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Posted on October 11th, 2012, by

The article Toward Free-Market Health Care by Grace-Marie Turner was published in Heritage Foundation Lectures. Grace-Marie Turner is a founder and President of the Galen Institute, an Alexandria, Virginia-based nonprofit research organization that promotes ideas for market-based health care system reform (Turner).

The problem discussed in the article is mainly that the present system is tying people’s health insurance to their workplaces, and workers nowadays are becoming mobile and independent. Many of those who have insurance coverage fear that if they happen to lose the job, they will risk losing the health insurance as well. And with the coverage and health care cost rising year by year, they are afraid that they would not have enough money to afford the health insurance on their own. Therefore, the middle class is afraid that if they don’t pay a single premium payment, they will have to join the rows of the uninsured.

Another problem is that people have no possibility to decide what is better for their health care on their own. They cannot make decisions concerning the health care insurance coverage for their own families while politicians and directors for human resources can.

So, the author of the article suggests making health insurance independent of one’s workplace and possible to control and manage by its owners. One of the mail arguments is that people with more power to control health insurance and their health care will have a better motivation to take care of their health. The author’s point of view is summarized lower.

The movement towards the consumerism in the health care system is not only of the US but of the global scale today.

And the USA can be the first to create a health care system that satisfies the economy demands of the 21st century. But to do that the significant changes in the public policy should be made.

For many years the health care system management was centralized and all the decisions came from above. However, recently, the attempts have been made to introduce the features of the free market into the system and decentralize it. Making health care market competitive gave the patients possibility to choose a coverage plan offering more benefits at a lower price, while medical companies have received a motivation to improve their services and marketing plans to meet the customers’ growing demands.

Nevertheless, in spite of the fact that competition in health care might be working, the new Congress leadership has set the agenda that includes expanding health care programs of the government and reducing the initiatives made over the last few years for bringing competition and customer choice into public and private programs.

According to Turner, the proposed action plan can solve the problem of the uninsured and prevent the middle-class concern about high costs of the health care programs. Here are some ways of doing it suggested in the article:

–       make health insurance untied to the workplace;

–       reduce some taxes in order to help people buy their private coverage;

–       create Affordable Choices in health insurance for each state individually depending on its needs and problems.

In the conclusion, the author calls to engage the consumers’ power to reform the existing health care sector to become more effective, more meeting the patient needs, and more available and flexible (Turner).

As we can see the article raises an economic issue. The author believes that what the contemporary health care system needs is implementing one of the microeconomic principles into its management. And the principle mentioned is Markets are usually a good way to organize economic activity. However, in order to analyze the article appropriately, we need to know what a market actually is, what its peculiarities are and what consequences would appear in case of implementing free market principles into health care management.

In economics, the term market means the group of organizations or consumers interested in the product, it also has the means to acquire the product, and is legally permitted to obtain the product. The definition of market starts with the total population and gradually narrows to the following (Internet Center for Management and Business Administration, Inc.):

Potential market (consisting of the total population representatives interested in obtaining the product), available market (consisting of the potential market representatives having enough resources to purchase the product), qualified available market (consisting of the available market representatives permitted by law to acquire the product), target market (representing the part of the qualified available market the company has decided to work for), and penetrated market (containing the target market representatives having obtained the product).

Of course, a term product here means both physical goods and services.

Classifying the market is the first task in making its analysis. As the market consists of consumers with different needs, segmentation of market is useful for better understanding of the needs and selecting of the groups that the company will serve. (Internet Center for Management and Business Administration, Inc.)

Free Market in its turn is a market economy based on demand and supply with minor government control or without one. An ideal free market would be a market economy form where sells and buyers could freely transact basing on a mutual price agreement without state interference in means of regulation, taxes or subsidies. (Investopedia.com)

Competition and the necessity to meet and, possibly, foresee customer’s demands lead to the system providing the utmost choice for the lowest possible price; dynamic, efficient and flexible system. But that’s what refers to all spheres of economy.

Now, let us try to imagine what would happen in case of completely free market health care. For example, a free market economist David Green claims that the market would provide the best service at the lowest price. He compares a free market system with the National Health Service considering the latter to be a command system funded by pressure in the form of taxes. He says that the command type has a number of difficulties: (Green 34)

–       not using prices it has to use other means for planning and allocation (Green states that prices give consumers a possibility to compare the health care cost with other things needed, from simple consumer goods to the children education. They also show to suppliers the quantity and even quality of treatment needed. Thus producers can decide how many services of different types to supply);

–       it cannot solve the issues of uncertainty and inadequate information (technology changes all the time, and Green says that the NHS should allow people to test alternative ways of treating hoping to learn from their own experience. Thus, the best solution seems occur in the process of experiments and errors of a great number of people.);

–       the suppliers are given the authority to impose unnecessary treatments on customers (letting the professionals decide how to cure us we risk being treated against our will).

Competitiveness is an important feature of a free market. Consequently it should be implied into the health care system of a new format. If, for instance, the market for cosmetic dental services was competitive and free, various dentists would suggest different combinations of service, and some other dentists would be better qualified than others. The skilful doctors suggesting the services patient want would obtain lots of clients and could fix higher costs than their rivals. This would make the other dentists adjust the services offered in order to attract the customers. This competition process would be constant, just like other factors effecting supply and demand, such as income levels or the technology state (The Economics of Health Care).

Thus, a competitive free market is a system allowing due to human inventiveness to create means of improving the level of our lives. It also bases on the principle that no authorities have right to make decisions concerning what is the best for everyone individually.

Another thing the market can do well is serving as an effective and useful information system. Any changes in customers’ tastes are immediately transferred to producers through prices at the market. The hunt for profits makes producers propose new goods or services and even make be more effective at lower costs. A good illustration is the way customers’ anxiety over the relation between high level of cholesterol and the heart attacks led to the occurrence of cholesterol testing devices at chemists as well as at health food shops (The Economics of Health Care).

Supporting the idea of free market relations in the health care system the ordinary consumers state that current insurance and health care system is financially invalid and presents threaten to the health and economic safety of Americans.

Owners of small-businesses and their staff are especially exposed to the weaknesses of the present system. National Foreign Intelligence Board encourages policy transformation in order to satisfy the demands of availability to quality service, affordability, reliability and customer choice. The resulting medical combine all the needed features in itself and be (Small Business Principles for Healthcare Reform):

–       Common (i.e. accessible for everyone);

–       Private (instead of government, private business should supply most healthcare services);

–       Affordable (healthcare costs should be conventional);

–       Unprejudiced (all consumers should receive health insurance of the same level);

–       Competitive (consumers looking for health coverage should be provided with choices among hospitals, doctors and insurers);

–       Convenient (people should be able to change jobs or move not losing their health care insurance);

–       Transparent (information on prices and quality of services should be available, and patients’ confidentiality must be protected);

–       Effective (the highest quality service should be provided for the cost set);

–       Evidence-Based (information on all the possible options of treatment should be available);

–                 Realistic (the reform must be performed quickly, but responsibly). (Small Business Principles for Healthcare Reform)

And one of the main solutions suggested by such reformers is the elimination of government’s intervention into the health care management. This would result in transfer of the responsibility and control from indifferent bureaucracies to customers. Consequently, the free market with careful consumers, who spend their own resources, would control the prices and let the US people have the medical service they want (Richman).

Most Americans are concerned with constantly rising health costs. And it is no wonder, because an average US citizen spends on health care several times more than in other developed countries of the world. The share of the gross domestic product that the United States devote to health care is much larger than that of other world leaders.

Considering this, we can conclude that the American people spend too much money on health care: certain government interference raises prices higher than they could be without it. And many people believe that it is done by artificially raising demand and artificially reducing supply (Richman).

About half of the health care provided in this country is paid by the government through the health care insurance plans for the elderly and poor. The expenditures on such programs have increased over the years, because poor patients, paying practically nothing for their health services and not having to worry about costs, demand even more of it than they would require otherwise. In the result, this escalated the costs even higher, which, in its turn, rose up charges for health coverage, harming the patients paying for their own medical care (Richman).

Some people also believe that different governmental regulations ratified at the request of the medical business have reduced the training of doctors and other healthcare experts. This was motivated by the medical business’ desire to diminish competition and to enlarge incomes of the residual practitioners. Thus due to actions of the government, the medical industry is much less competitive than it could be without this interference (Green 28).

For the followers of the free market health care idea, it is obvious that if authorities at all the levels did not confiscate by various means about a half of the people’s funds, health care would be a controllable life need. Without the heavy burden of taxes people now work under, they could save means for the medical expenditures necessary throughout their working and, of course, retirement period (Green 41).

True, certain group of people wouldn’t be able to afford their own care, so they would have to hope for a private charity. But the medical industry has always been charitable in helping the poor.

If the government did not control the health care industry through its insurance plans, prices would fall to the rational levels people would require from a free market. This would give even the low-income people the opportunity to purchase medical service and health care insurance. To some extent the tax policy of the government deforms the private insurance business, so the prices would fall even lower (Richman).

Concerning the medical professionals supply, the cancel of medical licensing, medical schools governmental certification, and limits on hospital building would make the amount of service available grow, and prices fall even more. This would increase individual freedom and initiate real competition in the health care marketplace. Quality guarantee would be much better managed in the free market with the help of private accreditation organizations (Richman).

According to supporters of free market, the governmental intervention is always dangerous. But it is even more so in the medical industry. The sooner we get rid of the governmental control, the sooner we’ll be able to breathe easier seems to be the slogan of such reformers.

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