Brief preface: Our healthcare system is a mixture of government-run stuff (e.g., Medicare, the VA system) and non-government-run stuff (e.g., the private insurance market, private hospitals).
Often I will read something written by a healthcare expert that says, “Turning healthcare completely over to the free market can’t fix our healthcare cost problems because spending in the private aspects of our healthcare system has been growing at an unsustainable rate.” That statement is often accompanied by its corollary, “And there is also no data that a completely government-run system can solve our increasing cost problem because Medicare hasn’t done so already.”
I’d just like to make explicit the major assumptions contained within those two faulty assertions:
- Major assumption #1: The free-market aspects of our current system have no influence on the success of the government-run aspects of our system.
- Major assumption #2: The government-run aspects of our current system have no influence on the success of the free-market aspects of our system.
An example: Our free-market system’s pricing is mostly based on the government-administered prices Medicare uses. This definitely hinders the free market’s ability to price things according to their real value to the market, which, in turn, affects what medical device companies and pharmaceutical companies choose to invest in.
Another example: Medicare is limited in how much it can reduce compensation to providers because they will just start rejecting Medicare patients in favor of seeing only private-insurance patients. This definitely hinders Medicare’s ability to price things according to what they view as sustainable.
Clear Thinking on Healthcare 