Thanks in large part to the pressure applied by the Obama administration on congress, a universal health care system is looking like it will be the newest social insurance program of the United States Government. At face value, universal healthcare comes across as a great deal. All those eligible, including all U.S. Citizens, will be covered free of charge! True, most taxpayers will have to pay into the government budget that pays for the public healthcare insurance system, but thanks to the bureaucrats in Washington the entire program is provided as a highly affordable package.

Unfortunately, public health insurance is simply not as rosy as the Obama administration makes it seem. The affordability of the program is dramatically impaired by the laws of supply and demand. Indeed, like all other social insurance programs, universal healthcare is bound to fall prey to a decrease in supply, an increase in quantity demanded and a decrease in quality.

Universal health insurance is a public-private monopoly, set up between the government and the private sector providers of the medical services. The private providers simply bill the government for the cost of the service provided to the customer, which in the case of a universal healthcare program would be the entire legal population of the United States. Given that it is the government who ultimately decides what companies will be given contracts and what companies won’t, the latter will be pushed out of the market, limiting the amount of suppliers in the medical market. Furthermore, the lack of individual customers provides a barrier to entry to new competitors.

The limited amount of suppliers and the transfer of fiscal responsibility from the individual to the state creates a problem. Imagine the medical provider as the seller of a bicycle at an auction. Usually, the price of the bicycle will increase until no bidders can afford to outdo the last bid. This acts as a ceiling to the price of the bike. Given that responsibility for payment has been transferred to the government there is no financial limitation to the individual bidders to offer higher prices.

How does this take effect in the case of universal healthcare? Knowing that the service is virtually free, the quantity demanded of the service is bound to increase. If we take two individuals, one who can visit the doctor free of cost and the other who has to pay a fee of $20, the former is bound to visit the doctor much, much more, given that the latter’s ability to go to the doctor is financially limited. As the quantity of medical services demanded increases prices will be bid up, causing increases in the general cost of the universal healthcare program.

All the while, there is a decrease in the quality of service provided. A limitation of supply and the creation of a monopsony, or a market with only a single buyer—the government—, eliminates the need for competition. Indeed, medical companies no longer need to compete for customers, because there is only one customer, and the high barriers for entry prohibit new medical service providers from entering the market. There is an incentive for service providers to cut production costs by cutting corners and decreasing quality, given that their gross income is guaranteed. It is no wonder that private healthcare is known for its higher quality, compared to universal healthcare systems! Private insurers actually have to compete for their clients, giving them incentive to provide better quality and lower prices.

Admittedly, the current healthcare system is broken, even without the existence of a true universal healthcare system. Nevertheless, the fact that the U.S. Government spends almost 16% of its gross domestic product on healthcare should be sufficient enough evidence that we do not have a free market in healthcare. Currently, the United States has a quasi-socialized healthcare industry.

A healthcare industry designed to truly benefit the customer can only exist in a free market. This includes the reduction of interstate barriers to insurance acquisition, and cutting subsidies to pharmaceutical companies. Existing insurance companies should be able to design packages around the needs of their clients, instead of having healthcare packages dictated by the government. The American Medical Association’s government-propped monopoly on the medical field by manipulating the supply of doctors should be disbanded, and instead medical services should be widened by allowing more doctors to enter the industry and by having nurses preform services outside the role of the traditional doctor.

Americans deserve cheap and reliable medical attention. But, the state cannot solve the insurance problem by socializing costs under the government and by creating a public-private monopoly. Instead, Americans should focus on pushing the state completely out of the medical industry and take matters into their own hands by fulfilling their role as consumers.

I was recently involved in a car accident where I managed to absolutely smash the front end of my Chrysler—one consolation is the fact that my car was a Chrysler, and so was not much of a loss.  I was stunned at first, but I am not the kind of person to get worked up about events such as these.  I sat around for a minute or two, trying to figure out what had just happened, and I finally got out of my car to talk to the guy driving the truck I just hit.  While filling out the claims report and talking to my insurance, I could not help but somehow tie my experience with Austrian economics and the free market.

The thought came about while I was thinking about how much this ordeal would end up costing me.  While my insurance covers the damage done to his automobile, mine would cost about $300.  Also, my insurance rates were bound to be jacked up, and so that would be hundreds of dollars more every year.

If I were a diehard and dedicated government pundit, I think I would demand Obama to set up some type of coverage program for young students like me to deal with car accidents.  It makes sense, does it not?  The government pays for our schooling (I do not receive financial aid, but I attend a state university which is subsidized), sometimes pays for our housing and if you are needy enough will even pay for your daily “necessary” expenses (such as food and transportation).  It is about time that the government step in and help defenseless college students to pay for these mishaps!

The welfare state has a long history in the United States (see:  Murray N. Rothbard’s Origins of the Welfare State).  One can trace it back to the early 19^th century, and those well acquainted with the topic could probably trace it back even further.  The progressive movement, or the socially “left-of-center” movement, began to push for the expansion of the welfare state in the early 20^th century.  The modern welfare state in the United States traces its existence back to the Franklin Delano Roosevelt administration, the Great Depression and the New Deal.  Many of our current social insurance programs were founded during that era.

Since its birth, there have been a number of generations who have known nothing but the welfare state.  The era of teaching and instilling responsibility seems to be slipping away, and instead new generations are becoming fixated on “government money”.  The new culture has become more about the supposed right to have others make opportunities available for you, instead of the right to open opportunities for yourself.

Although I hate to admit it—having my tuition fees paid for by my parents is great—, my father went through an undergraduate program and a masters program on his own dime.  He worked a full schedule, and even sometimes multiple jobs, in order to pay for his tuition fees.  He was completely independent from his parents by the age of twenty (to his credit, he even managed semi-independence even at the young age of fifteen).  He was born within a family, and during a time, which stressed from a very early age the importance of responsibility, and taught the fact that ultimately the only person responsible for your own future is yourself.

This culture has been washed away by the rising tide of government societal interference and welfare.  The notion of self-accountability is being eroded by so-called “progressives” who believe it unfair for anybody to struggle.  Today, we live in a culture in which everything should be made free and plentiful.  The proponents of such a utopian and egalitarian society are those same individuals who consider the government an omnipotent force capable of providing these services without negative externalities.

Few of these same individuals have stopped to consider the moral and economic arguments against welfare and government-sponsored egalitarianism.  It even seems as if the concept of self-accountability and responsibility has completely slipped their minds.

If there are people receiving money for schooling, or individuals having their medical bills for broken bones and other avertable accidents fully taken care of by the government, then I think I have the right to have my automobile insurance and damage costs paid for, as well.  After all, there are millionaires who drive expensive cars, and I risk not being able to drive at all because I barely make the sufficient money to pay for the basic costs associated with driving.  Why do I not deserve their luxuries?

Dubious Morality

What moral rights can the poor claim on the property of those who own plenty?  If one man owns ten automobiles and I own none, do I have the right to claim one of those ten automobiles as my own?  Otherwise, is the government justified in forcefully redistributing an automobile to me, as to seemingly raise my standard of living.  After all, the utility of that vehicle is far less for the original owner than it is for me, given that he has ten and I have none (i.e. a perverse application of the law of decreasing marginal utility).

Just the same, do the rich have a moral responsibility to give the poor what they would otherwise have to work for?  Whether it be security or health care, or our own exaggerated example—universal car insurance—, the morality of forcefully redistribution of property is of dubious morality.

The bottom line is that taxation is theft.  It consists of an entity (government) or an individual (the tax collector) forcefully expropriating another’s property.  “Voluntary” tax collection is nothing more than an oxymoron:

While the Internal Revenue Service boasts of a “voluntary compliance” system of tax collection, the fact is that taxation is carried out at the point of a gun.  If you choose not to pay—for whatever reason—armed men will seize you and forcibly take you to jail.  If you resist, violence will be used against you.  This is not “voluntary compliance.”  It is theft.[1]

The case for taxation is oftentimes based on the utilitarian argument that a degree of redistribution is necessary for the good of society as a whole.  Even if this analysis were correct, it still fails to address the immorality of theft.  The analysis itself is flawed given that while the recipient of the redistributed capital is temporarily wealthier, the original owner is now poorer.  More importantly, the incentive to invest is reduced, which makes society as a whole much poorer over the long-run.[2] So, while the egalitarian case for taxation fails to stand on its own legs, it also ignores the fact that taxation as theft is immoral.

Applying this to the case of a universal car insurance it stands that while the recipients of said car insurance would be that much wealthier, those who had to pay are now poorer by the same amount.  Furthermore, an increase in wealth of one person at the expense of another depends that all other factors remain the same, which is simply untrue.  Universal car insurance would make society as a whole, over the long-run, poorer than it would otherwise be.  The same remains true for universal health care and other social insurance programs.

It’s Just Bad Economics

The entrepreneurial case against social insurance programs, like our hypothetical universal car insurance, has already been established.  A loss of entrepreneurship, however, is not the only economic loss that results from a forceful monopolization of an industry.  Less abstract than the relationship between liberty, property rights and economic growth are the direct negative consequences of the monopolies which arise out of public insurance systems:

1. Rising costs.
2. Opportunity for an infinite increase in quantity demanded.
3. Incentives to reduce quality.

Imagine a public car insurance system devised by the government to cover “essential public necessities”.  The government could cover collision damage, maintenance check-ups, and if you are particularly needed you could also opt for fiscal coverage of necessary parts when yours wear down (only if you meet the necessary income requirements, of course).  If we are to believe government, all of this can be delivered in quite an affordable package—let us put a price tag of $800 million (not to worry, the Federal Reserve can just “loan” the state the money).  The truth is, however, that a monopolistic insurance program is anything but affordable.

Insurance companies, in a free-market, work through competition.  They compete by offering better prices or better services to their customers.  Over time, different firms will devise different ways of lowering production costs, allowing them to offer lower prices to their customers and still maintain similar profit margins.  They do this to gain larger shares of the market, and therefore earn greater revenue.

In a government-organized monopoly this does not remain true.  Insurance companies no longer compete for multiple clients, but for just one—this is called a monopsony.  The amount of eligible insurance companies quickly dwindles.  First, some companies will immediately become unprofitable given that if they fail to quickly gain a government contract they no longer take in an income.  Second, insurance companies have to be able to meet certain government-set requirements.  Limiting the amount of suppliers raises prices, as there are less buyers competing against each other.  Third, once contracts are offered, those who were not awarded contracts will cease to exist, and thus a legal monopoly is created.  With no potential competitors, these firms can now raise prices almost at will.

The quantity demanded will also increase, and with it the price.  In a country with universal car insurance all those covered are bound to take the opportunity to make their check-ups and repairs more frequently.  It is “free”, so why not?  What is the danger of getting into an accident (other than to one’s health, of course)?  What would have resulted in higher insurance costs in a free-market, and therefore served as an incentive to take responsibility, is free of cost in a world of universal coverage.  The erosion of the concept of responsibility removes all incentives to demand within one’s means, given that the responsibility is passed to government.

Rising costs do not equate with rising quality.  While government may be investing in research programs to develop better automobiles which have longer life-spans, insurance companies themselves will work towards lowering costs of production in order to garner higher profit margins.  With a guarantee in clientele, since the only client is the government and the insurance firms already have a monopoly, there is incentive to maintain said clientele by offering better services or lowering costs.  The exact opposite will tend to happen.  Over the long-run, government sponsored monopolies tend to become overly expensive, and even fiscally untenable, while quality tends to diminish.  Thus, a universal car insurance program is bound to fail, or cause the state severe fiscal displeasure.

Virtues of Responsibility

The only method by which an insurance industry can work to everybody’s benefit is by operating in a free-market.  Insurance companies must compete to service the client, while the client must bare the fiscal responsibility of his actions.  By making the individual liable it gives an incentive to lower costs.  It logically follows that government should not interfere in the market by disallowing certain suppliers to enter, or by transferring responsibility from the consumer to the state.  These distortions cause shortages of coverage or surpluses of demand, making those who suffer the consequences of said distortion that much poorer.

The concept of a universal car insurance program is absolutely silly.  But, it is a great example to illustrate why social insurance programs inevitably fail over the long-run.  The built-in free-market “regulations” which ultimately benefit the consumer simply do not exist outside of a free-market, because the government has effectively nullified their relevance.  Given that few people believe a universal car insurance program would be tenable or desirable, the conclusions reached here are far more agreeable.

Those who agree with the argument presented here, however, must accept its application to other social insurance programs.  This includes, but is not limited to, the health insurance market.  A government monopoly in health care would suffer from the same economic factors as a monopoly in automobile insurance.  The lapse in logic occurs when emotion overrides reason.  There is a utilitarian impulse to support a measure that would, at face value, provide all with the means to guarantee their health.  But, once one looks beyond the surface of the issue they will see that there is nothing less utilitarian than a universal health care system, since such a system would eventually contribute to impoverishment and would fail to complete the objective it was prescribed.

[2] Mises, Ludwig von, Liberty and Property.  Ludwig von Mises Institute, Auburn, Alabama: 2009.

Why, exactly, are healthcare costs so high? It goes beyond unethical companies, ramping up prices for their own profit. Indeed, we must look past this perception and examine what companies are required to do by law. The 1945 McCarran–Ferguson Act empowers states to regulate healthcare providers, a power that the states have taken to using liberally. Using a mandate system, the states are able to require healthcare providers to provide certain services, regardless of who the customer is. Just a few examples:[1] In 48 states, all insurance must cover breast reconstructions. In 50 states, mammograms must be covered (even if the consumer isn’t female). In 46 states chiropractors must be covered, in 45 alcoholism treatment, and in 47 diabetic supplies (even though only 7% of Americans are diabetics[2]). These costs effectively force the majority of insurance payers to shoulder the costs of the minority, which arbitrarily increases costs and provides the individual with services they don’t need. These healthcare mandates require the provision of expensive services that are generally unneeded, and can be attributed to a major increase in the cost of healthcare- research concludes that states with 26 or more mandates have far higher costs than those with fewer.[3] The state mandate system results in massively increased prices for everyone at the benefit of very few.

It is fallacious to suggest that there is anything like competition in the healthcare market. Indeed, the single largest healthcare provider doesn’t even compete on the open market- the Federal government covers approximately 1 in 3 Americans[4]with Medicaid, Medicare, and employee services. The federal government removes all of these individuals from the market, driving up prices for other consumers, and indeed charges those not on Federal plans to support those on Federal plans- according to a 2006 UN study,[5] the US Federal government is the spender of 45.8% of all the money associated with healthcare costs in America, or 20% of its 2006 budget (which is 540 billion dollars, and that’s just to cover 1/3 of us!) So, a third of the United States is not even competing on the open market, and rest is taxed for it.

Unsurprisingly, it doesn’t stop there. By Federal Law, it is illegal to sell insurance across state lines[6]- if I am dissatisfied with the quality of service in my state, I’m out of luck. This is a blatantly anti-competitive measure, which keeps money in the state at the expense of the consumer. Similarly, state and government forcing the involvement of health insurers into more and more services has made it harder for doctors to compete. Doctors are forced to deal with federally mandated prices when dealing with Medicare and Medicaid patients, which drives up their prices in dealing with other insurers- according to an interview with Dr. Randall Paul, M.D., it’s around 3 times cheaper to just pay your doctor in cash.[7] In general, the government increases prices by limiting competition through the removal of individuals from the market, through federal regulations on where competition is allowed, and through effectively raising the prices of the average doctor visits, raising the cost of healthcare as well.

It is a shame that so many individuals have pointed the finger of blame at unrestricted markets, when the body truly to blame is government. Thanks to the government, healthcare insurers are remarkably restricted, and are required to provide coverage of a variety of things which most individuals hardly need. They are also federally disallowed from competing across state lines, and through federal activities, the prices for doctors have sky-rocketed. If we want cheaper healthcare, the answer is not more government, which gave us high costs and restriction of our right to choose. Rather, we need to free healthcare markets, allowing insurance providers to compete on price and quality. We need to allow the individual the right to pick what he needs for his own healthcare, rather than assigning arbitrary attachments which benefit the minority at the cost of the majority. If we want to make health insurance affordable and better for the individual, then a free market solution should be the obvious one.

[2] http://docnews.diabetesjournals.org/content/3/1/1.1.full

[3] http://www.heritage.org/Research/HealthCare/upload/84532_1.pdf

[4] http://www.policyalmanac.org/health/medicare.shtml, http://www.bls.gov/oco/cg/cgs041.htm and http://siadapp.dmdc.osd.mil/personnel/MILITARY/rg0902.pdf

[5] http://www.who.int/whosis/whostat/EN_WHS09_Table7.pdf

[6] http://www.kaiserhealthnews.org/Stories/2009/November/06/health-insurance-across-state-lines.aspx

[7] http://www.youtube.com/watch?v=YHkfITHeJss

If there is unanimity in one thing, it is that the current health care system is untenable.  Everybody agrees that there must be reform.  Where the disagreement begins is what direction this reform should take.  Much to the chagrin of the libertarians, the average person probably agrees that health care reform should involve more government.  Many Republicans, and some Democrats, may not believe that there should be a single-payer health care system, but generally they disagree that what is requires is greater deregulation of the industry.  Regardless, there is a large movement in support of Obama’s universal health care system.  The President has gained support from those unwilling to accept full nationalization of the industry by promising that private insurers will still be able to compete against the government system.  Of course, this is all bollocks, but the majority of people do not have a very educated understanding of how a market works.  So, in the end, many (if not most) find Obama’s “solution” appealing.  I mean, in the end, it helps the poor.  Right?  What do those rich people need their excess money for, anyways?  It is far more efficient to simply tax them and pay for the health care of those who could not otherwise afford it.

By that logic, if Obama really wanted to make the United States the wealthiest country in the world, he would legalize theft.  It would be the right thing to do, and is the same exact thing as taxation.  When Obama raises taxes on the top income percentile, he is basically redistributing wealth from those who earned it, to those that are not in a position to earn it (for whatever reason).  It is accepted by the mainstream that this is generally healthy, as it raises the standard of living for the poor.  So, logically, if this is true, it is also true that it is generally healthy for the unemployed man to rob a grocery store for money that he can use to pay for food to put on his family’s table.  The grocery store has an excess amount of money (profit), and it obviously don’t need, and so the robber is doing a good thing by redistributing profit from those that don’t need it (the grocery store owner) to those that cannot earn it (himself).  It is a redistribution of wealth.  If people were legally allowed to rob grocery stores, poverty would be eliminated, because the poor would have a constant access to wealth.  Right?  Wrong.

From a purely economic perspective, it is obvious that after a number of robberies, the grocery store owner will no longer have an incentive to maintain his business.  He is not making a profit, because his money is being stolen.  Or, he might be making a marginal profit if the robber does not steal all the money available in the store.  But, it is obvious that the grocery store owner will simply pack up and set up his business elsewhere.  This is a great disservice to the community.  First of all, it may end in an increase in the price of the goods once provided by the grocery store.  Other neighborhood grocery stores now suffer from less competition.  Second, it ends in a net loss of employment, given that the grocery store no longer exists, so its employees must labor elsewhere.  Third, it may cause other businessmen to reflect on their own decision to maintain their businesses in that area.  So, while the robber has enriched himself in the short run, he has done it at the expense of everyone else.  And, his source of wealth quickly ceases to exist, ridding himself of what could have been a source of long-run wealth had he instead chosen the more honorable route of finding employment in that grocery store.  It quickly becomes obvious to all that robbery is not a benefit to society.

So, why do people support it?  Most people may recoil in shock as they read that, refusing to believe that they support theft.  But, they do, because most people support taxation.  And, those that support a government role in health care also support taxation to pay for that role.  And, those that support greater government involvement in health care support greater rates of taxation.  Perhaps it is because the real cost of that government service is hidden.  It is not as obvious that taxation is theft.  Many people probably refuse to think about it.  But, it is time that they do, because they are being apathetic about their very own futures.  To the poor man it may seem as if universal health care is the best thing the government has done for him.  Indeed, he otherwise would not have been able to afford medical services.  What he does not see are the other effects.  The money to pay for these services has to originate from somewhere, and that somewhere is someone else’s deeper pocket.  Usually, it will come from those with higher incomes, including those which invest into businesses.  Their business makes a profit, of which some of it is forcefully taken by the government through taxation.  Those businessmen did not willingly give up their wealth.  They did so because they were threatened with some negative consequence by the government.  This is no different than the grocery store owner being threatened by a gun, held by the robber.  The logical conclusion is that taxation is theft.

The hidden cost is that the businessman has lost incentive to continue investing, because every dollar of profit is being taxed a certain rate.  He may move his business elsewhere, but if there is nowhere else to go he may decide to simply not rely on a business to accumulate his wealth.  And, therefore, his business ceases to exist, and so do the jobs that his business once provided.  The community can no longer benefit from his services.  And so, while those who did receive health care did gain wealth, they did so only at the expense of many more others.  One can easily deduce that the number of those not benefited outweighs the number of those who did benefit.  And so, in net terms, universal health care has a negative impact on the community.  This is true both economically and morally.  It is negative morally, because it sends the message that it is acceptable to rob the rich, because you deserve their money more than they do.

The health care argument will continue back and forth, between its proponents and its opponents.  They all have some very important points.  But, they all miss the core issue.  Government health care is not free.  The cost does not only consist in the amount of money necessary to pay for it.  The cost must include the amount of investment which will cease to exist once the tax system is put into place to fund the universal service.  After the true price is tallied, it will become painfully obvious that the answer to America’s medical woes is not greater socialization.  For those who support health care because they cannot afford private insurance, karma does exist.  That karma will manifest itself as poverty.