Following the lead of a self-proclaimed socialist, on Tuesday and Wednesday the top Democratic candidates competing to lead the world’s most successful capitalist country diagnosed the source of America’s health care ills to be… capitalism.

  • Bernie Sanders: “…the health care industry makes tens of billions of dollars in profit…. If you want stability in the health care system, if you want a system which gives you freedom of choice with regard to a doctor or a hospital, which is a system which will not bankrupt you, the answer is to get rid of the profiteering of the drug companies…”
  • Elizabeth Warren: ““The basic profit model of an insurance company is taking as much money as you can in premiums and pay out as little as possible in health care coverage. That is not working for Americans…”
  • Kamala Harris: “Let’s talk about math. Let’s talk about the fact that the pharmaceutical companies and the insurance companies last year alone profited $72 billion, and that is on the backs of American families.”
  • Tulsi Gabbard: “So the core of this problem is the fact that big insurance companies and big pharmaceutical companies who’ve been profiting off the backs of sick people have had a seat at the table, writing this legislation.”
  • Kirsten Gillibrand: “The truth about health care in America today is people can’t afford it. They cannot afford — and the insurance companies for these plans that rely on insurance companies, I’m sorry, they’re for-profit companies. They have an obligation to their shareholders. They pay their CEO millions of dollars. They have to have quarterly profits. They have fat in the system that’s real and it should be going to health care.”
  • Julian Castro: “What I don’t believe is that the profit motive of big pharma or big insurance companies should ever determine, in our great nation, whether somebody gets healthcare or not.”
  • Bill de Blasio: “Yeah, I don’t understand why Democrats on this stage are fearmongering about universal health care. It makes no sense. Ask the American people, they are sick of what the pharmaceutical companies are doing to them.”

The Democratic Party is following the wrong Brooklyn-born Jewish immigrant. 

Tooting “The Internationale” on his pipe, Bernie Sanders is leading the Democratic Party down the dark path toward state control of the economy. His anti-capitalism rantings have shifted the party’s base far to the left. He led the health care debate on Tuesday, and on Wednesday Elizabeth Warren and others danced to his seductive tune.

Wednesday, as it happened, was the birthday of Milton Friedman, “the 20th century’s most prominent advocate of free markets.” Born in Brooklyn 29 years before Bernie Sanders, the Nobel laureate economist became famous for explaining to popular audiences how free markets combat poverty and empower the powerless, as he did here on Phil Donahue’s show.

Sanders’ progressive push for a government-run health care system is based entirely on the notion that health care and health insurance in the United States are controlled by for-profit companies preying upon citizens in an unrestrained free market. It’s an interesting theory, considering that exactly the opposite is not only true but demonstrably true. 

The United States does not have a free-market health care system. In a free market, a seller cannot raise prices with impunity. The existence of price signals and competition would allow consumers to choose alternatives, keeping prices down and service quality high. 

In health care in the United States, the government prevents this from happening. Because of a terrible tax incentive, consumers are locked into health insurance plans chosen by their employers. Those insurers negotiate prices with providers, and consumers have little say in that process. Additional laws prevent consumers from purchasing the lowest-cost insurance plans, instead forcing insurers to pay for routine health expenses and all manner of services that not everyone needs.   

In a classic essay written five years before his death, Friedman identified the structural problems with health care delivery in the United States. 

“Two simple observations are key to explaining both the high level of spending on medical care and the dissatisfaction with that spending,” Friedman wrote. “The first is that most payments to physicians or hospitals or other caregivers for medical care are made not by the patient but by a third party—an insurance company or employer or governmental body. The second is that nobody spends somebody else’s money as wisely or as frugally as he spends his own.”

“No third party is involved when we shop at a supermarket. We pay the supermarket clerk directly: the same for gasoline for our car, clothes for our back, and so on down the line. Why, by contrast, are most medical payments made by third parties? The answer for the United States begins with the fact that medical care expenditures are exempt from the income tax if, and only if, medical care is provided by the employer. If an employee pays directly for medical care, the expenditure comes out of the employee’s after-tax income. If the employer pays for the employee’s medical care, the expenditure is treated as a tax-deductible expense for the employer and is not included as part of the employee’s income subject to income tax. That strong incentive explains why most consumers get their medical care through their employers or their spouses’ or their parents’ employer. In the next place, the enactment of Medicare and Medicaid in 1965 made the government a third-party payer for persons and medical care covered by those measures.”

Is the raw greed of insurers and for-profit health care providers to blame for skyrocketing health care costs?

“A look at the data is instructive. The effect of tax exemption and the enactment of Medicare and Medicaid on rising medical costs from 1946 to now is clear. According to my estimates, the two together accounted for nearly 60 percent of the total increase in cost. Tax exemption alone accounted for one-third of the increase in cost; Medicare and Medicaid, one-quarter.”

Market-distorting government interventions — not greedy corporations — are the real drivers of health care and insurance costs in the United States, where about half of health care spending comes from government. 

“The high cost and inequitable character of our medical care system are the direct result of our steady movement toward reliance on third-party payment. A cure requires reversing course, reprivatizing medical care by eliminating most third-party payment, and restoring the role of insurance to providing protection against major medical catastrophes,” Friedman concluded.

That is the answer because removing those distortions is the only way to create largely efficient, functioning consumer markets in health care that empower consumers. 

That doesn’t require eliminating all regulations. We have functioning food and clothing markets that are subject to some level of regulation. It requires undoing the laws and regulations that deny consumers the ability to shop for health insurance and health care in a competitive marketplace.    

Friedman understood this and explained it well. But one party is choosing to follow Sanders and his nonsensical rantings instead. Maybe Friedman should’ve spent more time waving his arms and yelling.

1 reply
  1. Deanne
    Deanne says:

    Excellent article, but I would change the end a bit … BOTH major parties have contributed to the mess healthcare is in. Unfortunately, republicans are all too quick to look to government for solutions. Admittedly, Democrats are way “ahead” on this issue, but republicans aren’t helping the situation at the root of the problem.

    Reply

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