Vantage point

Tuesday, July 31, 2007

On Healthcare

The Goebellian “US healthcare = privatised healthcare” pseudo-trusim has been repeated so often that most take it as being true without even questioning. The US healthcare system isnt a free market system. It is government-assited crony capitalism, which is actually worse than socialism.

Free markets have competition which arises because of delicensing and low entry barriers. Firms compete without any handouts from the government, and to compete, they need to focus on their customers. The healthcare system in USA was built on subsidies, regulation and interventionism. Even today, 44% of insurance comes from government entities. When people complain about “evil insurance companies”, they dont realise that half of those are the government. When they ask for the government to provide healthcare, they forget they are asking the perpetrators to take over completely.

The insurance companies and hospitals can be the way they are because they have been coddled over the last 3 decades by the HMO Act of 1973. The fallout of that act has lead to a system which is not free market, but is statist masquerading under the garb of free market. The HMOs were declining until Nixon subsidized them heavily, setting up a system where insurance companies are the King. All the incentives are aligned that way too. A Cato study has shown that regulations lead to a cost of 340 billion to the public.

Healthcare in the US is screwed up, yes. But that is because they had the worst devised state-led program. A state-led program which ended up making insurance companies the biggest decision-makers. Leading to a system where the decision on your surgery is taken by an insurance agent sitting somewhere, with incentives aligned to reject your claim. It came about, not because of free markets, but because of government intervention. French and British state-led programs are certainly better. And they are working well for now. But the question is, are they sustainable? That is a topic for another post on another day.

Anyone who treats the US health care mess as an indictment of the free markets system , either doesnt understand the history and the structure of the US health care system, or doesnt understand what free markets and privatization means. Or both.

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