Arnold Kling  

Only the Libertarian Fringe Offers Real Health Care Reform

Wesley Mouch watch... I'm on Vacation...

Ronald Bailey writes,

The health care "reform" currently being hammered out by the Democratic leadership of the House of Representatives already clocks in at $1 trillion and 1,000 pages--and it's nowhere near done. But one thing is clear: the legislation attempts to substitute top-down mandates from a centralized bureaucracy for the distributed decisions made by millions of consumers, physicians, and insurers acting in a marketplace. This will fail.

The basic problem that the Democrats have with health care reform is that when it comes to taking our system away from free markets, there is just not that much farther we can go. We already regulate the practice of medicine and allied health services with licensing cartels. We already regulate individual health insurance practically out of existence, particularly in states that require "community rating" and "must-carry," which force insurance companies to charge the same price to all comers, which means that the only price they can safely charge is the price that assumes you are only asking for insurance because you just came down with a really expensive illness. We already have government insuring the poor and the elderly.

In contrast, there is a lot of room to move health care in the other direction--toward free markets. The only real health care reformers are those of us on the libertarian fringe. The two major parties are just posturing. That's why I haven't written much about the day-to-day debate on "reform." It is not clear to me that defeating the Democrats' legislation is something I should root for. We're still nowhere near considering real reform.

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COMMENTS (33 to date)
Chris writes:


Could you please elaborate on some of the "fringe" reforms you are referring to. Would these include extended tax benefits to individual purchasers of health insurance and allowing people to buy insurance from out of state?

Les writes:

I certainly agree with your comments. However,defeating the Democrats' legislation is something well worth rooting for.

The Democrat legislation makes things even worse, and adds to the existing evils. If the Democrat legislation passes, we slide yet further away from reform. So defeating the Democrats' legislation is essential to at least stop the rot.

dWj writes:

I've thought for 16 years that the best argument for socialized health care in the United States is that it would be more honest on some level than the current pretense.

Colin K writes:

At this stage the most I can hold out hope for is "none of the above."

RL writes:

dWj: Keep in mind that honesty is NOT always the best policy...

rob adams writes:

Libertarians, please spare me thy "free market" philosophy. I have never heasrd or seen - including Ron Paul - a libertarian who could tell you exactly what a free market is excpet to argue against literally any form of government interference. So, tell me, with no control over medical markets, with insurance companies unrestricted by government from a complete monopoly, instead of just their regional hegemonies which are alreaddy horrendously unjust and economically ruinous, how exactly do you propose to protect the consumer?

Nathan writes:

Rob--so in other words, libertarians have told you exactly what a free market is (no government interference), but you don't like the definition so you dismiss it?

Protection from ruinous monopoly comes through competition, not via regulation by a super-monopoly (i.e., the government). The artificial monopoly is a popular myth, but a myth nonetheless.

Who will regulate a market without government? We will:

Joshua Holmes writes:

Kling, you are not on the fringe. =)

The health-insurance-provision-by-employer model is hardly a product of free markets. Companies skirted the wage freezes in WW2 by offering health insurance, and the US never bothered to tax it as personal income.

Moreover, the state insurance boards have cartelized insurance care instead of insuring competition, mostly by adding health care mandates that only large insurance companies can afford. Far from balancing the bargaining power, the cartelization has given the insurance companies much more power than they would have in a free market.

It's quite true you have to watch insurance companies closely, to make sure they pay what they ought. But also, the free market didn't create the insurance behemoth we have, and would likely wreck it (as it would likely wreck most of big business).

The Rage writes:

"Protection from ruinous monopoly comes through competition, not via regulation by a super-monopoly (i.e., the government). The artificial monopoly is a popular myth, but a myth nonetheless"

Absolutely wrong. What you call "artifical" monopoly just doesn't exist, it is the natural progress of "free markets"(a word I chagrin).

The reason why health insurance is the way it is, because of its failings to compete intially in the first place. Basically, it did no good and states had to step by the great depression. Matter of fact, the cartelization of health insurance in the 1920's because of lack of government oversight, helped cause the Great Depression.

My advice is to stop using the term "Free Markets". It is a intellectual term, not a natural term. "Markets" exits in nature, but not "Free Markets". That is a term of decadent materialism that came out of the enlightment.

Free Markets would hardly "destroy" big business, but empower it to replace natural state and public functions into plutocracy. Eventually, leading toward a plutocratic dictatorship and eventually internationalism.

Great representation about "libertarians" that is the fraud of intellectualism. They represent the weak minded of society.

The Rage writes:

"insurance companies unrestricted by government from a complete monopoly"

Great point.

Turning the old mutual company into the giant insurance scam of today was caused by the government letting them go into stock. It turned them into cash hogs and a real reason why costs exploded. What is worse? The Insurance companies pump the money into their invester base who then pump the money out of the freaking country.

Yet, libertarians never talk about that........oh, how are you going to keep them down when they manipulate the market and stifle competition? You won't. Competition is the furtherest thing from the mind of the clients mind, making even more easy for monoplization. The government had no choice but to interfer as the now growing medical advances were turning insurance into a nasty set of profitters.

Yet, libertarians talk all about this "free market" intellectual jumbo mumbo? Don't even get me started on the 19th century monopolies. Mercy, the governments rise into regulating capital markets was due to that libertarian fiasco and the human toll it caused(how many died from plutocratic crimes? 10-15 million by 1900?

I have a better idea, lets abolish all governments and let plutocrats rule. Nathan enterprises, now with properties through the North Sea and Southern Africa. Get rid of all "old" hangups holding us back. Merchant Caste be damned, we are the rulers of the world!!!!!

Who is the worst dreamer, the Marxists or Libertarians?

I would advise starting with J.Evola's Revolt against the Modern World and go from there. Maybe you will learn a thing or two. Beats Menger or Mises anyday.

John Fembup writes:

Question from an uninfomrmed onlooker: What will regulate the government when it's in charge?

Jeffrey Able writes:

Mr. Kling - are you seriously suggesting that the free market can be trusted to take care of all Americans - because that regulation that you seem to disdain - do you think it came out of a system that was working for all Americans? Given pure free markets it will be all viagra all the time - you've got some rare illness? You better hope viagra cures it...

JohnJ writes:

I don't understand how anyone can read Kling for any length of time and not see that he's right. Any objective comparison of industries in the United States shows without a doubt that the more regulated an industry is, the less it provides, and at a higher price.

gnat writes:

I have always liked Solow's quip on different sides reaching agreement (edited): Suppose someone sits down and announces he is Napoleon Bonapart. If as a result I am drawn into a discussion of calvery tactics, I am tacitly agreeing that he is Napolean.(quote in Globalization and Poverty by Ann Harrison, p75).

Observer writes:

The problem with the free market with regard to health care is that by making profit and not health the bottom line, insurance companies have no incentive to cover anyone who is not healthy. As it is, they still find a myriad of ways to not cover or do so in a limited way people who actually have insurance because it does not make money for the company and their executives.

Free markets are fine for goods and services that everyone can choose to buy or not buy (even though access is not entirely equal, but that is another debate about free markets), but health care is a necessity for all that when subject to market forces becomes inaccessible and does not cover everyone.

Insurance companies have had the entire postwar era to cover everyone through the free market and they have done nothing unless compelled. Wouldn't the libertarians among us at least agree that having minimum requirements such as including even those with pre-existing conditions would be useful to foster competition?

Jane G writes:

You all should check your premises.

If the government did not interfere in health care financing or delivery, a wide variety of financing options and delivery alternatives would exist, thanks to the creativity of free people looking for a better way to do things.

Our inability to even imagine that alternate narrative says a lot about how entrenched we are with the status quo.

frankania writes:

Wait a minute, "insurance" is not the question. It's medical care. I have NO INSURANCE. I am 69 years old and when I go to a doctor, I get reccommendations from friends, talk to him/her in person and pay in cash (after asking the fee first).
When I get medicine, I don't use a prescription (thus no doctor visit usually) but I check for side-effects and other info on the internet.
If I need surgery (which I have had 5 times in the last 16 years), I compare prices, make sure that tests are REALLY needed, and check the bill carefully before paying (in cash). My last office visit cost two dollars, and it was at a PRIVATE clinic--competition here is fierce.
I LIVE IN MEXICO. THIS is the libertarian medical system where there are too many doctors and too few lawyers.

Floccina writes:

I do not like the phrase "free market" , I would rather discuss what people should and should not be allowed to do. E.g. why aren't people allowed to buy insurance from out of state insurers. Why are many immigrant doctors not allowed to practice in the USA. Why are licensing requirements so high?

BTW in some states Blue Cross is not for profit.

Free markets are fine for goods and services that everyone can choose to buy or not buy (even though access is not entirely equal, but that is another debate about free markets), but health care is a necessity for all that when subject to market forces becomes inaccessible and does not cover everyone.

I guess that rules out free markets for food staples.

Thomas DeMeo writes:

JohnJ- "Any objective comparison of industries in the United States shows without a doubt that the more regulated an industry is, the less it provides, and at a higher price."

This is simply untrue. There are large chunks of economic activity where the transactions are well understood and relatively clean, and libertarian ideals work. However, as societies evolve, it becomes apparent that opportunities exist where free markets simply cannot resolve the ownership rules, environmental rights, liabilities, etc...

We want modern communications. We want power plants. We want chemical plants. We want financial services. Without regulations, these opportunities would be impossible to exploit. They need to be under a legal framework so that the business risk can be defined. Otherwise, any rational entrepreneur would pass.

RL writes:

I swear, if posting here required passage of a basic introductory econ course, the volume would go way down...

Observer writes:

"I guess that rules out free markets for food staples."

Well, the free market for food and housing does keep many people out leaving government and some corporations to subsidize or provide for no cost at all so families do not die. So, you are correct that the free market does not provide necessary things like food and shelter for everyone at a price they can afford. However, in the cases of food and shelter, they are goods that can be provided at a reasonable cost to most people.

Health care is expensive, complex, and not a commodity/service available to all people on an equal basis.

hacs writes:

"Protection from ruinous monopoly comes through competition..."

I don't have sure whether competition in that market carries out a competitive equilibrium.

Les writes:

RL I totally agree. Even an IQ test or the ability to write a coherent sentence would cut down the volume considerably.

John Thacker writes:

Professor Kling,

The Ryan-Coburn bill (Rep. Paul Ryan, Sen. Tom Coburn) isn't that bad. It actually improves a few things.

hacs writes:

Let there be competition, and there was competition.


Mr. Econotarian writes:

"We already regulate the practice of medicine and allied health services with licensing cartels."

Can you really back up the "licensing cartel" story?

While it is true that Medicare pays for a limited number of residency slots every year, there is no reason why residents couldn't "pay their own way" with loans similar to what they got for their medical school. Some residency programs do pay for some of their own residents, but I don't know of any residents who pay their own way.

Second, if you do your residency and pass the USMLE, don't you always get licensed?

Now what we should do is establish "reciprocity" with countries like France, Germany, etc. on doctors so they don't have to do the residency or pass the USMLE.

strawman writes:

I won't argue that the current system is free-market. But I do dispute, with vigour, the false libertarian belief that 'free markets' inhibit cartels, free the people to make the best choices available, and prohibit monopolies.

Time and time again, less inhibited markets produce behemoth companies - Bell systems springs to mind - against whose size and purchasing power the free market has little answer. But faced with historical examples, libertarians dismiss them.

The entire history of libertarianism is an exercise in 'slippery slope' logical fallacies. "If we give the government this, then they will . . ." But they rarely, if ever, have the capability of providing empirical examples that justify their counterarguments - because consumers are by and large not completely rational, because truly unfettered free markets are fairly destructive, and therefore they have no successful models to defend.

Joe Cushing writes:

Observer is under the delusion that we have had a free market in health insurance. We really need to break people of this idea or we will never get real reform.

tom of the missouri writes:

According to the Reason web site Mr. Bailey in his own words said he voted for Mr. Obama.

"Methinks the lady (Bailey) doth protest too much..."

Or maybe he thinks it "will fail" because it needs $2 trillion and 2000 pages instead of $1 trillion and 1000 pages? Surely he knew what was coming. I did, it was obvious, and I am not a well known science writer.

I am not trying to turn this into post Vichy France, but might want to find a more credible person to quote.

Joshua writes:

"Time and time again, less inhibited markets produce behemoth companies"

I thought if behemoth companies came up with super profit margins than that would attract more people into the industry to scoop up that profit and bring the margins down... as long as there are no Barriers To Entry (i.e. regulations), of course.

Adam writes:

Exactly right, Arnold, on the piacular health care proposals. Thanks for putting out there so succinctly and clearly.

hacs writes:

Are indivisibilities (expensive inputs to produce quality-quantity of life - modern treatments) and economies of scale negligible in that market?

Jacob Oost writes:

Thank you, thank you, thank you. It's a great feeling to read somebody else say what you've been thinking for years, but rarely seen anybody else even talk about. It's all lipstick on a pig, from Democrats or Republicans.

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