Priceless: Curing the Healthcare Crisis, by John C. Goodman. Oakland, CA: Independent Institute, 2012. 392 pp. $24.95 (hardcover).
Think about the health-related services you or your family need occasionally, if not regularly—doctor visits, hospital stays, casts, surgeries, health insurance. When was the last time you saw a meaningful price for any of these?
This is the question with which health-care economist John C. Goodman kicks off his critique of the American health-care system in Priceless: Curing the Healthcare Crisis. Goodman points out: “[F]ew people ever see a real price for anything. Employees never see a premium reflecting the real cost of their health insurance. Patients almost never see a real price for their medical care. Even at the family doctor’s office, it’s hard to discover what anything costs” (p. 1). On the supply side, health-care providers are not paid real, market-clearing prices; they are paid according to reimbursement schedules that are either set by the federal government or heavily influenced by it due to the enormous size and presence of Medicare and Medicaid—the two “entitlement” programs that make the federal government the single largest payer for health care in the country.
When buyers and sellers are free to act and thus contract in accordance with their own judgment, they negotiate prices that communicate valuable information about prevailing and expected supply and demand of goods and services. Such prices are critical for encouraging suppliers to meet consumers’ needs, for encouraging consumers to spend their money prudently, and for helping both sides avoid shortages and gluts. Such prices, Goodman points out, are largely absent in the health-care industry—precisely because buyers and sellers are not free to act on their own judgment. Instead, producers and consumers of health services face myriad controls. To take but two examples, federal tax policy promotes employer-subsidized insurance, and entitlement programs put federal bureaucrats in charge of pay schedules for medical services.
Goodman shows that the lack of meaningful prices drastically distorts the behavior of consumers. For example, because most consumers pay for health care using third-party health insurance purchased through their employers with pretax dollars, only about ten cents of each dollar spent at the point of care comes out of their own pockets. Individuals, therefore, have an incentive to consume more health care than they would if they were paying for more of it directly. Government-mandated “free” preventive care is a further assault on the price system and a further distortion of demand signals. As Goodman writes, “[I]f the cost of these services to us is zero at the time we consume them, our incentive will be to consume them until the last bit is almost worthless” (p. 69). . . .