The Myth of the Free-Market HMO

As the Congress debates the merits of the Patients’ Bill of Rights, we are once again told to believe that the federal government can save us all from a problem they created in the first place. Although over 80% of HMO’s users report satisfaction with their service, the feds are all in a tizzy over the apparent "health care crisis" that we are all experiencing thanks to HMO’s.

According to the media accounts of what is wrong with American health care, HMO’s (or "managed care") are a terrible corporate demon foisted upon the American public over the will of benevolent government by a gang of profiteering faceless corporations committed to keeping the public feeble and in ill health in order to save themselves a few bucks on employee benefits.

The real story of HMO’s, of course, is one of considerable government meddling and regulation which ended in spiraling health costs which, not surprisingly, begat more government meddling and regulation.

HMO’s are part of the legacy of price and wage controls supported by "conservative" president Richard Nixon who supported them (among other ill-conceived reasons) as a means for controlling health care costs. The high costs of the early seventies were not produced by free market health care, but by the ever expanding government giveaways of Medicare and Medicaid which removed individuals from the process of making health care transactions and created a situation where third parties (i.e. government) were making the payments to health care providers. You can imagine that in a system where the consumer of health services is responsible for none of the costs, a little excess demand might result. And that was indeed the result. No longer restrained by paying for health care, patients ended up in the doctor’s office for every stubbed toe and every bloody nose resulting in spiraling health care costs due to such massively inflated demand.

Far from being free-market health care as Ted Kennedy would have you believe, managed care has always been a system of complex government regulation which favors large politically influential insurance companies over smaller more entrepreneurial insurance companies. To claim that there is anything even remotely resembling a competitive marketplace in health care is absolutely preposterous. In fact, the United States government controls over 45% of the health care industry in the United States. In Canada, home of socialized medicine, the number is 75%.

Now, the Congress is trying to tell us that we need more of their regulations to ensure that better quality care can be assured to all Americans. The biggest problem that people have with HMO’s is the control of expenditure by reviewing and managing doctor recommended treatment options that sometimes end in denial over physician recommendations. Can government solve this problem? The last time I checked, Canadians were waiting for months and even years to receive treatments that the government had decided against funding. In Britain, the non-government health care sector is exploding because so many Brits must go outside the government health services to receive treatment. (In the US, it is illegal for recipients of government health care to purchase private services from a Medicare/Medicaid doctor unless the doctor gives up all other patients for two years.)

To be sure, managed care systems have actually done a pretty good job of keeping down health care costs in the face of constant government attempts to increase those costs. Let’s not be so foolish, though, as to call HMO’s some kind of free-market solution. The rising costs and occasionally refused procedure at HMO’s exist because of government regulation. The problems are there because government has doggedly refused to let the marketplace work, and has put in its place a system which destroys the patient’s ability to control which services he wishes to receive and what kind of insurance and what level of insurance coverage (if any) he wishes to purchase. Thanks to massive government health programs, and government collusion with private companies who have purchased political clout, we have destroyed the healthcare marketplace and yet the private healthcare economy somehow manages to be posthumously responsible for all the woes that the Patient’s Bill of Rights claims to remedy. Even the proponents of the bill have to admit that the bill will do nothing to make health care more affordable. It will only further decrease consumer responsibility and further inflate demand and costs as health care providers are laid bare in court to face the wrath of consumers who don’t even pay for their care in the first place. Yet the Congress will fight ever harder because the bill gives the illusion of solving the problem. The Patient’s Bill of Rights is just more of what we have seen for the last thirty years, and no amount of government intervention can solve rising health care costs. The only solution is to put consumers back in control of their own health care purchases, end the government/corporate lobby-fest on Capitol Hill, and to resurrect the healthcare marketplace that was killed by government so long ago.