[Excerpt taken from "Is There a Right to Medical Insurance?"]
Many claim that health care is a human right and that only an unjust society such as our own would fail to provide adequate coverage in this regard.
The problem with this claim is that it is but a variant of positive rights, and thus implies obligations on the part of others to provide it. This is highly problematic. Which others should be so obliged? People in oneâ€™s own city? State? Country? But why stop here? If it is truly a human right, then our obligations are to provide the objects of these rights for everyone on earth, a reductio ad absurdum that no one even contemplates, not even its supposed advocates.
Then, why stop at medical care? If it is truly a human right, what of food, clothing and shelter, etc., which, in many contexts, are even more important to the sustenance of life than medical care? For example, we can survive only a matter of days without food, and only hours or minutes without clothing and shelter (in very cold climates). But a healthy young person can live for decades without the attention of a physician. Why should not all of these things be human rights, in which case we are back in the sort of system that the late and unlamented U.S.S.R. bequeathed to the world.
Then, too, human rights are presumably timeless[ref]Block, Walter. 1986. The U.S. Bishops and Their Critics: An Economic and Ethical Perspective, Vancouver: The Fraser Institute.[/ref]. The negative right not to be murdered, not to be raped, not to be victimized by theft, etc., do hold true in all epochs. It is just as much a human rights violation to engage in any of these despicable acts 10,000, 1,000, 100, 10 years ago, or today. In contrast, it would have been literally impossible to provide todayâ€™s level of medical care 10,000, 1,000, 100, 10 years previously, or even, by definition, a single year ago. Something which is impossible to respect or live up to can hardly be called a right. It is for these reasons that we must reject the claim that health care is a human right.
But is health care not a human right? Surely it is important that this service be made available to as many people as possible, even, to all citizens. Why do our present medical offerings fall so short of this reasonable goal? It is the contention of the present paper that our present health doldrums emanate not from the free enterprise system, but from the very opposite direction: to little economic freedom is allowed into this area of the economy.
The supply side
What are the specifics? First of all, there are vast restrictions on entry into the industry. With government support, the American Medical Association (AMA) controls the number of new doctors allowed to practice with an iron fist. No new medical schools can be licensed without its approval. Moreover, it takes a dim view of extant institutions increasing the sizes of their freshman classes. It places barriers against the competition that would otherwise be applied to its members by foreign practitioners[ref]Friedman, Milton. 1962. Capitalism and Freedom, Chicago: University of Chicago Press[/ref]. For example, it requires that licensing examinations be conducted in the English language. Ostensibly, this is to improve the quality of health service, as it would be highly inefficient is a patient complained of a stomach-ache and the foreign non English speaking doctor started examining the head, or the foot.
But it is easy to pierce through this obfuscation. First of all there is pantomime. Only a physician with a room temperature IQ would look to either extremity of the patient when he pointed to his stomach and grimaced in pain. Secondly, there are all sorts of tests (urine, blood, pulse, blood pressure) that indicate malaise; the sick person himself, through verbal transmission, is only one source of such information. Third, there are unconscious patients, where information through language cannot be forthcoming in any case. Fourth, there are clients who speak the same language as the foreign doctor. A physician from Russia, for example, could be expected to deal adequately with his fellow nationalists from that country. Fifth, there is such a thing as translators, who could provide communication not only between the doctor and patient, but also to all other complementary labor services, such as nurses, technicians, other doctors, etc.
Yes, such additional services are not costless, but surely patients and would be foreign physicians should not have this option taken away from them by the AMA, certainly not in the name of promoting patient care. In any case, the additional medical expenses would likely fall far more by the addition of tens of thousands of new doctors than they would rise due to the hiring of additional translators. This is because, at the very least, the salaries of the former are vastly higher than those of the latter.
The present doctor shortage is truly horrendous, raising physiciansâ€™ salaries into the stratosphere. This, perhaps, more than any other one phenomenon, is the cause of our present medical malaise.
Krugman complains about too much competition. But the problem lies in precisely the opposite direction: too little competition, fueled by monopolistic powers of the medical guild. It is no accident in this regard to find the health industry one of the serious laggards in the move toward computerization. There is simply less impetus in this direction than in more competitive areas of the economy. The respected Economist magazine (4/30/05, pp. 65-67) titles its coverage of this phenomenon â€œThe no-computer virus: the inability, and reluctance, of doctors and hospitals to use information technology more widely is killing thousands of people.â€ The difficulty is that patientsâ€™ records are not readily available to physicians. In their absence, they cannot as easily tailor care to the specific needs of the patient, and are thus less likely to prescribe the correct treatment. If there were competition in this industry, then those doctors and hospitals who availed themselves of the new (well, decades old) computer technology could steal a march on their counterparts who did not. In the absence of competition, this process is stultified.
The demand side
If medical fascism is responsible for the disarray in the health field on the supply side, then medical socialism plays a similar role on the demand side. Medicaid and other such government programs without deductibles or co payments give rise to the problem of â€œmoral hazard.â€ If something is given away for free or nearly so, people tend to use it as if those were its real costs.
The same considerations apply to â€œfreeâ€ medical care. It, too, tends to be vastly overused, compared to the situation where the full economic costs of it must be paid. In other words, demand curves slope in a downward direction, and at zero or near zero prices, they typically extend to indefinitely large quantities. As well, doctors have incentives to do extra tests to build up fees, as well as to ward off malpractice lawsuits. Medicaid â€œmillsâ€ have arisen as a result.
But is it not a good thing that people can splurge under these conditions, whether for chicken dinners or the care of health professionals? Not a bit of it. It cannot be denied that for those few lucky enough to indulge their tastes in this regard, the system is beneficial. But, there are only so many chickens or physiciansâ€™ hours available at any given time. If group A has more of these items, then, perforce, group B must have fewer. And if group A is using them not for important purposes for rather frivolous ones, that makes the waste even the more intolerable.
We must tread carefully here, lest we involve ourselves in illicit interpersonal comparisons of utility [ref]Rothbard, Murray N. 1997 . “Toward a Reconstruction of Utility and WelfareÂ Economics.”Â The Logic of Action Vol. I. Lyme, NH: Edward Elgar. pp. 225-227[/ref]. After all, even under full free enterprise, the rich, presumably, would enjoy more doctorâ€™s care and chicken dinners than the poor. However, can we make the point that these goods and services would be better utilized by B than A? It all depends on the starting point. In the free enterprise system, our default position is that chickens and doctors were allocated to people in accordance with their purchasing activity. We assume that whatever ensued from this process was the rational or just allocation of these items between them, because it was based on voluntary choices of all concerned. Then, an alien presence, government, came along and orchestrated matters so that A could now step up its use of these benefits, forcing B to do with less. Since this transfer came about through compulsion, we can no longer say the resulting allocation maximizes welfare. The burden of proof, in other words, rests with those who claim that this new allocation, A wasting, B wanting, is preferable to the old one, and this they have not so much attempted to do, let alone succeeded in this Quixotic venture.
But what about private insurance? Surely, there can be no principled objection to such an institution. If a firm in this industry fails to make adequate provision for co-payments and deductibles, it will go bankrupt, and its place taken by other more rational companies. Or, to anticipate Krugmanâ€™s criticisms, if their administrative costs are too high, a similar fate will await them.
Imagine a system where the number of physicians rose greatly, and salaries commanded by doctors fell commensurably. No more long queues of patients awaiting medical attention. At least no more than the waits now undergone by customers at barbers, cleaning stores, haberdashers, etc. No longer would a 6-10 hour wait in the emergency room be a usual occurrence. Instead, doctors are as available to the public as now are skilled auto mechanics or air conditioner technicians, and earning compensation only slightly higher than theirs. In one fell swoop the need for medical insurance would all but disappear. No one purchases analogous insurance coverage for these other services, nor would they, likely, do so for health care under these assumptions. Food and shelter are, arguably, more important than medical attention. Without the latter, only the sick will die. But in the absence of something to eat, none of us can survive for more than a week or so, and the lives of most of us would become very precarious in far shorter time than that.
If there were a vast conspiracy to limit supplies in these other areas, there would probably be a similar desperation regarding them as there is now for medical coverage. There would be a great demand for food, clothing and shelter insurance; not everyone would be able to obtain it. There would be panic in behalf of those who have too little coverage for these items or none at all. But the fault would not be with â€œtoo many competitors,â€ as Krugman would have it. Rather, it would stem from the fact that with limitations on entry into these fields, prices would skyrocket. If housing and food and, yes, medical care are all reasonably priced, either insurance for these items will be cheap or non existent, because no one would want them. Extrapolating from present practices with food and shelter (no one now purchases insurance for them) it is most likely that with vastly lower medical expenditures, due to taking down the barriers for entry into this field that is part and parcel of free enterprise, insurance for them will become a thing of the past, and with it our present concerns for those without such coverage. For no one will need any such protection.
All economic goods must be rationed in some fashion. The only choice we have is what type of rationing mechanism will be used–an efficient (low-cost) one, or an inefficient one. There is no way any economic good can be provided without some kind of rationing mechanism. Medical care will be rationed–and by some less preferable system to the market–if it is made â€œfree.â€ In the case of Canada, the rationing comes courtesy of waiting lists for services, very long ones. So much so that in a case brought by Dr. Jacques Chaoulli [ref]http://www.newswire.ca/en/releases/archive/June2005/09/c0166.html ;Â http://www.nytimes.com/2005/05/21/international/americas/21chaoulli.html? ex=1274328000& en=55183310e5999477&ei=5088& partner=rssnyt&emc=rss[/ref] the Canadian Supreme Court, no bastion of free enterprise, was so disgusted with the long queues that they went against decades of practice and opened the door for â€“ wait for it, horrors!, â€œcapitalist acts between consenting adultsâ€ [ref]Nozick, Robert. 1974. Anarchy, State, and Utopia, New York: Basic Books[/ref]Â in the health industry, private medical care.
How and why did private insurance for health care first arise? It was due in part to wage and price legislation during World War II and part to a unique aspect of our tax system. During this time, the wage controls that went along with the price controls, effectively became maximum wage rates. Employers trying to hire more workers offered them non-wage benefits that were not subject to the controls. Although private health insurance existed before that, because such benefits were â€˜tax freeâ€™ to the employees, i.e., not subject to income or Social Security taxation, they became a favorite form of non-wage compensation, and, for the same reason, remain so to this day.
Maximum wages, unlike the more familiar minimum wage legislation that sets up surpluses, actually creates shortages. At artificially reduced wages, employers demand more in the way of hours of work than is supplied by workers. Demand exceeds supply, and firms must compete, desperately, for workers. One way around this law, a black market as it were, would be to offer more fringe benefits, as a substitute for the higher wages that are precluded by this enactment. What form would this extra non-wage payment take? Theoretically, it could take just about any form: use of a â€œfreeâ€ automobile, restaurant meals, groceries, clothes, toys, candy, whatever. In the event, however, the one fringe benefit seized upon by employers was medical insurance coverage. This was accidental, based on our tax system, in that the additional payment could otherwise have taken just about any form. However, coupled with restrictions on entry for medical practitioners, this tax-free institution led directly to our present difficulties with â€œlack of health care insurance coverageâ€ for many other people.
As Friedman [ref]Friedman, Milton. 2001. â€œHow to Cure Health Care.â€ The Public Interest. Winter.Â http://www.thepublicinterest.com/archives/2001winter/article1.html[/ref]Â brilliantly explains:
â€œNo third party is involved when we shop at a supermarket. We pay the supermarket clerk directly. The same for gasoline for our car, clothes for our back, and so on down the line. Why, by contrast, are most medical payments made by third parties? The answer for the United States begins with the fact that medical-care expenditures are exempt from the income tax if, and only if, medical care is provided by the employer.â€
And, according to the insightful analysis of â€œwhy U.S. health spending towers over that of other countries with much older populationsâ€ by Reinhardt, et al [ref]Reinhardt, Uwe E., Peter S. Hussey and Gerard F. Anderson. 2004. â€œU.S. Health CareÂ Spending In An International Contextâ€ Health Affairs, Vol. 23, No. 3, pp. 10-25;Â http://content.healthaffairs.org/cgi/content/abstract/23/3/10[/ref], â€œProminent among the reasons are â€¦ a highly complex and fragmented payment system that weakens the demand side of the health sector and entails high administrative costs.â€
This unwise government policy of subsidies for selected groups of employees set in motion a whole set of expectations, an institution as it were, of private medical insurance. This industry has become deeply embedded in the bowels of our economy. To the extent it is truly inefficient, it will eventually be weeded out by the profit and loss system of free enterprise. There are indications that this is even now occurring. Estimates are that an average General Motors product costs some $1,500 in health care costs [ref]http://www.newstarget.com/004785.html[/ref], far more than many other very much more necessary factors of production that go into manufacturing this product. Quite possibly a large part of the financial malaise of this corporation is accounted for by overly generous agreements with unions along these lines in the past.
On the other hand, there is nothing intrinsically wrong with payments in kind, in lieu of additional salary. Only the market can ultimately determine if such an institution can long endure. As a matter of economic history, not praxeology, one can say however that there are several reasons to believe it will not last in the absence of other or continuing governmental subsidies to this end. First of all, money is the most fungible of all possible payments. It is only in the case that the employee would have spent the addition to his salary in exactly the same way as the payment in kind that such a system has any chance of continuing. But this is truly rare. Which would you rather have: a bicycle, a tennis racket, a pair of shoes, skis, and a subscription to this journal, or the monetary costs of all of these, say, $1000 exactly. It is only if you would have spent your money on precisely these items that there is even a chance you would prefer the former to the latter, and here only if the act of shopping for yourself is a negative. Similarly, most people would prefer to purchase their own medical insurance, if they wanted any in the first place. It is only if there are strong economies of scale in the making of such purchases that it would pay for the employer to do so in behalf of his employees. However, it is far from clear why this should be the case only for medical insurance, and not for the insurance of cars, food, toys, houses against fire, etc., let alone for outright purchases of these items.
It is time, it is long past time, that we disregarded the red herring of medical insurance, private or public, and looked to the underlying realities. Contrary to Krugman, this is not the source of our present medical difficulties as a society.
[Excerpt taken from "Is There a Right to Medical Insurance?"]