Want to Help the Poor? Promote a Free Market in Health Care

Recently I had the pleasure of speaking with John C. Goodman, author of the new book Priceless: Curing the Healthcare Crisis. Goodman is a giant in the healthcare policy field. The “Father of Health Savings Accounts,” he has been named by Modern Healthcare as one of four people who have most influenced the modern health care system. The solutions he proposes for America’s ailing healthcare system are radical—and they run in the opposite direction of the Obama administration’s Affordable Care Act.

If you want to help the poor, he suggests, the best approach is to restore free-market pricing mechanisms into the market for medical care and health insurance. It’s a fascinating interview with the Paul Ryan of health care policy, and I hope you take a look at the book from the Independent Institute.

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What’s the premise of the book?

The title is a double entendre. On the one hand, your health care is priceless. But on the other hand, the health care system has no real price. The thesis of the book is that the suppression of the natural price system has had negative effects in two markets—for medical care and for health insurance. In the market for health care, we have bought into the same notion as other countries, that the way you make health care accessible is to make it free at the point of delivery. What we forget, when we do that, is that if you suppress prices, then all of the non-price barriers to care become increasingly important.

What kind of non-price barriers?

How long does it take you on the telephone to get an appointment to see a doctor? How many days do you have to wait? How long does it take to get from your home to a doctor’s office, and how long do you have to wait after you arrive? Those are all non-price barriers to care, and there’s plenty of evidence that those barriers are more important than the fee the doctor charges, even for low income people.

In the United States, we—just like the Canadians and the British and people all over Europe—primarily pay for care with time and not money. And paying with time turns out to be a very wasteful and inefficient way to pay for care.

Aren’t there some people, however, who have little of money and lots of time, and would prefer to wait in order to receive cheaper care?

There are 50 million Americans with foodstamps, who can buy any product you and I buy, and pay the same price. When they get to the checkout counter, they combine their foodstamps with cash and pay the market price—and you never hear it said that poor people can’t get access to supermarkets. They may have to get on a bus and go some blocks away, but food markets don’t refuse people with foodstamps.

Now, fifty million people, mainly the same people, are also on medicaid. And what’s the biggest problem you have there? Finding a doctor who will see you. Because we make it illegal for people on medicaid to add to the govenrment payment rate and pay the market price for care.

There are about 1300 walk-in clinics in this country, and the ones in CVS are called Minute Clinic. As the name implies, they know that your time is valuable as well as your money. They provide very high quality care for a reasonable price. In Dallas, Texas, if you have an ear ache or a sore throat, the charge is about $75. Medicaid will only pay half that. So none of the minute clinics accept Medicaid patients. We make it illegal for the poor person to add to the medicaid rate and pay the market price. So a Medicard patient has to go to a hospital or an emergency room and wait hours to get basic primary care. It certainly isn’t delivered in a minute.

If we just allowed low-income people to obtain health care in the same way we allow them to obtain food, we would make health care immediately accessible to millions of people.

So, the solution you propose something is a kind of voucher that counts for a certain amount of money, and people can pay money on top of that, so that the poor can afford health care and yet the prices are determined by market conditions?

Bear in mind, these are all services outside the third-party payment system. The Minute Clinics cater to people who are paying out of pocket. They didn’t arise for people walking around with insurance. So wherever third-party insurance is not the way people pay, you usually do find markets in health care. RX.com, for example, started the first mail-order pharmacy. So wherever we find real markets, we certainly ought to let low income people pay for care in the way they pay for food. They should be able to take whatever Medicaid pays and add to it, paying market prices.

I think the bottom line point is that, in completely suppressing the market for medical care, we’re not helping people who are poor. We’re just making them pay in a different way.

That’s government assistance. What about purchasing health insurance? How ought that to work?

I’d like to have health insurance work in the way casualty insurance works. You buy insurance for rare and expensive events, but the patient remains the buyer of care. Your homeowners insurance policy doesn’t tell the home repairman how to repair your roof. The auto insurance collision company doesn’t tell the auto repair shop how to repair your car. You buy insurance as real insurance. But after an accident has occurred, you can repair your car or not, get a roof or not. Those are decisions the consumer makes on his own.

In healthcare, though, the insurer is the buyer of care, so the insurer ends up telling the doctors what to do.

If it weren’t for so much government regulation, we would have health insurance that looks like casualty insurance. If you need a knee replacement, the insurance company would pay a sum of money that would afford a knee replacement at a high-quality, low-cost hospital. But you and your doctor may want to go to a different hospital that costs more. You’d be free to do that, so you would just pay the additional cost.

So the insurance company would fix its payment rate, and if you wanted something different, you’d be free to do that. That would be completely different from the way we do it today—but normal in the market for homeowners insurance.

Are there any states or other countries already moving in this direction?

Not really in the states, but if you look internationally you’ll find interesting things. Singapore has a system of Medi-Save accounts, where people are required to save six percent of their salary in a health account. They then become buyers of care. In South Africa, under Mandela, they deregulated the insurance market, so everything we have in the United States was able to compete in South Africa on a level playing field in the 1990s, but by the time the decade was over, health savings account plans were the predominant form of insurance in the private sector in South Africa.

Switzerland is a country that you never hear mentioned, which is sort of strange since it’s the most egalitarian health care system in the whole world. The reason you don’t often hear it mentioned is that it’s predominantly a compulsory private insurance system. Individuals own their own insurance, but it’s portable. And Switzerland relies much more on markets than other European countries.

India is sort of interesting. There isn’t much insurance in India at all, so the hospitals compete based on price and quality the way entities would compete in other markets. And India is part of the international market for what’s called medical tourism. People from all over the world come to India, as well as Thailand and Singapore, to hospitals that are competing for patients. They get packaged prices. They know in advance what they’re going to pay. So you have price competition and quality competition. These India hospitals will post at their website their mortality rate, their admission rate, infection rate, then customers can compare those rates to what happens at Mayo or the Cleveland Clinic, so they really are competing on quality.

Is there anything else you want readers to know about your book?

The main point is that in health care we have completely suppressed the marketplace, so much that no one sees a real price for anything in the health care system proper. No patient, no doctor, no employee or employer. As a result, we all have perverse incentives. On the buyer side, our incentives are to over-consume, and often to consume the wrong kinds of services. On the supplier side, the incentive is to over-provide. Obamacare, in an attempt to control costs, will create incentives for the suppliers to under-provide. The way out of this is to allow real prices to allocate resources, so that people face good incentives instead of perverse incentives.

It’s not that we need more money, we just need to liberate poor people to have access to real health care markets, and instead of government-provided Medicaid they can use those same dollars to purchase private insurance.