Is A Free Market Possible in Health Care?


With a total national debt of $17.8 trillion, of which close to $13 trillion is public debt (on which we pay interest), it is easily understood that the U.S. has a very serious fiscal problem. At the present time the public debt is 74% of GDP and this already high percentage is predicted by the Congressional Budget Office to keep growing indefinitely.
The biggest driver of spending growth going forward is the cost of healthcare.  For example just the three programs, Medicare ($492 billion), Medicaid ($280 billion) and Veterans Healthcare ($54 billion), cost a total of $826 billion per year in federal dollars.  And these costs are all increasing rapidly.  Of course, private healthcare spending, currently about $2 trillion per year, is also growing rapidly.  Overall, the U.S. spends 17.3% of GDP on healthcare spending, public and private, almost twice as much as any other developed country.
How are we going to address this enormous cost issue going forward? The Affordable Care Act (aka Obamacare) doesn’t do it.  What it does do is to provide healthcare to more people under our current model of employer provided health insurance with Medicare for the elderly and Medicaid for the poor.  It is this model which is broken and must be reformed. Basically we have two choices for how to do this.  Either we switch over to a “single payer” system like most of the other developed countries have or we establish a far more efficient free market system.
Capture  As the above chart shows, right now we have a composite system and it is just not cost-effective. There are plenty of experts who claim that a free market cannot work in healthcare.  For example, the tax lawyer, Edward Kleinbard, in a new book, “We Are Better than This: how government should spend our money” argues that what a free market gives us is:  unavoidable controversy for excluded pre-existing conditions, moral hazard for risky behavior, uncertain premiums for permanent insurance, fragmented healthcare markets, monopoly provider organizations leading to price opacity, very high administrative costs, etc.
Capture1The Manhattan Institute’s Avik Roy has a different point of view.  In his proposal, “Transforming Obamacare,” ( he points out that there are two countries, Switzerland and Singapore, which operate highly regarded free-market healthcare systems at very low public cost. Stay tuned for further discussion!

Privatize Veteran’s Health Care

The current Veterans Administration waitlist scandal is an unfortunate symptom of a much bigger problem, namely the very high and rapidly increasing cost of providing healthcare to our nation’s veterans.  Especially at a time of huge budget deficits and exploding national debt, all branches of government, including our VA system, must operate more efficiently.
CaptureAs we celebrate Memorial Day and the 70th anniversary of the Normandy Invasion in WWII, this is a good time to contemplate a major restructuring of the VA.  As pointed out two days ago in the Wall Street Journal, “VA’s Budget, and Rolls, Have Boomed”, not only has the number of VA healthcare patient visits increased dramatically from 3.4 million in 2000 to 5.6 million in 2012, but the average annual expenditure per patient has also risen by 62% over the same time period.
The purpose of having a separate healthcare system for veterans is to give them better care than they would otherwise receive.  But the scarcity of resources means that their healthcare is being effectively rationed with longer waiting times.
The situation for veteran’s healthcare is a harbinger of what awaits us for our big government entitlement problems: Social Security, Medicare and Medicaid.  For the sake of all recipients, present and future, the rapidly growing costs of these programs must be contained.  There are lots of possible ways to do this.  Our national leaders simply need to take the problem seriously and insist on action.
At the same time it makes no sense to maintain a separate health care system for our nation’s 22 million veterans, only 7% of our total population.  The VA has lots of other responsibilities to take care of anyway: providing life-insurance, mortgage, and housing programs, managing cemeteries, and providing job training, for example.  Veteran’s healthcare could and should be privatized with a voucher system administered by the VA.  It will save billions of dollars for taxpayers and provide better, and timelier, healthcare for our nation’s veterans.