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The preservation and furtherance of one’s life ranks as one of the most potent driving forces of man. Many individuals cite the paramount importance of health care as the reason that its provision should be generously supported or completely provided by the State. However, this reasoning seems peculiar, because the more fundamental human needs for food, water, and shelter are largely provided by free market forces. As in all other industries, however, the free market provision of medical care is not only more ethical, but also more effective at providing more accessible and higher quality treatment than State-regulated or provided health care services.
In contrast to today’s environment, health insurance in free markets will play a much smaller role. This is due to the economic considerations discussed in the previous chapter. Hoppe provides some relevant commentary:
The first thing we can say is that sickness is insurable only insofar as the health risk for a particular group is purely accidental. Such is the case with certain forms of accident insurance, or even for events such as cancer. But for most health risks, we would have to say that they fall into the province of individual control, and very little in this field is actually insurable. Such risks must be assumed individually and must be paid for out of individual savings.
In other words, insurance is most effective when it can group a class of individuals who all share common levels of risk and whose coverage extends to those events which are largely unforeseeable and random in their occurrence. Thus, health risks which are largely in one’s control are not “insurable” as they are neither unforeseeable nor random in occurrence. If the occurrence of a particular event may be systematically predicted, then any attempt to cover this would undermine the purpose of insurance. That is to say, insurance is intended to act as a sort of lottery in the sense that each of its individual clients are largely uncertain in advance regarding the degree to which they will (or will not) have insurable damages to claim. However, they realize if such an insured event occurred, then they may not have the funds available to pay for the resulting damage. Thus, they may choose to purchase coverage as a means to protect them from this risk.
In the case where a largely foreseeable health risk was covered, many of the predictably affected individuals would buy into the insurance just prior to the occurrence of the covered risk. Conversely, most of those who would predictably be unaffected by such an event would abstain from buying insurance. Any insurer of largely foreseeable events will attract those whom expect to profit and, at the same time, detract those whom expect to lose from the arrangement. Insurance operations cannot perform under such conditions. Their business is risk management; they act, not only as a shield against damages, but to exchange unpredictable and dangerous risks for predictable, monetary payments. Absent virtually unforeseeable risks, insurance serves no viable purpose.
Finally, it seems plausible that to maintain eligibility for high-quality health care coverage in a free market, one would likely be required to submit to certain behavioral standards. In the case of automobile insurance, rules for entry may require that seat belts are worn and that drivers travel under a certain speed if they are to receive reimbursements for the treatment of injuries caused by collision. Various rules of these organizations may be amenable to clients as their compliance will result in smaller payments, due to lessened risks. Additionally, such insurance may require its clients to receive a certain number of health exams a year, so as to detect and treat health risks early, when they are comparatively cheaper to treat and serve to avoid future, more expensive procedures. In this way, the insurance agency’s profit interests are aligned with its clients’ interests to be secure from the overwhelming costs of future unforeseeable medical procedures. In other words, preventing covered medical risks from occurring in the first place will be the greatest contributing factor to the profitability of a given insurance agency’s services.
In today’s State managed environment, minimum mandated coverage requires many clients to pay for unwanted or unneeded coverage, thus driving up the cost of such insurance provision altogether. Moreover, much of this mandated coverage includes risks which should not be insurable such as alcoholism, drug addiction, and the subsidization of predictable, routine checkups. These ailments are often self-inflicted or, in the case of pre-existing conditions, are clearly foreseeable. The willpower to resist submission to alcoholism and drug addiction is fully within man’s capability. However, only those risks which are both unpredictable and largely beyond the client’s control may be viably insured. Moreover, laws prohibiting discrimination amongst clientèle regarding preexisting conditions cause insurance agencies to inevitably pool higher-risk clients with lower-risks ones, thereby perverting the function of premiums, and causing the lower-risk clients to subsidize the higher-risk ones. Finally, as firms are mandated to cover many otherwise uninsurable risks, the incentive for clients to shop around will be decreased, as the potential variance between each insurance agency’s services will have been artificially curtailed (i.e. as more risks are mandated to be covered, health insurance will have a lesser capacity for customization). Without allowing out-of-pocket costs to serve as a deterrent to unnecessary medical care (e.g. trivial or at-home treatable ailments), the demand for medical services will be artificially inflated and, with it, a corresponding rise in insurance costs due to this distortion. Hoppe comments on these unintended consequences of government interference in the health care industry:
This is a lesson in the logic of interventionism. The first interventionist act brought about a big mess — insurance premiums always go up because insurers are no longer allowed to discriminate correctly and are even forced to include uninsurable risks. So now the problem arises of more and more people dropping out. For those who remain insured, premiums have to be raised to adjust for the fact that so many are dropping out.
The next step, which we in the United States are on the verge of taking, is to make health insurance compulsory. No More Dropping Out! If this step is taken — compulsory health insurance, with all the other mandates remaining in place — then of course premiums will skyrocket even more than they have in the past.
Does this mean consumers will generally pay for most of their healthcare directly in free markets? Yes, though there would likely be alternative arrangements available. For instance, individuals may choose to outsource risk by means of group insurance. Group insurance has the unique advantage of members being able to apply potent social pressures on anyone who abuses their coverage by either making false claims or going to the hospital for trivial ailments. Such practices were the norm in the early 20th century with the advent of “lodge medicine.” This was a practice typically provided by various fraternities comprised of impoverished and working class individuals. It proved to be advantageous financially and qualitatively as David Beito describes:
The leading beneficiary of lodge practice was, of course, the patient of modest means. He or she was able to obtain a physician’s care for about $2.00 a year, roughly equivalent to a day’s wage for a laborer. For comparable amounts, some lodges extended coverage to family members. The remuneration the lodge doctor received was a far cry from the higher fee schedules favored by the profession. The local medical society in Meadville, Pennsylvania, was typical in setting the following minimum fees for its members: $1.00 per physical examination, surgical dressing, and daytime house call and $2.00 per nighttime house call. Such charges, at least for ongoing service, were beyond the reach of many lower-income Americans. Hence it was not coincidental, an editorial in the Medical Council pointed out, that lodge practice thrived in communities populated by the working poor.
As communities evolve and grow, the need for group insurance will tend to fall as individuals over time become more wealthy and productive. Many healthcare services will be paid for directly like most other services. When services are directly purchased, the consumer is more strongly incentivized to shop around for the lowest-priced and/or highest-quality services. This, in turn, will spark fiercer competition between medical providers on the grounds of quality and price. Because the consumer will be much more involved in the selection of his/her service provider, there will be a comparatively higher demand for the development of new technology, which improves various medical procedures, making them safer, more effective, and more affordable over time. Furthermore, the absence of costly regulations and taxes will translate into lower prices for the consumer, allowing them greater access to healthcare of their own choosing. Finally, the absence of licensure requirements, patents, and other forms of intellectual property will result in a far greater supply of health care providers and medicine. Consequently, the cost for these services and products will be far cheaper in comparison.
Of course, a skeptical person may be worried about the quality or shade of free market health care providers as they are not forced to submit to State-set minimum standards. These standards, however, may easily be supplanted by private accreditation firms or other third-party ratings agencies akin to Consumer Reports. In free markets, reputation is vital to the success of every firm in every industry. Without State oversight or monopolistic boards of approval, transparency will increasingly be demanded of medical providers. When reputation markets inform and determine massive consumer choice (imagine a vast and detailed Yelp), companies and associations that refuse to allow third-party evaluations will be pressured accordingly. What is more likely: any quality health care firms would be more than happy to submit themselves and their staff to third-party evaluations as a means of distinguishing themselves from the competition and to assure any prospective patrons that their services will be performed safely and efficiently. Firms which do not submit themselves to such independent, third-party evaluations would be seen as suspect when compared to their more transparent counterparts.
Some fear the propensity for such ratings agencies to be bribed. While bribery is inherent in all human institutions, this sort of foul play will be greatly tempered by the presence of competitive upstarts in the ratings industry. For a ratings agency to accept a bribe or engage in any foul play would be to put its reputation and, therefore, its future profitability at great risk. Their competitors would be eager to investigate any claims of foul play and to make public any damning evidence that may be discovered.
Of course, different health care firms may hold different standards, however, the various levels of standards of care will be reflected by higher or lower prices. For example, one may only be willing to pay twenty dollars for a physical and, as such, settle for patronizing a firm which provides a moderate quality of service or whose staff has little experience. Quality diversity is valuable, because most people who are unwilling to pay for or unable to afford the highest-quality healthcare prefer to purchase the quality of service they can afford. While there may be the “Motel 6” quality of healthcare closer to the bottom rungs, there will also be the “Four Seasons” quality healthcare closer towards the top. In markets free from regulation and taxation, all levels of service increase in quality and decrease in price over time. For instance, modern Toyota cars are a much higher quality good than a Mercedes Benz from seventy-five years ago. (It is understood that value is subjective, however, this manner of speaking is short hand for properties overwhelmingly desired by consumers such as greater safety, fuel efficiency, speed, acceleration, reliability, automation, etc.)
Free markets allow and incentivize consumers to discriminate between health care providers on the basis of many criteria ranging from where the practitioners studied, what private certifications they have, their years of experience, the number of successful and failed procedures, asking price, the friendliness of staff, the cleanliness of facilities, their bedside manner, and much more. Furthermore, the reputable third-party agencies may make up for the lack of expertise held by the average consumer required to make a credible evaluation of a given firm or medical practitioner. Just as many of us turn to Google or other sources of public information to research products, so too would references given by established and legitimate ratings agencies inform us on which medical provider to select.
The sight-corrective procedure LASIK exemplifies the incentives to which medical providers adjust in the face of unadulterated demand from consumers. This practice is unique in that it is not covered by most standard insurance, causing the majority of consumers to pay for it directly out of pocket. This incentivizes them to discriminate more thoroughly among the various levels of price and quality. Vijay Boyapati explains the results of this practice:
With these incentives in place, the LASIK procedure has been reported to have fallen in cost by over 30 percent during the last decade. Even more importantly, the quality of the procedure has improved dramatically in that period as providers competed to deliver the most efficacious treatment. According to Erik Gross, an expert in the field of LASIK technology,
‘Early procedures were not LASIK at all, but uncomfortable surface ablations with no astigmatism correction. Subsequent generations of the procedure increased the treatable range, added correction for astigmatism, correction for hyperopia, the lasikflap to increase stability and comfort, accuracy and safety features, and finally moved to true custom wavefront analysis and correction.’
The same methods of quality assurance in the medical care industry – competition, mercurial consumer choice, and influential third party evaluations – may also be applied to the pharmaceutical industry. Some theorists maintain that, without patents and the over-arching edifice of intellectual property law, pharmaceutical companies will not have enough incentive to perform expensive R&D, unless they can recoup it through monopoly profits in the future. What must be considered is that one of the greatest expenses associated with ongoing research is the cost of complying with mandated tests and trials conducted by the FDA, which can last decades! Not only are these mandatory testing requirements incredibly expensive, thereby creating huge barriers to entry in the industry, but they also keep otherwise life-saving drugs off the market for long periods of time. In the interim, many people suffer and die while they wait for the FDA to grant approval for the drug. Patients in very dire circumstances may prefer to take the risk of consuming experimental or untested drugs as opposed to waiting for their deaths – which all too often occurs while waiting for FDA testing to complete. Of course, this is not an argument against testing and research per se. Rather, it is meant to show the destructive and wasteful effects of giving quality assurance to a monopolistic agency.
Competing pharmaceutical firms will have to find the optimal balance between testing and release times for their drugs. If they release them with too little testing, their customers may suffer unduly from harmful side effects. However, should they take too long to test, they may be losing market share to competitors who are in a better position to release their own, safe versions of the drugs sooner. One innovative option would be to release their drugs throughout all testing stages and label them according to their respective stages of testing, thus allowing the consumer to express their own risk profiles individually. As there will be no one-size-fits-all method for testing and release, such varying methods of production and testing will be competing against one another creating a tendency towards ever more safe and efficient practices. Not unlike medical care providers, pharmaceutical companies may seek third-party-safety certification as a means of assuring their customers. Different third-party-safety certifiers will have different levels of reputability, which will affect the credibility of their respective certifications. This will, of course, just be one more factor for the pharmaceutical entrepreneur to consider.
Finally, there is the ethical consideration of a free market-based health care system. State interference in the health care industry taking the form of regulations, minimum-mandated coverage, occupational licensing, taxes, the enforcement of intellectual property laws, etc., are unique in that they are unilaterally imposed and enforced via aggressive means. That is to say, the ultimate consequence for not complying with them is imprisonment or potentially death, should one resist arrest. In sharp contrast, however, the consumer and entrepreneur are only held to standards upon which both parties agreed beforehand. Even the formation of tacit agreements – such as eating at a restaurant and being asked to pay the bill – are legitimate in free markets, because the restaurant, as a private institution, is legitimately owned by the person setting the rules of service. In contrast, the State dictates policies over property on which it has no legitimate claim.
Unlike the State, private entities must adhere to general norms and practices in society, and persuade others to trade with them on good terms. Health care providers competing in free markets would have to rely upon voluntary consumer patronage to maintain economic viability, and any such providers who offer poor quality or undesirable services will continually stumble and fall in light of more satisfying and more efficient products and techniques. This is the way in which markets are organically and perpetually regulated in accordance with the consumer’s ever changing desires.
 Of course, there are subsidies, regulations, and taxes present in those fields as well, but by comparison the State’s intervention is much smaller in these industries
 Hoppe, “Economics of Risk and Insurance”
 The checkups or health exams will likely be paid for by the client out of pocket, but will not be covered under his insurance. It may be the case that the agency would offer the purchase of these services through its own channels, but again this foreseeable service will be offered as a separate item distinct from insurance coverage precisely because it is foreseeable and therefore not viably insurable.
 Hoppe, ibid.
 David T. Beito, From Mutual Aid to the Welfare State: Fraternal Societies and Social Services, 1890-1967 (Chapel Hill: University of North Carolina, 2000), 117.
 Vijay Boyapati, “What’s Really Wrong with the Healthcare Industry.” (editorial published at Ludwig Von Mises Institute, Auburn, Alabama, March 26, 2010. Web.
 For more arguments against the validity and efficacy of Intellectual Property laws, see Chapter 2: Property.
 Due to the fact that its agents neither acquired the land they are ruling via original appropriation nor voluntary exchange. For more on this see Chapter 1: Libertarianism.