Socialized Medicine, or ‘Universal Healthcare’ as its
proponents have dubbed it, is Canada’s pre-eminent political sacred cow. It is
widely considered to be an inherent part of the ‘Canadian identity’, alongside
hockey and maple-glazed doughnuts. And yet I find it to be deplorable, and, not
one to be stopped by considerations of political correctness, I am not afraid
to say so and to explain why.
Before beginning the critique of socialized medicine, I
should first address the tediously inevitable objection that will immediately
arise: ‘You don’t support Universal Healthcare? So that means you’re willing to
let poor people die in the streets due to lack of medical attention?! You
monster!’ Though this statement is misguided for many reasons, the biggest problem
with it, for our current purposes, is that it has very little to do with
whether we should support socialized medicine or not! We could have a fully
free-market system of healthcare provision, and
provide a government guarantee that the poor will always get the medical
attention that they need. All the government would have to do is, as a part of
its general social safety net for poor people, provide enough funds to poor
people to enable them to purchase the medical care that they need on the
free-market. There is absolutely no need to socialize the entire medical
industry in order to accomplish this objective. To say otherwise would be like
saying that food stamps and welfare checks couldn’t possibly be enough to
prevent poor people from dying of starvation; only socializing the entire
grocery industry could do that! But this, of course, is obviously absurd.
What do we see when we examine the Canadian (socialized)
healthcare system? It is not a very pretty sight. We see: 1. Long wait times
for customers. 2. Queue jumping by those who personally know people in the
system. 3. Abysmal customer service. 4. A general aversion to innovation. 5. An
inordinate drain on taxpayers’ resources. Not coincidentally, these happen to
be the main hallmarks of any socialized industry, the kinds of industries that doomed
the economy of Soviet Russia to stagnation and a low average standard of living
for decades. We will go over each of
them in turn:
1. Long wait times:
According to a research study published in January 2014, the
median wait time in Ontario to see a medical specialist ranged from 39 to 76
days, while the median wait time to see a surgical specialist (for
consultation, not the actual surgery) ranged from 33 to 66 days.
If you need a surgery after consulting the specialist, you then have to wait
another few months (wait times vary widely by surgery type and hospital
location) to get the actual surgery done.
These figures are pretty awful. We’re not talking about
waiting for the next version of the IPhone to be released: we’re talking about
seeing medical specialists and getting surgery to address serious, usually very
time-sensitive, medical issues. In healthcare, delay can be damaging, deadly,
or at least debilitating for a lot longer than necessary.
This kind of waiting and rationing is the almost inevitable
accompaniment whenever payment is separated from service. On a free-market,
people who are able to pay all of the costs of performing a prompt medical
procedure (with a bit extra to make it worth the service provider’s while),
will usually have their demand satisfied. Private healthcare providers will
usually maintain enough capacity to be able to perform the estimated demanded
procedures promptly (or if they don’t, their competitors probably will). If
they underestimated and end up with not enough capacity, and no competitor has
any excess capacity either, they can raise the price of the procedure and
ration the service that way, with the extra profits probably going to upgrading
their capacity in that area in the future. While richer patients will
temporarily get an advantage in these rare situations, so too will patients of
the same income class as other candidates for the procedure if they deem that
they need the procedure done more urgently, and hence are willing to pay more
for the privilege.
By contrast, in a socialized system, every patient is at the
mercy of the government. How much funding the government is willing to provide
for that hospital and area of medicine will determine the wait times for the
various procedures at the various hospitals. Even if you are willing to pay
more than the full costs of a procedure that you need urgently, you are not
permitted to purchase a prompt procedure, as, according to advocates of
socialized medicine, this would usher in a ‘two-tiered system’, which would be
‘unfair’. No one is allowed to demonstrate how urgently they want the procedure
through willingness to pay; all patients are either artificially put on the
same wait-time plane, or else their priority is determined by the government.
How much government funding goes into the healthcare system
is determined as part of the general political process, light years removed
from the wants and needs of actual medical patients. Voters have no idea
whether their taxes are going into the healthcare system to improve service at
vital points, or whether they are going to fund some useless government
boondoggle, such as a ‘green energy project’. As a result, they have no
rational method for determining how high their taxes ‘must be’ to fund a decent
socialized healthcare system (if such a thing could even exist), and healthcare
spending just becomes one piece among many in the chaotic political game.
Disastrous irrationality will inevitably ensue.
2. Queue Jumping:
As there is with most socialized systems, there is a way for
the well-connected to get prompter service in the Canadian healthcare system.
If you know an influential person in the healthcare system (usually a doctor),
then there are opportunities to jump the line and see specialists (and maybe
even get surgery) long before members of the general public. Statistics on this
covert phenomenon would be difficult to collect, but I know from first-hand
experience that it exists, and others have probably had similar experiences.
So much for healthcare egalitarianism: the dreaded ‘tiered’
healthcare system lives on even in a socialized system! Some might respond to
this phenomenon by calling for a government crackdown on these ‘corrupt’
practices. But I would say that there is nothing wrong with ‘queue jumping’, as
long as it is done in the free-market manner. On a free-market for medical
services, people would be able to ‘jump the queue’ (if such queues would even
exist, which is unlikely) by paying the healthcare provider more for the
privilege. This is better than the socialized form of queue jumping for two
main reasons: 1. Because ability to pay more can be a decent proxy for the
urgency of people to get the procedure done promptly, whereas having
connections in the system demonstrates no such thing. 2. Because free-market
queue jumpers must contribute more resources to the healthcare system for the
privilege, whereas connected queue jumpers don’t necessarily contribute any
more to the healthcare system than non-connected patients.
3. Abysmal Customer
Service
The government pays the bills and there are giant waiting
lists for everything. Is there any wonder that customer service in the Canadian
healthcare system is so poor? Don’t like your curt doctor or their rude
receptionist? Doesn’t matter! You’re not the one paying the bills, and if you
don’t want the service, there are hordes of people always waiting to replace
you. Most free-market businesses must woo you for your patronage and for every
dollar that you spend. If they don’t, you can take your business to one of many
competitors. Hence most free-market businesses must compete on customer
service. In socialized healthcare systems, this is reversed. Here, it is
service providers that are in short supply, whereas consumers are plentiful.
There is not much need to compete at all, let alone on something like customer
service.
4. Aversion to
Innovation:
Socialized healthcare systems have a bizarre relationship
with technological innovation. Medical innovations can improve outcomes or lead
to a more pleasant experience for patients, but often they can also increase
the cost of performing the procedure, especially in the early years of the
innovation. The government is expected to provide ‘whatever medical care is
necessary’ for every patient, no matter how expensive. Advances in medical
technology increase the range of possibility for treatment, and hence increase
what is expected of the government. The result is that the government has no
incentive to encourage medical advances that will increase the cost of a
procedure, no matter how much better the outcome for the patient, and may
actually have an incentive to discourage or stymie such advances.
As for innovations in administration, record keeping, or
customer service, there is almost no incentive to adopt those in a socialized
system. This is because these innovations simply make the patient’s experience
better, while requiring effort on the part of medical service providers to
adapt to. But as explained above, there is no need to compete on customer
service in socialized medicine, and hence these innovations are simply
neglected for long periods of time.
In a free-market system, there would be a lot more
opportunities for innovation. Innovative procedures that led to better outcomes
or a more pleasant experience, but were more costly, would compete alongside
older procedures for the patient’s business. Every patient would have the
opportunity to decide, usually in consultation with a trusted medical
professional, if the better outcomes or better experience justified the extra
cost or not. Innovations in administration, record keeping, and customer
service would be encouraged because healthcare service providers would be
competing with one another, and wouldn’t be able to afford to stagnate.
5. Big Taxpayer Drain:
In 2013, the Ontario government spent $50.9 billion, or $3723
per capita, on its subpar healthcare system.
Considering that the probable extent of many Ontarians’ access to the system
for that year was a single visit to the family doctor,
this is a pretty large figure. The taxes
required to fund this expense contribute to killing incentives for production,
stifling capital accumulation, and making the province less attractive to
foreign investors.
The Alternative:
So socialized medicine
isn’t very good at all, but what are the alternatives to it? The alternative I
would recommend is a fully free-market system of healthcare and health
insurance. Ah, but isn’t that what they have in the United States, whose
healthcare system is as bad if not worse than socialized systems, though for
different reasons? No, the US healthcare system is not a fully free-market
system at all. It is a monstrous hybrid system that combines the worst features
of both socialized and free-market healthcare systems. Here are the steps that
would have to be taken to turn the US system into a fully free-market system:
1. Remove the licensing
monopoly of the American Medical Association (AMA):
To practice medicine in the US, one has to meet the
membership requirements of the AMA. There is nothing wrong with professional
certification associations, whose stamp of approval is a mark of quality sought
by consumers; but there is something wrong with a monopolistic body that has
the legal power to violently exclude all non-members from practicing medicine. This
State-backed doctor cartel has the ability to artificially restrict the supply
of people permitted to do the ‘work of doctors’ and thus to raise the fees
their members can receive for providing their services. The result is that
medical services are made less affordable for consumers; and the competition
that would take place between doctors is artificially limited, resulting in
less incentive to provide good customer service and good medical services.
2. Allow free-entry
into the hospital business:
Not just anyone can set up a hospital in the US; hospitals
must be licensed by the relevant regulatory body in order to operate legally.
As with the licensing of doctors, there is nothing wrong with expert bodies
determining whether to give a hospital their stamp of approval or not; but
there is something wrong with a monopolistic body with the legal power to
violently prevent people from setting up hospitals. On a free-market, there
would probably be various tiers of hospitals, with different price points,
catering to different groups of patients. Competition between hospitals for
patients would force them to operate efficiently, effectively, and with good
customer service. The result would be lower prices and higher quality for
medical services overall; along with a lot more options available for patients
with different needs and incomes.
3. Allow free-entry
into the health insurance business:
Health insurance is a highly regulated and cartelized
industry in the US. Not just any insurance company can offer plans, and those
that do must adhere to all kinds of obstructive regulations. The so-called
‘Obama Care’ initiative has only increased the regulatory burden on health
insurers and health insurance consumers, and has generally made the industry
even more rigid than it was before.
Health insurers are routinely forced to cover certain classes
of medical procedures in all of their plans, even if the relevant consumers do
not particularly want to pay for coverage of such procedures. For instance,
treatment against alcoholism, treatment against drug addiction, chiropractic
services, and psychology services, to name a few, must be covered by all health
insurers in many states.
In addition, various regulatory provisions are usually put in
place to prevent health insurers from ‘discriminating’ based on various factors,
such as pre-existing conditions and genetic predisposition to diseases, when it
comes to offering and pricing plans. But this kind of rational ‘discrimination’
is a vital part of any functioning insurance market. It is what enables
insurers to group people of different risk levels into different insurance
pools at different price points, so that low risk people don’t have to
subsidize the insurance of high risk people any more than necessary. It is also
what gives insurance consumers an incentive to try, if possible, to get into cheaper,
lower risk pools by living healthier and less risky lifestyles. It is this
phenomenon that would allow free-market health insurers to play a positive role
in encouraging healthier lifestyles and preventative medicine, encouragements
that are largely absent from current healthcare systems.
The result of a liberalized, competitive health insurance
market would be lower prices, more variety/flexibility, the minimization of the
subsidization of high risk people by low risk people, and the encouragement of
healthier lifestyles and preventative medicine.
4. Stop giving
employers tax incentives to offer health insurance to their employees and stop
forcing certain employers to offer health insurance:
People’s health insurance needs and wants are very different
from one another. Some, for instance, might want to buy health insurance
covering only catastrophic eventualities, with more predictable medical
expenses being paid out-of-pocket. Thus, it would seem to be best if plans were
selected and paid for by the consumer themselves, in a personalized way. And
yet, in the US, many people get their health insurance plans from their
employers, where plans must to a certain extent be standardized and where the
vital personal characteristics of insurance consumers are largely ignored.
There are a number of explanations for why this undesirable
state of affairs persists. Historically, employer-funded health insurance plans
first became popular during World War II, where wage controls prevented
employers from competing for scarce employees by offering them higher salaries.
So many employers offered health insurance plans as a proxy for higher salaries
instead. After the wage controls were lifted, the practice was maintained and
expanded due to a combination of labor union pressure and tax incentives.
Without taxes, employers wouldn’t care whether they paid
their employees in the form of cash or in the form of a mixture of cash and
health insurance, as long as the total cost of employing that person was the
same. Most employees would probably prefer the cash to the mixture of cash and
insurance, because if they wanted the same level of insurance, they could shop
around for their own plan according to their own personalized needs, and if
they didn’t need as much insurance, they could spend the cash on something more
important to them instead. With taxes though, the calculation changes.
Employees are taxed, at a progressive rate structure, based on their take-home
salary. This taxable salary can be reduced by taking some of what the employee
could have earned in cash and converting it to an employer-funded health plan
instead. Thus, the tax system encourages the uneconomic practice of
employer-provided health insurance.
As part of the ‘Obama Care’ initiative, the government is now
seeking to directly force employers
to provide health insurance plans, of a certain level of quality, to their
employees. Higher unemployment and the further encouragement of uneconomic
employer-funded health insurance will be the result of this.
The consequences of having cartelized, counterproductively
regulated, artificially standardized, largely employer-provided, health
insurance dominate the market are higher prices for medical services in general.
Such plans lead to far more indiscriminate and non-price sensitive demand for
medical services than out-of-pocket payments. The result is that the prices for
medical services, in the context of a highly rigid and non-competitive market,
are bid up higher than they otherwise would be. This makes out-of-pocket
payments for most medical services unfeasible, and people are forced to either
get an artificially expensive health insurance plan or to do without most
medical services. This is the main reason why the US healthcare system is so
lousy, and why a true free-market healthcare system would be much better.
Objections to a
free-market healthcare system:
Now that I have outlined what a free-market healthcare system
might look like and what its comparative advantages would be, I can address the
main objection to such a system. This is the same ‘the poor will die in the
streets’ objection addressed at the beginning of this article, although this
time I will address it more substantively.
As I pointed out above, a free-market healthcare system and a
government-provided social safety net to fund the healthcare of poor people are
not incompatible concepts, just as a free-market grocery industry and food
stamps are not incompatible. But would such a government medical safety net
even be desirable if the healthcare system were a free-market one? I think that
it wouldn’t be.
Just think of the amount of charity money that is routinely
poured into our current healthcare systems. Such money is usually earmarked for
and used to help fund disease research and to upgrade the facilities of various
hospitals. In a free-market economic system, characterized by generally greater
prosperity and much lower taxes, it seems highly likely that even more private charitable
resources will be donated to healthcare institutions than are currently. And
you would think that the very first thing that these resources would be used
for would be to enable hospitals to provide pro bono healthcare to poor people
who couldn’t afford it.
Thus, in order to sustain this objection, one would have to maintain
that in a prosperous, lowly taxed society, seemingly filled with people who are
deeply concerned about providing healthcare for the poor (given the level of
support for socialized medicine), there will simply not be enough private
charitable resources available to prevent destitute people from dying in the
streets due to lack of medical attention. But this seems to me like a rather
ludicrous position to hold, especially given that the cost of providing
healthcare for the poor will be much lower in a free-market system than it is
today. If you agree with me on this point, than actually a government medical
social safety net isn’t even necessary, and a fully free-market healthcare
system, supplemented by private charitable efforts, should do the job of
providing healthcare for the poor, and for everyone else, much more effectively
than any of the ill-conceived healthcare systems that plague the world today.
