In a free market, transactions are pretty simple. I give you something you want in return for something I want.
You give your employer your time in exchange for your paycheck. Your grocer gives you food in exchange for money. Television stations give you news and entertainment in exchange for your attention to their sponsors (and your subscription payments, as the case may be). These are mutually-beneficial transactions.
Billions of people making trillions of economic decisions each and every day are what shapes our society and economy. We don’t need laws mandating that food be produced and sold, or that fuel be available at gas stations. The spontaneous order of the free market takes care of such things, and also sets prices at an equilibrium, keeping things affordable for consumers while also fairly compensating producers (which is also why we don’t need laws fixing prices, despite what some may believe).
Products that can’t be produced at affordable prices don’t survive long on the market.
But in some areas of our economy, things aren’t affordable at all, and the best example of this is health care. Unless you’re very, very rich you probably can’t afford to pay for your health care out of pocket (not at a traditional hospital anyway, we’ll get to that in a moment). So why is health care so unaffordable?
It’s because the market is heavily distorted. In most of the economy, transactions are an individual decision. You spend your money to get something you want. The cost obligation is yours, and not anybody else’s.
But in health care most of us aren’t the direct customer for our health care. We go to the doctor or to the hospital, and the bill gets submitted to our insurance company. We pay pay a portion, in the form of a co-pay or a non-covered element, but for the most part the insurance company pays most of the price. And while we do pay premiums for insurance policies, most of us aren’t even the direct customer for the insurance companies either.
Well over 80% of Americans get their health insurance through a third party, usually an employer, meaning that our insurance policies aren’t crafted to serve our priorities so much as they’re crafted to serve the priorities of the third parties through which we get access to those policies.
This status quo is maintained by tax policy, and now Obamacare, which both gives tax incentive to getting insurance through an employer (premiums are withheld pre-tax and lower taxable income) and punishes employers who don’t provide insurance.
But the status quo also represents an enormous disconnect between the patient who is the beneficiary of the medical services provided and the cost of those services. That disconnect results in massive waste and unnecessary costs.
So what happens when patient and costs are more directly connected? Prices go down, significantly, as this video from Reason shows:
Price signals are an important part of the marketplace, but in health care price signals are so thoroughly obfuscated that prices themselves have spun out of control. The answer, rather than further obfuscation as the result of intrusive government policy, is a return to a on-on-one relationship between patients and their health care providers.