Monday, November 10, 2008

The Free Market needs Socialized Medicine

It doesn't seem obvious at first. In fact, it seems contradictory. How could it be possible that a free market system could co-exist, and even benefit by, a government run, single-payer, health care system?

Let's first of all establish what "free market" means. I've received a recent and inspiring education from Rational Reasons and a bunch of other sources on the subject of "free markets" and "libertarianism".

If we were living in a free market system (which we aren't) it would mean that consumers are free to choose the best products. Natural economic supply and demand would work together with the consumer's judgment of quality to select the supplier or manufacturer who is doing the best job. If we impede the flow of the free market too much - say by creating incentives for the existence of large companies or by subsidizing certain raw materials - we will damage the ability of the free market to adjust itself to maximum efficiency.

On paper, you have to admit that this sounds pretty good.

As an example of where the free market would fail, if every soap I can buy changes my skin complexion such that I have to go through a four week period of skin rashes and boils when I change soaps, we can't really pretend that there's a free market in soap.

My argument is that, in a free market, people have to have the same freedom to move about from job to job. If my employer can keep me attached to him unfairly – say by blacklisting me, beating me up or burning down my house – then we don't really have a free market. It would allow terrible employers to continue to employ people that the employers don't deserve to have employed.

This is how I see private payer health care, as an unfair tether.

The fact that health care is provided by an employer allows an employer to unfairly attach me to his company. He can pay me less than a proper market rate - therefore damaging the power of the free market - simply by the fact that I could find myself dead if my next employer's health insurance declares my disease to be "pre-existing". Even worse, the situation creates a powerful bias against small companies and self-employment because private health insurance becomes prohibitively expense for individuals and small groups of people. This creates incentives for the existence of larger companies that otherwise might have no business existing in a free market.

The only possible way to keep the free market going is to remove the private money from health insurance. Health insurance should be paid by a government. Even if you wanted to allow private clinics to provide services in competition with the government, you have to keep private money as far away as possible from the paying side of the operation.

This is the only way to guarantee that labour is sufficiently lubricated to make this whole dream of the benefit of the "free market" come true for the vast majority of the people.

Guarantee people health care and you guarantee them freedom.

The mantra from the libertarians is that it is the freedom to choose that will make the economy work properly. In order to really have the freedom to choose, the people must know that, regardless of their choice, they will be secure of body and health. Consequently, we must sacrifice a small, irrelevant part of "choice" (i.e. who pays for the health care) in order to open up a whole world of choice in something orders of magnitude more important - where you want to work.

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Mike said...

Thanks for the kind words.

Ok, a response:

"This is how I see private payer health care, as an unfair tether....The fact that health care is provided by an employer allows an employer to unfairly attach me to his company. "

Firstly that isn't necessarily so. In a truly freed market, there is no impediment to how you get your healthcare. It could be as you described, which is essentially the US model (which isn't a free market, remember). It could be that healthcare is provided by your union (meaning Unions in a free market would have a different role than they do now). If could be from your professional association, your village or town, or some other voluntary collective to which you belong OTHER than your employer. Why it could even be your anarcho-syndicalist commune.

You could even buy it yourself (not the most efficient way) or forgo insurance and simply accept the risk and pay as you need too.

My guess is that, given the choice, people are more likely to choose not-for profit or non-profit entities to spread their health risk, rather than for profit ones, because as our system shows they are more efficient at quality of care. They would have to compete with other not-for profit and for profit entities for clients, with not-for profits having a cost advantage.

Couple that with the drop in costs of parts of the healthcare industry with a free market in place - no more artificial shortages of doctors thanks to government entrenched cartels like the CMA. No more high-priced drugs because of so-called "intellectual property" laws and patent laws. Choice by people to pic a doctor, nurse practitioner or other professional based on their need. Imagine these professionals having to compete based on price and quality of service (something they don't do know, resulting in a lot of crappy doctors making a lot of money for crap service).

Your criticism is good if the only alternative was something like the American system. But that is not the case. Mutual Aid societies were providing this kind of thing for decades before government took over.

I would say that given the choice, the one that works will become pre-eminent. Much like evolution, those system that are not advantageous - like your employer paid example - will be unattractive and not survive, giving way to those that do.

Mike said...


Check out this post I did last year about this at my other blog.

Ian said...

I much prefer the term "fair market" to refer to markets that use regulation to properly promote competition. But otherwise, good article.

Socially Active said...
This comment has been removed by the author.
Socially Active said...

Illness is more than just an individual cost. It is a social cost.

When sick people not covered under private payer health care get sick with the flu, everyone pays.

When injured people not covered cannot return to work because of poor medical treatment, their families are hurt. This is also know as the disease of the poor. This disease prevents their children from obtaining their potential. Often another family member is also taken from the work force caring for the individual.

Also lets remember medical services have a long term return. To maximize profits private health care is preference towards a ill population. It does not make since for private payer health care to invest in long term illness prevention which will probably only help the next employer.

Illness is a Social Cost.

Greg said...


I agree that how you get your health care can be left to some degree up to a competitive market. But I would worry a lot about unethical companies skimping on you in a way that you might not discover for years. I would demand, as I do with food inspections, a third party inspector who gets paid by consumers to find problems.

As for passing the paying responsibility down to unions (even if we allow "union" to mean something else), I can't see how that would be fair. Would the janitor's union be able to provide the same standard of care that the software designer's union provides? Would it be fair if it didn't? I wouldn't think so, but others might.

My feeling is that everyone, regardless of income and with very few exceptions, deserves the same standard of care. If the CMA is really creating a doctor shortage, that has to be cleared up. Preventative action from GPs is, what, ten or a hundred times more efficient than waiting for a heart attack?

My guess line up with your guess. Most people, at least in Canada, would say that we're all in this together and they'd be happy with it. It's just a matter of breaking the CMA's hold on the doctor population (you have a link on this subject) and fixing the cost of drugs by socializing the research.

Greg said...

Socially Active,

I agree with you. Private service providers are incentivized to find high profit emergencies, not low profit preventative measures.

But the libertarians may be distressed if you tell them that you're going to forcibly enrol them in a medical system "for the good of society". I suppose they can still refuse care if they want.

On the other hand, the system also has to deal with less wise people who might choose to go without health care and then get sick or die, thereby frequently mucking up our society with their non-vaccinating, penny-pinching ways.

Socially Active said...
This comment has been removed by the author.
Socially Active said...

Libertarians are concerned that some people will go see a doctor when they are not actually sick. And as a result missuse the medical services.

This is honestly difficult to prevent completely. Some people are hypochondrics.

But lets consider the cost of not treating a sick person. In Hong Kong a sick man visited a wedding from China at the Metropoton Hotel. He felt ill, he was travelling and the wedding was important. He is the reason the SARS spread to Hong Kong and much of rest of the world.

It is cheaper to error on the side of caution, sort the sick in priority and hand out placebos.

I do agree it is efficient to have provide business provided a service according to a cleanerly defined standard. Such as food services, none emergency hosipital transfers, etc.

Private businesses are excellent at reducing cost, but is it is important to remember they report to their owners, not the public. As result measures need to be taken to insure that publically exceptable performance standards are met. And that vendor lock in is avoided.

The elected report to the public.


A beautiful system that works, until government corruption is introduced.

Corruption can only be reduced through a transperancy. Transperency is only possible with independent investigations, which is only possible with a independent judicury. Transperency also requires a decentralized media not controlled by a very few.

Mike said...

But I would worry a lot about unethical companies skimping on you in a way that you might not discover for years

Well, as I said, it may not be companies that provide insurance or services - it could be consumer or doctor's cooperatives (like a health care credit union), it could be a club or some form of organization we haven't though of.

And in stiff competition, wouldn't transparency actually be a "selling" point, a differentiator in the market that would attract new clients? I think so and I'm sure such a company in your hypothetical would not last. Or would be sued out of existence if it were caught.

Right now, in the US, companies get away with stuff like this because of the regulations, not in spite of it...they can use privacy regulations to prevent people from seeing their records (financial or medical), they can use regulations to prevent more efficient and transparent competitors from entering the market. They can and do use regulations to prevent adoption of technology that would inform and empower a patient - Electronic Health Records, for instance.

The only way a company like the one you envision can or would exist is because it can use the monopoly coercive force of government to ensure it can hide information.

Private service providers are incentivized to find high profit emergencies

Only if those private providers are profit-seeking companies. As I said, there could be a mix and there would be not-for profit or non-profit groups that exist where prevention is their incentive. They would have lower costs and thus likely to be more popular with people. Meaning profit making private companies with incentive to high profit emergencies will not be popular and will go out of business.

Socially Active:

Libertarians are concerned that some people will go see a doctor when they are not actually sick. And as a result missuse the medical services.

Really? I don't remember saying such thing, nor do I know of any libertarians that care. If you can afford it, or it is otherwise available to you (via insurance, group benefit or merely free as part of the syndicalist community you live in) go to the doctor as many times as you want. Indeed, the whole idea that this can be "missued" only applies to our current system, where doctors are in shortage, thanks to the interference of the state at the behest of the CMA (in 1990 they thought there were too many doctors so they had medical schools curtail enrollment and had government regulations put in place to make it hard for foreign doctors to practice).

In other words, that only applies to our current system.

I am arguing for a decentralized system where this kind of this could not happen and the system will be an emergent, bottom up one that can grow and change as needed by consumers of the system, not commanded by the top down by those with other agendas.