Having been trained in Economics and Finance, I am a strong believer in the benefits of market based competition. However, I also recognize that there are many markets where for some reason the free market does not lead to economic efficiency which economists often define as producing at the lowest possible cost. The medical industry may fall into this category of non-market based efficiency.
This can be illustrated by the following: About 25 to 30 years ago the Blue Cross/Blue Shield system dominated the health insurance industry. There was sharp criticism because the hospital portion of medical care was paid on a cost plus basis. Those who did not understand the system assumed that this led to uncontrolled growth in hospital costs. Governments forced the Blues into a different payment system and hospital costs skyrocketed. What the critics failed to understand is that the Blues audited hospital costs and refused to include many costs in the payment base. In fact, hospitals were required to get advance approval for major capital purchases. This means that if one hospital had an underutilized MRI the blues would not reimburse another hospital in the area that acquired an additional MRI. The Blues encouraged the second hospital to contract for MRI services with the first hospital. This led to lower overall costs in the system. The elimination of the Blue Cross single payer cost-plus system led to duplication of services and higher per unit costs due to under utilization at some institutions and higher over-all costs due to scheduling of unnecessary tests designed to justify the acquisition of the equipment at others. In this case competition led to higher costs instead of economic efficiency.
Now we are hearing health insurers and their congressional apologists screaming that a single payer system would not be economically efficient because we would eliminate competition. In addition, they claim that a single payer system would lead to rationing. What they fail to consider is that we already have rationing. In a world of scarce resources the market based system allocates, i.e. rations, resources on the basis of prices. In the realm of health care, those who can afford to pay the price get the care. Medical care is rationed to those with either high wealth or good insurance. Those without either get poor or no care. In addition, as was explained earlier, market based health care leads to higher costs.
The time has come for Americans to join the rest of the developed world and treat health care as a non-market service. Those who claim that the government cannot operate efficiently just need to look at Medicare as a model. I have many friends, over 65, who rail against government involvement in health care. When I ask them if they’re going to give up their Medicare coverage their universal response is that Medicare is great. Why would they give it up? When I point out their contradictory attitudes they just ignore me. They fall into the category of those people who dislike economists because economics often disproves their preconceived notions and people are reluctant to change cherished beliefs when evidence contradicts them.
