Demand Competition In Healthcare

Wise Boy (aka Ezra Klein) and other members of the Big Government priesthood often claim there is no evidence that competition can control healthcare costs. Although it’s true that many healthcare markets may be less competitive than they should be, the answer is more enforcement of the antitrust laws, not a turn toward greater control by a central authority.

One of the basic truths about social activity (Basic Truth #1) is that the existence of alternatives in a voluntary exchange context makes it very difficult for one party to exploit another. Of course, Wise Boy may be too busy reviewing graphs, charts, tables, etc., and looking at all the trees, to have time to think about basic truths and big pictures, but most likely he and his co-religionists would at least agree with this truth about alternatives.

So when Wise Boy denies that competition can control costs in healthcare, he implies that alternatives do not exist in healthcare markets. Now, one reason alternatives might not exist is that the market is too small to support more than one producer, and such markets are recognized as natural monopolies. In cases of natural monopolies, society can choose:  (1) private monopoly, (2) government monopoly, or (3) private monopoly regulated by the government.

In sparsely populated rural areas, there may be room for only one hospital, and in those markets, one of the three choices must be made. But most geographic markets in health-care – hospitals, physicians, medical devices, pharmaceuticals, insurers – are large enough to support many producers. The markets for medical devices and pharmaceuticals are worldwide in scope whereas geographic markets for hospitals, physicians, and health plans are local, but most are still large enough to support competition.

Liberals ultimately don’t argue that healthcare markets are natural monopolies and so evidently we all agree that alternatives are at least possible in healthcare markets, viz. competition can work in healthcare. Yet liberals reject policies to foster competition in favor of a system that centralizes control over healthcare to an unprecedented degree: no country in the developed world places 315 million people under the thumb of a central authority.

The liberal position is baffling because a second fundamental truth about social activity (Basic Truth #2) is that economies based upon markets and competition always out-perform economies that are centrally controlled and planned. The question isn’t even debatable – it’s been settled for a long time – but liberals ignore the facts and instead demand a system guaranteed to produce low quality, stagnation, and eventual decline. And this from those who claim to be “empirically driven.”

In addition to competition in markets, competition should also be understood to include competition between states in a decentralized political system that limits the power of the central government. Healthcare is primarily a local activity:  most people go to hospitals and doctors that are located within a few miles of where they live. This fact, along with the clear superiority of market-based economies and ideas of self-government and self-determination undermine the liberals’ rationale for central authority.

So how should the antitrust laws be enforced? For starters, the government should not only block proposed mergers that would lessen competition, but go beyond this to actually break up dominant entities in any healthcare markets, not just markets for insurers as conservatives demand. Some argue that “accountable care organizations” represent a new model that will reduce costs, which is all fine and dandy. But antitrust enforcement would still be needed to insure that efficiencies are passed on to consumers through competition.

If accountable care organizations aren’t restrained through competition, we’ll be looking at price controls implemented by the central authority. And to handle the excess demand that price controls invariable create, the central authority would be obligated to restrict access to care. Any government can control costs in this manner, but by continuing to preach Big Government, Wise Boy and his cohorts are advocating nothing more than stagnation and decline for almost 20% of the economy. Americans deserve better.

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