Sunday, April 08, 2012

For Healthcare, What Is The Cure?

Published in The Tennessean, Sunday, April 8, 2012
and Forbes with archives.

by Richard J. Grant

Whichever way the Supreme Court rules as to the constitutionality of the Patient Protection and Affordable Care Act, those who opposed the act will continue to be asked, “With what would you replace it?”

An ideal answer is not allowed to ignore immediate political constraints and the history of how we got where we are now. This is why we are often faced with choices between false or incomplete alternatives — and why some suggestions, even from Republicans, have sounded little better than watered-down nationalization, a timid postponement of the real deal.

The deadly assumption that has plagued the debate and lured us into our current health-care predicament is that “health care is different.” It is argued that the practice of medicine is a very complex field and that patients lack the knowledge possessed by doctors. It is also argued that the stakes are high in the medical field and that lives depend on every decision. Recitation of such premises opens us up to the non sequitur that healthcare is “too important to be left to the market.”

In every country where I have lived, someone has attempted to convince me that the laws of economics were different there than in America. Similarly, in every industry where some player has argued for special regulation or tax breaks, the argument has been some variation of “our industry is different” or “this time is different.”

But the laws of economics do not change between countries, between industries, or between time periods. Central planning has destroyed economies and cultures wherever and whenever it has been attempted. We have already demonstrated this in America: Medical services and medical insurance are among the most heavily regulated industries. Over 50 percent of medical expenditures are channeled through government. If we have problems in the U.S. medical system, it is ludicrous to blame free markets.

In every industry, we expect successful producers to know more about their products than the average customer. Even the simplest products are the result of a complex process. In his famous essay, “I, Pencil,” Leonard Read demonstrated that no single person on the face of the earth knows more than a fraction of what is needed to make something as simple as a pencil.

The same can be said of auto mechanics and food production and any other factor on which human lives depend. It could also be said that “for want of a nail (or pencil) ... a kingdom was lost.”

In the case of medical care, the long-term result of government interference in medicine and the economy in general has been a loss of innovation and available resources. A child born today with a life-hindering “pre-existing condition” is worse off, not because of free markets, but because of all the innovations and wealth that were never produced because governments thought that they could be the masterminds. In a free market, parents could buy permanent insurance contracts that protect their as-yet-unborn children throughout their lives.

Government officials have no particular aptitude for judging potential doctors and medical procedures. Government’s main role has been to serve as the enforcer of a cartel that limits the supply of doctors, of hospitals, of drugs, and of innovative alternatives. It has also prevented the medical insurance industry from competing and developing products that serve people’s full range of needs.

Only greater freedom can correct this.

Richard J. Grant is a Professor of Finance and Economics at Lipscomb University and a Senior Fellow at the Beacon Center of Tennessee. His column appears on Sundays.

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Copyright © Richard J Grant 2012