I thank Carlos Fuentes for taking my letter (September/ October 2017) seriously enough to respond. His article, “A
Rigged Game?” (July/August 2017) addresses the question
“What is the problem with the U.S. health care system?”
There is much to commend in his analytical approach,
particularly as regards to how people behave in the face
of incentives. However, he does not address how health
care regulation works in the “real world” (to echo a phrase
from his letter [November/December 2017]).
Regulations and laws (generically, “policies”), are not
good or bad per se. There are good policies and bad policies;
surely we can agree on that. My point is that any thorough
discussion of the problems of the U.S. health care system
needs to address the impact—good and bad—of government policies as well. Anything less is at best incomplete.
As virtually every reader of this magazine knows, the
employer-sponsored health insurance system that dominates
coverage in the United States arose as a workaround to
World War II-era government wage controls. Absent that
massive violation of the right to contract (and an ongoing
tax advantage), it seems unlikely that the system would have
evolved as it did. This is a classic example of what public
choice theorists call the “invisible foot” of government
Any policy that increases demand for a service or reduces
its supply will, ceteris paribus, tend to increase its price. The
demand-increasing effects of expansionary policies such as
Medicare, Medicaid, and the Affordable Care Act—and the
disconnect between consumer and payer—are well known.
Less discussed are policies that restrict supply.
Here are a few examples of anti-competitive effects of
■ ■ “Certificate of need” laws in most states require government permission before a facility can expand, offer a
new service, or purchase certain pieces of equipment. In
practice, they encourage and enable incumbent providers
to prevent the emergence of new competitors. University
of Chicago economist John Cochrane reports that in
Washington state, the idea of building an “unneeded”
facility simply because you can do it better and cheaper
than an incumbent is explicitly prohibited.
■ ■ Physicians face an exponentially growing burden
of paperwork, much of it attributable to the Health
Information Technology for Economic and Clinical
Health Act of 2009. There are now 2. 2 people doing medical billing for every doctor who actually sees patients.
■ ■ The American Medical Association, with power devolved
from the government, has controlled the supply of
physicians for over a century. Today the United States
ranks around No. 50 in physicians per capita among
the nearly 200 countries tracked by the World Health
■ ■ Prescription drug monopolies got a big boost in 1984
from the Drug Price Competition and Patent Term
Restoration Act, which permitted the extension of drug
patents beyond 20 years.
No doubt there are arguments in favor of these policies.
In his letter, Mr. Fuentes lists a number of commonly cited
reasons that health care is a naturally “very imperfect” market
in need of extensive regulation. I refer readers to the aforementioned Cochrane paper to rebut these misconceptions.
What the U.S. health care system really needs is competition—disruptive, new-player, kick-in-the-pants incum-bent-threatening, out-of-the-box innovative competition.
In the current regulatory regime, we are simply not going to
get it. Mr. Fuentes concludes that “even with shackles [the
invisible hand] has managed to produce by far the worst
health care system in the industrialized world.” I would
amend this to strike the words “even with” and replace
them with “because of.”
(Disclaimer: views and statements are mine, not my
John A. Major, MAAA, ASA