Would a free market health care system work? Or is it doomed by the problem of the “pre-existing condition”?
Whatever was true in the past, today most Americans are simply unwilling to let someone die because they can’t afford cancer treatments or a kidney dialysis. Which has led most people to turn to the government, rather than seek a free market solution. A November 2016 Gallup poll found that 53% of Americans agreed that “it is the responsibility of the federal government to make sure all Americans have health care coverage.”
Free market competition, though, is the best way to increase quality and lower prices. Health care is no exception. Lasik corrective eye surgery, for example, is usually paid out-of-pocket rather than through insurance, and so is one of the few areas of health care in which consumers shop around. As a result, the cost of Lasik surgery has decreased 40% in the last decade, dropping from $2,200 to $1,350 per eye. Most health care, though, is paid by a mix of health insurance and government supplements that effectively precludes competition, with the predictable result that costs are rising faster than the rate of inflation. A lung transplant today costs over one million dollars. The cost of cancer treatment typically exceeds $100,000, often followed by years of drug therapies that can cost tens of thousands of dollars each month.
The cost-reducing benefits of a free market, though, as substantial as they would be, would only go so far. Even in a robust free market, some medical treatments would remain too expensive for most people to pay out-of-pocket. Consequently, most Americans would continue to purchase health insurance from private insurance companies.
At this point, however, the free market health care approach falters. The problem is the “pre-existing condition.” Health insurance companies cannot enroll a new customer who already has cancer, or needs a lung transplant, or has a chronic, life-long condition such as diabetes or Crohn’s disease. Their medical costs would exceed the premiums they pay. They are a guaranteed loss. Understandably, no insurance company would want them as a new customer.
In a free market, it seems, people with pre-existing conditions cannot buy health insurance. This problem of the “pre-existing condition” appears to make a free market system unworkable.
The seemingly obvious answer of passing a law requiring insurance companies to cover pre-existing conditions would ruin the health care system immediately. After such a law was passed, the shaking you would feel would be millions of people running to their health insurance companies to cancel their health insurance policies, secure in the knowledge that if they ever get sick or hurt, they can call up an insurance company and demand coverage. The “pool” of premium payers needed to make insurance work would evaporate, and insurance companies would quickly be out of business. And then no one would be able to buy health insurance.
Insurance companies could, of course, charge higher premiums to someone with a pre-existing condition, calculating the premiums to reflect the expected cost of their condition. But if someone needs hundreds of thousands of dollars of treatments in the next year, their premiums would have to be . . . hundreds of thousands of dollars. The premiums would be beyond the means of almost everyone. Again, a market failure.
Former US congressman and Libertarian presidential candidate Ron Paul argues that the free market would work because doctors, who take the Hippocratic Oath, will take care of sick people even when they can’t afford it or don’t have insurance. But even when counting on charitable doctors, what about the person who needs a $10,000 monthly drug infusion? What about the person who needs a million dollar lung transplant? Do they have to deplete their life savings, and then declare bankruptcy?
Obamacare (the “Affordable Care Act”) does not solve the problem. True, Obamacare prohibits health insurance companies from denying coverage for those with pre-existing conditions. But to keep healthy people buying insurance, Obamacare imposes a “mandate,” a charge (around $2,000 in 2016 and 2017), on anyone who doesn’t buy health insurance. But this is proving to be inadequate. Despite the mandate, too few healthy people are buying insurance, the risk pool is shrinking, and fewer insurance companies are selling individual health insurance policies. Recent estimates are that in 2018, 45% of counties in the US will have zero or only one insurance company selling individual polices. The health insurance industry may not be in a “death spiral” quite yet, but it is beginning to wheeze and cough.
It is a dilemma. A free market system would deliver lower prices — but leave some unlucky people financially ruined, or untreated. A government run system would cover everyone — at ever-increasing costs.
What is a free market advocate to do?