Markets Are the Answer to Health Care Problems

Published August 1, 2007

Free markets have created prosperity and progress worldwide. The freer a country’s economy, the more prosperous it becomes. Goods and services become cheaper and better.

Thanks to economic liberalization, the global economy is booming, especially in Southeast Asia. As a result, poverty is decreasing worldwide, and life expectancy is rising.

But much of Western Europe considers the free market to be incompatible with the provision of personal welfare services. As a result, education and health care are largely run by the state and almost exclusively tax-funded. Strict rules limit competition, entrepreneurship, the free exchange of services, consumer choice, and private funding.

Together with social security, this is the sector where the now-defunct centrally planned economy is still alive and kicking, in the U.S. and worldwide.

Reliving History

The central planning model has severe problems, particularly in health care.

A recent European Central Bank working paper showed the bigger the public sector, the more inefficient it tends to be. Increased tax funding to public health care in several European countries, such as Britain and Sweden, has not led to improvements.

Indeed, in the United Kingdom, quite the opposite has happened, with rapidly declining levels of productivity in the National Health Service.

Several European countries have waiting lists where seriously ill people cannot access care for months or even years.

Rationing Care

One often-stated aim of state-run health care has been to ensure universal access, particularly for the poor. In practice, the result has been the opposite.

Monopolies have no incentives to be efficient, adapt new technology, or reorganize. So taxpayers get less for their money. And since tax pressure has definitely hit the ceiling in Western Europe, there will be no expansion of health care funding despite such services being highly in demand.

Health care is, in effect, being rationed.

Demand for health care continues rising. One reason is increased incomes, some of which we would like to use for better health care. Another is demographic changes, with a larger share of the population becoming elderly, though healthier than before. And health care services tend to get more expensive, due to low productivity development.

Perverse Outcomes

Public health care is insufficient today and increasingly unable to meet those rising demands. The rationing will only get more severe. In the end, patients suffer from European governments’ ideological attachment to centrally planned health care.

In my home country, Sweden, this has recently resulted in some perverse outcomes. Patients have been sent to veterinarians in order to cut waiting lists, since veterinarians are private and there are many. Many people go to neighboring countries for dental care, despite having paid taxes for the public system.

The number of patient consultations per doctor has fallen from, on average, nine per day in 1975 to four per day in 2001. Doctors devote 80 percent of their time to administration.

Easing Burdens

There have been some reforms in Sweden and other European countries to ease the problems. Competition from health care entrepreneurs has been allowed–though their efforts are still tax-funded–increasing efficiency. More people are buying private health care insurance and going directly to private clinics. Sweden’s current government is making it easier to start health care companies and will allow public hospitals to be sold.

The U.S. health care system is commonly perceived in Europe to be a complete free market, in which the poor are left to die on the streets if they cannot afford coverage. It is true that there is competition in the U.S. market and much of it is privately funded, but it is not a free market–it is a mix of a market and state interventions, which has undeniably created problems.

And as in Europe, in the U.S. government intervention–not market competition–generally has caused the problems.

American health care consumes twice as much gross domestic product (GDP) per person as in the average Western European country, while GDP per person is some 35 percent higher. Many claim this reflects the American system’s extreme wastefulness, but it may actually reflect the high quality of U.S. health care–and much higher wages for health care staff. European health care employees are a low-wage group, which can deter higher-quality candidates.

Revitalizing Systems

What both Europe and the United States need are health care reforms that open up competition. Entrepreneurship and competition increase efficiency. In a true market system, patients are seen as valuable clients, rather than just an expense as in state systems.

Why should health care be a political issue at all? Why couldn’t it just be another expanding and dynamic industry with strong export potential?

Increased trade in services combined with new technology could do wonders for health care provision. But this cannot be achieved through greater state intervention and control.

When European kids wanted to start sending pictures with their cell phones, billions of euros were invested, and they got what they wanted. But when Europeans want more and better health care, and are ready to pay more, the state prevents this from happening.

This is the difference between having something delivered in the free market or by a public monopoly. The free market should be embraced, not demonized, by anyone interested in improving health care.

Johnny Munkhammar, M.Sc. ([email protected]) is program director of Timbro, a free-market research group in Sweden. This article is a summary of his remarks delivered at the international panel discussion, “Is There a Role for Markets in Health Care?” presented by the International Policy Network and the Galen Institute on June 14 in Washington, DC.