The Free Market Case for Socialized Medicine

One of the more potent attack strategies against Sen. Bernie Sanders in both his runs for the presidency, in 2016 and again last year, was to hang the socialist label around his neck and stoke comparisons with tyrannical statists like the late Hugo Chavez of Venezuela. And nothing screamed “socialism” louder than the erstwhile Democrat’s fervid embrace of so-called Medicare for All — essentially, the creation of a single-payer system similar to that which exists in a decent chunk of the industrialized world, including our lefty neighbors to the north, the Canadians.

Various scare tactics have been employed over the years to kill the concept before it could even get a fair hearing, much as was tried (unsuccessfully) when Medicare for some was introduced in the mid-1960s. When Sanders once again became a serious contender for the Democractic presidential nomination in 2020, conservatives focused on Medicare for All’s multi-trillion dollar price tag, a profoundly misleading critique eliding the fact that these gargantuan figures would not represent a net increase in healthcare costs, but rather a shift in consumer spending from private insurers to government taxes. The evidence indicates that while the average person’s taxes related to healthcare would indeed go up, the increase would almost certainly be smaller than what those same households spend on private health insurance now.

In the United States, where free enterprise is practically a religion, it strikes many as counterintuitive that the government can actually deliver a vital service for far less than the private sector can. But that is indeed the truth. There’s a much stronger economic case for so-called socialized medicine than for private sector insurance.

To see why, it’s helpful to look at healthcare purely as a good or service, in the way an economist would. Demand for particular goods and services often tends to change at an inverse rate relative to the prices of those goods and services, meaning that the more something costs, the less demand for it there will tend to be. The closer a particular good or service tracks with this curve, the more “elastic” the demand for it is, as economists say. So, for instance, demand for yachts or 20-bedroom mansions is highly elastic, because their cost is a major factor in shaping the degree of demand for them.

But demand for goods and services necessary for survival, like staple foods or shelter, is highly in-elastic — people are prepared to pay a relatively high percentage of their income for these items if cheaper options are not available because they have no choice. (An example of another kind of good with inelastic demand are cigarettes, which are not actual necessities but seem like they are to those who would experience withdrawal without their daily nicotine fix.)

And so it is with health care — in fact, even by the standards of vital, non-discretionary goods and services, demand for medical care is especially inelastic. If you have a lethal condition like a cancerous tumor, for instance, many of us must go to extraordinary lengths to get care, including engaging in what amounts to begging strangers for help via online fundraising appeals or by going into bankruptcy; implicated in more than half a million bankruptcies a year, high medical costs are the leading cause by far of personal insolvency in the United States. And even when life per se isn’t on the line, medical care can also improve one’s well-being by easing pain or restoring full function to the body. What would we be willing to pay to get relief from searing, chronic back aches, for instance?

Demand for medical treatment is uniquely inelastic too because of the relatively narrow range of choices available when one gets sick or injured. There are effectively no “bargains” to be had in treating that cancerous tumor, for instance, nor do the “luxury” options (like a private suite in the hospital) significantly improve outcomes. But with other necessities, such as clothing, there are a wide range of choices along a broad spectrum of price points. I can buy a $300 silk shirt at a bespoke men’s shop or a $6 off-the-rack polo at Walmart, but at the end of the day, both will accomplish the basic job of covering my nakedness.

Generally speaking, goods with such highly inelastic demand and limited market choice — necessities like clean water, police protection or electricity — tend to be provided by the government directly or by a heavily regulated private-sector business, like a utility company. Health care being a necessity on the order of public education, it would make sense for the government to include it among a typical menu of services it offers.

And for nearly 60 years healthcare, in fact, has been considered a public good — but for only for certain segments of the population. And those people covered under the primary government health insurance programs, Medicare and Medicaid, also happen to be those who tend to have the highest health care costs — the elderly, those with very low incomes (who for a variety of reasons also suffer from medical problems at a disproportionate rate); and the disabled.

As any insurance executive would tell you, having a client pool consisting of people most likely to need the service and least likely to be able to pay for it is pretty much the worst of all possible worlds from an actuarial perspective. An economically viable insurance business needs lots of people paying into the system who are not likely to draw from the well in any given year — such as, say, a 30-year-old with no history of illness. And while Medicare and Medicaid does get financial support from such people, they are only subsidizing it, paying for others’ healthcare. For their own needs, those people must pay yet more and enter the private market, typically through their employers. It’s one of the reasons why, perversely, Americans pay vastly more for healthcare than citizens of most other rich-world countries while experiencing worse medical outcomes.

The irony here is that, by taking responsibility for the least healthy segments of the population, the government is actually behaving in socialist fashion, indirectly boosting private insurers’ profits using taxpayer dollars by removing the least remunerative clients from the market while leaving millions of healthy, ideal insureds for the private companies. As Western European countries did with airlines and other so-called “national champions” in the ’70s, the United States is sustaining a group of inefficient market players for largely political reasons, and it makes about as much sense as the British state pouring public money into its moribund steel industry. Imagine instead a world where virtually all Americans rely on the same pool they pay into, which could happen if many of the dollars now landing in the coffers of America’s piecemeal network of private insurers were paid into an overarching Medicare-type fund.

A major group of stakeholders have long been wary of such arguments, however. For several decades physicians have feared the consequences of universal health care schemes, believing they would become government employees with no say in how much they can charge.

Yet under the current system, individual doctors have little control over what individual private insurers will pay for, and must often engage bill collectors to obtain the balance of fees for services, or they must turn away patients who are either uninsured or don’t have the “right” insurance. Such burdensome costs make it increasingly difficult for doctors to work for themselves. More and more physicians, in fact, are migrating away from the traditional model of opening their own practices and are instead working for hospitals, large groups or chain clinics, going from entrepreneurs to employees — ironically, almost the very outcome many of those opposed to universal healthcare wanted to avoid.

Under a single-payer system, however, the delivery of medical services could become more efficient, requiring less back office infrastructure like bill collection. As things stand now, administrative expenses due to the inefficiency of America’s hybrid market-driven/subsidized system add tremendously to the overall cost of healthcare without actually improving our health overall.

Shifting from doctors and back to patients, one can discern other reasons why the pure free market is a poor fit for the delivery of medical services. When we allow health care to be apportioned by market forces, those with affordable insurance, or the very rich, will not hesitate to see a doctor when they suffer from a persistent ache or in order to get tested for, say, a certain type of cancer that runs in the family. But millions of other Americans, however, postpone doctor visits for fear of high medical bills.

Some public figures, including former President George W. Bush, have argued that in this country, the gravely ill will not be turned away from an emergency room, and so there’s no pressing need for reform. But in making this argument, Bush inadvertently highlighted the economic irrationality of our current system — emergency room care is vastly more expensive than a scheduled office visit during which a patient can receive the kind of preventative care higher-income folks take for granted.

Avoiding the doctor carries other hidden costs as well, such as in diminished overall economic output; heart disease alone costs $138 billion in lost productivity, according to the Centers for Disease Control and Prevention. And when low-income folks are forced to work when they’re sick and contagious — because they are not offered paid time off nor health care — they will almost inevitably make yet more people sick too.

A system of universal health care would not only eliminate many of these hidden costs but would also deliver some surprising boons as well. Many small businesses that must offer health care in order to remain competitive in the hunt for workers would be relieved of that burden — thereby boosting the rate of small-business formation. That, in turn, would restore some of the lost luster to America’s reputation as the “land of opportunity,” when in fact the United States ranks near the bottom among wealthy countries for so-called social mobility, the ability of a person in a given society to rise in status, primarily economic status.

The freedom to make a living either by starting business or by freelancing thanks to guaranteed health care would also help a large group of workers who frequently suffer financial setbacks: mid-career professionals over 50 but under retirement age who suddenly find professional opportunities closed off to them due to rampant age discrimination. Although illegal, ageism in hiring and firing decisions is notoriously difficult to prove, but making it easier for plaintiffs in such cases to sue could result in a more rigid labor market and depress hiring overall.

And all workers would benefit in a labor market where access to healthcare was decoupled from one’s employment, making it easier for them to seek better jobs. So-called “job lock” caused by fears of losing health insurance would be eliminated under a single-payer type scheme.

The kind of single-payer healthcare scheme pushed by Sanders is indeed an example of socialism — but then, so are public schools. And like free and universal public education, universal healthcare would, ultimately, not be a burden on the taxpayer, but an investment that would leave us all more prosperous — as any honest capitalist would have to concede