Sunday, July 01, 2007

The U.S. Health Care System -- Not Really a Free Market

In this week's Economics Focus, the Economist explains:
TO MANY outside the United States, America's health-care system might seem an example of capitalism at its rawest. Europeans and Canadians enjoy universal health care and cheap drugs thanks to government-run systems, the argument goes, but the market-based approach taken by the world's richest nation leaves many millions uninsured and leads the rest to pay the highest drugs prices in the world. Such doubts are sure to be reinforced by this week's release of Michael Moore's “Sicko”, a much-trumpeted new film on health care that bashes the free-market Yankee model even as it praises the dirigiste alternative north of the border.

So is America's health system really red in tooth and claw? Hardly, according to a growing body of academic evidence. As a result of interference at the federal and state levels, health care is one of America's most heavily regulated industries. Indeed, its muddled approach to health-care regulation may act as a massive drag on the American economy—what one expert has called “a $169 billion hidden tax”.

I think it's good that the Economist is writing about this. There do seem to be many people who see private companies operating in the U.S. health care market and on this basis argue that it is the private-ness of the industry that makes it costly and ineffective. In reality, though, there is massive regulation in this area, and it is this regulation that is, arguably, the main problem. Take just two examples. First, health care benefits are tax-deductible, so big companies have an incentive to offer excessive health care packages, which, of course, are tied to employment with them. Second, health care insurance is regulated state-by-state, and thus moving states means you have to abandon your old plan and apply for a new one.

No comments: