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Don’t blame capitalism for high health costs

Don’t blame capitalism for high health costs
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On both sides of the aisle, lawmakers often propose lowering health-care costs, which consume a growing share of the U.S. economy each year. On track to claim about 1 in 5 of all American dollars in 2026, the health sector is a complex political landmine.

The idea of a national “Medicare for all” plan is gaining popularity and prominence. Already 59 percent of Americans support it, according to a Kaiser Family Foundation poll. The sell for this idea, often presented by Bernie SandersBernard (Bernie) SandersSanders: Trump setting 'terrible example' for our children Gabbard considering 2020 run: report Sanders, Harris set to criss-cross Iowa MORE and other politicians on the left, is that capitalism has failed in American health care, and a government solution is needed to ensure equity and hold down costs.  

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This logic is flawed, as is the understanding of the word capitalism: Capitalism isn’t to blame for the woes in our current health-care conundrum. Capitalism is simply an economic framework where private actors own the means of production. The problem with our health-care system is that it lacks key characteristics of a healthy, competitive and free marketplace.

 

First, consider how much consolidation is currently taking place among health providers. Gone are the days of the quaint, small physician practice.

Most doctors are employed by large hospital systems now. In fact, the number of physician practices owned by hospitals and health systems increased by 86 percent over the span of just three years (2012-2015). Running your own practice is simply too complicated for many of today’s doctors, who are overwhelmed by the administrative burdens associated with billing, electronic medical records, legal compliance and liability insurance.

And large health systems are now gobbling up smaller hospitals like Pac Man: From 2013 to 2017, about 1 in 5 of all the nation’s hospitals was acquired or merged with another hospital. This means more power concentrated in the hands of fewer sellers in the market — not good for consumers. The data bear this out: According to a study from Carnegie Mellon, prices are 12 percent higher at monopoly hospitals than at hospitals with four or more local competitors.  

We all know that competition is key to holding down costs, but there’s little competition among health providers in the U.S. today. This is not just true because of a trend toward consolidation (driven by ever-increasing bureaucracy), but also because most Americans, when given a choice in health-care providers, will simply choose those covered “in-network” by their insurance plan. And relatively few Americans actually choose their own insurance plan — most accept the plan (or very limited choice of plans) offered by their employers.  

This is not capitalism. This is all the result of bad government policy that has limited individual choice and competition in favor of standardization, market distortion, and regulation. All of this government action favors bigger actors (who have the resources to weather the storm) over the little guy — the small physician practice, the community hospital and the patient.

Second, in order for capitalist markets to be truly competitive and healthy, consumers must have the right information. This information is often restricted in health care, especially when it comes to pricing. Patients often want to know “How much will this cost me?” But the answers in health care are opaque.

For example, Reuters recently studied how Medicare patients might have saved money on their prescription drugs if they had paid out of pocket rather than using their insurance plan. Twenty-five states have enacted laws banning “gag clauses” that prohibit pharmacists from telling patients when this is the case. This lack of transparency is an unfair disservice and a betrayal of one of the key elements that make markets work: reliable information for consumers.

Without competition, choice, and price transparency, our current health sector is hardly an example of free-market capitalism. Rather than moving further in the wrong direction and further consolidating health care in to one mammoth government program such as “Medicare for All,” we should move to reinvigorate competition by removing bureaucratic burdens, restoring meaningful individual choice and empowering patients with the best information about their care and the costs.

Hadley Heath Manning is the director of health policy for the Independent Women's Forum. Her work has been featured in The Wall Street Journal, Forbes, POLITICO, Roll Call, Real Clear Policy, National Review Online, and Huffington Post, among others. Manning is also the Tony Blankley Fellow at the Steamboat Institute.