's nature to increase in size, not to streamline, unless it is abolished completely. This leads to our second option. Basically, this means it's now the government decision who gets medical care. If you're a 75-year-old in a coma and some bureaucrat sees that it will save some money to no longer pay the electric bill on your respirator, who is going to be able to do anything until AFTER you're dead and the case makes it through court? (Assuming the government actually allows you to sue them!) Or we could take cue from the single-payer system in Japan, where a woman's baby died because there were no hospitals available. I wonder how many more bureaucrat's salaries were paid rather than fund the necessary hospitals?
Third, and finally, there is the most devastating problem to anyone who desires to live in a free society: if the system is a government system, you will have no choice but to join the system. Most people will be completely removed from the choice of whether to be outside the system or not, because even if the government allows competition (which they likely won't), your taxes will still be going toward the government system forcing you to pay twice the average person's costs, allowing the option for better, or even different, treatments only in the hands of the wealthy.
Consider the problems in Canada including:
- Cutbacks in hospital funding, leading to chronic understaffing as well as inability of hospitals to provide the high-tech expensive machinery needed for state-of-the-art diagnosis and treatment;
- Resultant rationing of hospital admissions and hospital procedures, leading to waits of many months or years for cardiac bypass surgery, cancer radiotherapy, intensive neonatal care, and most of all, urgent and elective surgery;
- Government control of permitted types and frequencies of diagnostic tests, such as mammography, Pap smears, cholesterol studies, ultrasound, amniocentesis, CT and MRI scans;
- Government-mandated drug selection;
- Refusal to permit any Canadian to buy privately what the government has decided it cannot afford, on the egalitarian theory that if not everyone can have it at public expense, no one should be allowed to have it through private payment;
- Indirect control of medical personnel and medical institutions, again by financial arm-twisting;
- Stringent controls on, or outright refusal to permit privately owned alternatives to hospital ambulatory care or surgical facilities. (Bureaucrats don't like competition-it makes them look bad);
- Compulsory ``donations'' by doctors to hospitals or universities-just another form of income confiscation or discriminatory taxation by what are now, in reality, government institutions.
These lead to a system where only the extremely wealthy can get treatment on-demand... and only when they leave the country! A country where you have to leave to get decent medical care is not my idea of a free country.
Any rational person, looking at the current health-care situation in America, has to see that we need a change, and we need a change now! However, when even most proponents of "Universal Health Care" see that the current problems stem from the insurance companies, who are driving prices up when typically market forces drive prices down, why is the solution to keep the same system with a government bureaucracy in place of the insurance companies? The problem is a lack of influence of market-forces on the health care industry due to the existence of a middle-man in every single health care transaction. Let's get rid of the problem and return the market-forces to the medical industry.
Of course, there will still be people who cannot afford medical care even in a free market, even as there are people who cannot afford computers or whatever other market-based goods are available. For those people-while I don't agree they have a "right" the health care because the only rights people can have are those that don't require taking from one in order to give to another-there will be a small enough number that private charities could help a number of them and the rest could be covered by non-profit insurance agencies that are started by the good-hearted folks that support Universal Health Care!