11212017Headline:

Government Intervention in the Market Place

Throughout history the genius of Adam Smith’s invisible hand has provided a rising standard of living in the free world. In the United States our native creativity and risk taking have driven costs down, provided conveniences that were unimaginable 150 years ago and given the average American a standard of living, that is the envy of the world. These benefits have accrued to Americans in spite of the continuous meddling by the state in the market economy.

It is easy to demonstrate the hypothesis that government intervention has raised prices and choked off supply.

No area has been more badly mauled by state intervention than health care. Each intervention has raised prices, restricted availability and most importantly reduced the number of Americans who receive health care. Like most government interventions the ideal of the intervention has been a putative societal good, but rarely if ever, has the government evaluated the effectiveness or efficiency of it’s interference. At one time in our history the provision of health care was viewed as the responsibility of the individual. The relationship between a physician and a patient was considered to be as sacrosanct as the lawyer client privilege. People were free to shop for health care based on cost, quality and convenience. Ultimately, consumers spent their own money and were responsible for the outcome of their decisions. Today, many Americans, and most politicians view health care as some sort of right, an entitlement due by virtue of their residence in the United States.

This "right" is enshrined neither in the US Constitution (a document designed to restrict the powers of the government) nor in the general political theory of our nation’s founding. It is a creation of well intentioned people who believe that when one woman receives free birth control pills from her health plan, then all other women should as well. The language which abounds in the health care debate is not so much about rights, but about "fairness."

The terminology in the health care debate is misleading. It is normally called "health insurance". While the industry is generally dominated by large insurance companies it is in no way anything like traditional insurance. When you purchase life insurance the insurer evaluates your age, health and other factors to determine when you will die. Actuarial science has well developed tools to predict, with astonishing accuracy, how long you will live. When you purchase your policy the insurer plays the odds that the value of the money you pay over the expected duration of your life will exceed the amount they will be required to pay out upon your death. That they don’t always get it right is proof that the system works. There has never been an honest life insurance company that went out of business because they lacked the funds to pay claims. It is only when their investments go bad that they collapse. Auto insurance is similar to life insurance. There is a reason why your rates are based on the type of car you drive, your residence, your age and sex and your driving history.

Health insurance is a completely different beast. The presumption of health insurance is that payments will exceed expenses in any given year. That the health insurer, through a series of exceptions and restrictions can create a profit by forcing the participants to be more efficient. But the interests of the insurers, providers and consumers are all diametrically opposed. The insurers desire a profit and to do so they must control costs. The providers desire a profit and to do so they must charge as much as possible while providing sufficient protections against law suits from disgruntled consumers. Consumers desire to get as much health care as they think necessary. There is no community of interests resembling a true free market exchange between producers and consumers. Government intervention, in the name of "efficiency" or "fairness" just piles on layers of rules, regulations and bureaucratic fiats that do nothing to improve the situation but do add considerable costs. Like any additional cost it must be paid by someone and the insurers, providers and consumers will do their best to shift those costs onto one of the other parties.

What Next?

Recent Articles

Leave a Reply

You must be Logged in to post comment.