Tuesday, October 22nd 2013

As If Healthcare Is, Was Or Will Be A Free Market

There are ways to argue that healthcare costs are to high and that American physicians earn too much. But as preeminent healthcare economist Uwe Reinhardt has pointed out, comparing American doctors earnings to foreigners isn’t the way to do it.

In fact that’s an absolutely absurd argument. It’s based on such a glaring fallacy that it makes it difficult to take seriously anything else put forward by people who make it.

But here is the Center for Economic and Policy Research putting forward such in a criticism of Paul Ryan’s plan to end the government shutdown.

Of course, the cuts to Medicare proposed had no real viability and weren’t part of the final solution in Washington last week. Never the less in taking up the challenge to Ryan’s proposal the CEPR piece notes,

If we got our health care costs in line with the rest of the world, there is no budget problem whatsoever.

[...]

There are two ways to reduce costs. One is to get our costs in line with what people pay in every other country. This would mean taking on the health care industry. Our doctors (who comprise close to 20 percent of the country’s richest 1 percent) would see their pay cut by roughly 50 percent, on average. We would cut what we pay for drugs and medical equipment by roughly the same amount. This could be done if we were prepared to eliminate the government protections that keep these prices so out of line with prices in the rest of the world.

Organized medicine has done a great job of keeping physician supply low. But it doesn’t explain the discrepancy between American physician earnings and those of their counterparts; not close to in full. To pretend that physicians in other countries earn something like a market based wage is ridiculous.

To discuss the market in healthcare, supply and demand, we need to realize on the flip side there are significant artificial restrictions on what physicians can charge. The most impressive case is the example of emergency situations where the supply, restricted by acuity, is extremely limited. I know that’s not the substantial portion of health care and is more pertinent to my field than say that of a family practice physician but the point is considerable artificial downward pressures exist.

Arguing a market based approach to healthcare reform for liberals runs some risks. To stop short of hypocrisy many government policies that hamper physician income would have to be conceded in exchange for something like lifting the artificial barriers to physician supply. Considering such, I’m not sure a true free market healthcare system would do anything to reduce healthcare costs.

Stopping short of that and demanding physicians unilateraly stop their anti-capitalistic practices seems hypocritical.

So maybe the CEPR should stop the call on Washington to “take on” physicians.

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