It is indeed hard to find an industry in the United States that has been more stifled, choked, besieged, corrupted, and interfered with through government interventionism and subsidies than healthcare. It is, from the point of view of pure evil, really quite a beautiful example of how in a few decades you can turn a complete sector into a gigantic mess on all fronts by slowly getting your sleazy fingers deeper and deeper into it.
The attack on health care by bureaucrats is such a fascinating and instructive example because it is blatantly pursued through numerous different angles, way out in the open and clearly visible, while the public kneels down in awe and, in truly masochistic fashion, asks for more and more abuse, year after year.
I already outlined the economics behind the government’s health care meddling and how the establishment of lasting industry monopolies and the deliberate restriction of supply cements and aggravates high cost of goods and services rendered:
The problem with health care in the US, but in virtually every other country in the world as well, is a simple one: The goods (products and services) offered on the market that address illnesses and and improve our well being are offered at prices that are so high that most consumers are unable to afford a sufficient amount to address their demands.
On top of that, these prices are continuously rising. All other health care issues stem from this simple fact. Health insurance premiums, for example, are charged based on the prices that competing insurers expect to end up paying for health care goods. Thus, naturally, health insurance premiums are on the rise as well, even in the current deflationary environment. The rapid increase in government expenses for its entitlement programs Medicare and Medicaid, too, is simply the result of these ongoing price increases. It is thus not a coincidence that today the US government spends more than any other industrialized nation on health.
On the market, such imbalances are, under free competition, swiftly addressed via a simple process: High prices for certain consumer goods indicate a high demand and an insufficient supply. Thus profit seeking entrepreneurs have an incentive to shift from what they are currently doing to focusing on producing more of such highly demanded goods, by employing more commensurate factors of production that turn out the demanded goods. This leads to a decline in their prices, moving the market closer to equilibrium and thus restoring balance.
But when a group of people which obtains its means of operation via aggression and theft, the government, imposes decrees that prevent the voluntary market participants to perform such balancing acts, and threaten them with imprisonment and fines should they not oblige, the imbalance will persist. If that group’s actions are such as to bring about even more shortages for the demanded goods, the imbalance will grow, prices will keep rising.
As an outcome of such an interventionist policy, there will always be a small group of entrepreneurs that benefits from the protection awarded against competition and voluntary action on the part of consumers and new entrepreneurs. They naturally reap the benefits from the ability to charge prices that are not being bid down by potentially competing entrepreneurs. It is important to keep this fact in mind when members of such groups utter statements that attempt to justify the policies that have brought about and continue to maintain the imbalance.
It is really an impressive spiderweb of all round government control:
On the drugs side, the FDA decides which drug may or may not enter the market and imposes lifecycles of up to 15 years before a drug is approved. 80% of drug costs can be linked directly to FDA rules that need to be followed.
On the services side, state and federal laws require practitioners to obtain government licenses in order to practice.
Institutions that teach medical practice are naturally also subject to such regulations and medical degree programs thus take an enormous amount of time and capital to complete. Students need to incur debt in order to be able to afford the studies.
Well, at least the market for those student loans is free and unhampered with by the government … right? Well, wrong! This is what I mean when I say what a beautiful, flawless, and fascinating example of all round government meddling and control we have here. The feds of course heavily subsidize student loans through the government sponsored, and now outright nationalized corporation Fannie Mae.
On the fiscal side, through the programs of Medicare and Medicaid, the federal government alone is responsible for 50% of all medical expenditures made in the country.
If health products and services weren’t so expensive, the need for health insurance would be virtually non existent, except for truly catastrophic events, which is what insurance is all about in pretty much any other sector. But since government intervention has created the problems outlined above, it also deems it necessary, as always, to regulate the effects of its meddling, an iron law of interventionism. Thus the government also heavily regulates the business of health insurance, making it illegal to purchase health insurance across state lines and legislating premiums and insurance policy requirements wherever they see fit.
In light of all this it is rather funny that people would act surprised about constantly rising health costs and insurance premiums and on top of that demand that of all people the government step in and “solve” the problem by grabbing more power. The most recent legislation that aims at regulating health insurance more tightly is just another example for this. Soon we will once again see the good old, so often tried, and so consistently failing measures of price control and rationing as the “solution” to health premiums.
A predictable side effect and yet another reason for rising cost that I would like to touch on here is the phenomenon of enormous debts owed by medical students after they graduate, incurred during their long and expensive studies at government accredited institutions. In order to pay off these debts, medical doctors are practically required to charge higher prices for their services.
The AMA provides background information on medical student debt:
Student debt statistics
- $156,456 – According to the Association of American Medical Colleges (AAMC), the average educational debt of indebted graduates of the class of 2009.
- 79 percent of graduates have debt of at least $100,000.
- 58 precent of graduates have debt of at least $150,000.
- 87 percent of graduating medical students carry outstanding loans.
Why medical education debt has increased
Medical education debt is driven by rising tuition. AAMC data show that median private medical school tuition and fees increased by 50 percent (in real dollars) in the 20 years between 1984 and 2004. Median public medical school tuition and fees increased by 133 percent over the same time period. Other recent 20-year periods show similar trends.
Tuition is just one source of increasing debt burdens. Other causes include:
- Interest accrued on loans over time significantly adds to the total cost of student debt.
- Students are now entering medical school with more education debt from undergraduate education.
- Increasing numbers of “non-traditional” students who have children to support.
Debt crisis harms both students and patients
The increase in debt not only burdens medical students, but can have effects on the entire health care system. Some of correlations found include:
Decrease in primary care physicians
Students with high debt may be less likely to pursue family practice and primary care specialties and instead seek specialties with higher income or more leisure time.
Decreased diversity of physician workforce
The cost of tuition can prevent students from low-income/minority and those with other financial responsibilities from attending medical school.
Physician diversity is necessary to address the needs of heterogeneous, multicultural patient populations.
Promoting unsafe physician behaviors
- Residents with high debt are more likely to moonlight.
- Increasing debt leads to more cynicism and depression among residents.
How can we reduce debt?
The MSS has come up with recommendations for legislative and administrative remedies to resolve the medical education debt crisis. These recommendations focus on controlling tuition, the principal component of education costs, but include a number of relatively simple administrative measures that could be taken immediately and at a low cost to individual medical schools.
And again: The AMA concludes that the solution to the problems created by government legislation and intervention is to “come up with recommendations for legislative and administrative remedies to resolve the medical education debt crisis.”
The best comedian couldn’t make such a farce up.
The real solution is a lot more simple, intuitive, and measurable than such nonsense: Stop using guns against people who have done you no harm, get the government out of the way, and society will flourish. For guns are not the answer to complex and structural problems, voluntaryism is.
Make use of the following additional resources to expand knowledge and understanding of the topic covered in this unit.
The entire unit, including all additional resources, can also be downloaded as a workbook to be used offline.