Government Markets Obamacare Truth

Replace Obamacare with Free Market Principles

By Nate Davis

The key to any open market is “price discovery” — sellers competing on price to attract customers. On price discovery hinges every free market economic principle.

The problem with skyrocketing medical costs is simple. There is no price discovery. When was the last time you asked at your doctor’s office, “What will it cost?” Do you shop around for the best deal? Have you ever negotiated for a better deal? If you have insurance, probably not. Would you go to the tire store with the same attitude? Of course not. With medical services, most of us are participating in a quasi-socialist system, the opposite of a free market.  

Taming medical inflation is as simple as letting consumers out of the cages and giving them something for which to fight — specifically, the best price.

The government needs to employ seven strategies to empower the consumer. The simplicity of these proposals typifies free market solutions. Thousands of pages of legislation are not needed.

  1. Combining health savings accounts (HSA) with higher deductible insurance will reward consumers for shopping around and negotiating. Unspent HSA funds could be saved for retirement or withdraw, tax free, at any time as long as the minimum reserve is met. So, whatever a consumer saves, he pockets.
  2. Publish the price of everything. Consumers have to know what things cost well before a service is provided. We expect this of every other service to which we subscribe, and medicine should not be the exception. How could this be done? One idea is that each provider could be required to keep his price list on one or more collective websites where consumers can sort competitor’s services by medical code, scientific description, common name, price, etc. The key is to create a path to price transparency for consumers.  
  3. Legislators should pursue ways to give consumers information about the deals that others, particularly insurance companies and the government, have negotiated with service providers.
  4. The government should encourage non-traditional “insurance” providers, including non-profit insurance organizations and cooperatives. Consumers should be protected from loss in the case a non-traditional provider fails to pay, just as they are with for-profit insurance companies.
  5. Laws should make way for non-traditional services, including call-in doctors, software based robo-doctors and independent nurse practitioners. With disclosure of caveat emptor, liability for these new types of services should be very limited, almost nil.
  6. Certain medical emergencies are monopoly-like situations for the one receiving the service. The most expensive of these services warrant government price control so that returns are reasonable. Common sense says that a doctor does not need to bill $10,000 or more an hour in an urgent, major surgery, for example. Admittedly, addressing situations in which service providers have monopoly pricing power is the most cumbersome policy proposed here, but market principles necessitate that the government step in in some circumstances, and monopolies are one of those.
  7. Finally, increasing the supply of traditional medical practitioners will, over time, reduce fees. Some have suggested that there are simply not enough spots available at medical schools or in residencies.

True competition will drive providers to eliminate waste, and creative solutions will streamline everything from medical record databases to diagnosis to lab work to billing.

In the past, Republican administrations have focused on trying to develop a more efficient market for buying insurance, which does not help. The insurance companies facilitate the system of rapid inflation by creating a separation between patients and doctors. They subvert price discovery. Insurance companies may appear to negotiate for the buyer’s sake, but services are marked up so that they can be marked down. Large mall-based retailers do the same thing. They offer 30-50% of the “regular price,” but no one would think of actually paying the “regular price.” Insurance companies are not the solution to the pricing problem, so slight tweaks to the insurance market will not reign in medical price inflation.  

The free market based on price discovery has been and will be far more efficient and the most fair system on planet earth, and this will be true in medical services market as well. One should not underestimate the power of the consumer.

Nate Davis studied business and economics at Purdue University. He stepped away from trading futures contracts on the Chicago Mercantile Exchange to write a book called God the Parent which will be out this winter.

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