In 2015, all United Nations member states adopted the Sustainable Development Goals. Part of the Sustainable Development Goals was a commitment to achieve universal healthcare coverage by the year 2030, where universal healthcare coverage is defined as all individuals and communities receiving the healthcare they require without suffering financial hardship. As of 2017, the latest date for which information is available, more than half of the world, including the United States, still lacks universal healthcare coverage. But why should the world make a commitment towards ensuring that everyone receives required medical treatment without undergoing financial hardship? In other words, why should medical care be something that every person has a right to receive?
At the most basic level, viewing healthcare as a right is simply a way of respecting the sacredness of human life. Without health, it is extraordinarily difficult to carry out a meaningful life plan, a plan that enables each person to experience the joys and challenges that ultimately allow us to become all that it is possible for us to become. At the social level, providing a right to medical care expresses a society’s view that we are all involved in an ongoing, mutually beneficial social process; the mutuality of which requires that we all share both the benefits and hardships that inevitably flow from social interaction.
Even if society adopts the belief that medical care is a right, there still remains the question of how such a right should be implemented. There are many who think that the best way of providing all goods and services is to simply allow the market to work; that market processes will inevitably result in the most efficient way of providing everything, including medical care. But, is such a view correct?
Economists are widely seen as staunch supporters of the market, and deservedly so. Why are economists so supportive of the idea of free markets? The principal reason was provided long ago by Friedrich Hayek, a Nobel prize-winning economist. Hayek argued that market prices provide information about consumer wants and desires, and the costs associated with satisfying such wants. Because efficient decisions can only be based on full and accurate information, only market prices are capable of enabling an allocation of resources that efficiently meets the desires of consumers. Hayek argued vigorously that governments would never be capable of obtaining the information needed to allocate resources efficiently according to the demands of consumers. As a result, he strongly resisted the idea of government intervention in markets. Most economists have followed Hayek in the belief that market prices, in most instances, best provide the information necessary for making efficient decisions.
But what happens when markets do not provide such information? Economists have often avoided this question by simply assuming that people have perfect knowledge. This is the hallmark of the economic model that most economists view as being optimal, the model of perfect competition. But in modern times, many economists have come to see that real world markets and real-world people do not possess anything close to perfect knowledge. And, the more removed actual markets are from the assumption of perfect knowledge, the less likely are they to allocate resources efficiently. The work of Kenneth Arrow, also a Nobel prize-winning economist, has enabled economists to know for quite some time that health markets do not possess anything remotely close to perfect knowledge. And this, in turn, means that markets cannot efficiently provide healthcare resources. Why is this the case?
If one thinks about healthcare issues for even a moment, one can see the basic difficulty. Unlike purchasing food, which everyone knows they will need, if not immediately, at least in the very near future, the purchase of health insurance is made in conditions of great uncertainty. One does not know if, or when, one may become ill. Nor does one know whether this will be a relatively inexpensive event, like having a cold, or an extraordinarily expensive event, like having a heart attack or a stroke. Moreover, the information available to those purchasing health insurance and those supplying it is asymmetric. A person purchasing insurance may attempt to hide information, such as their health history or the health history of family members, in an effort to prevent their being denied healthcare coverage because of pre-existing conditions. Doctors and health insurance companies have information regarding the efficacy of treatments that is not available to patients, requiring patients to simply trust in the judgment of doctors and insurance companies. At least with respect to insurance companies, such trust is difficult to obtain. Insurance companies exist to maximize profit, providing healthcare insurance is just the means used to accomplish this. From the perspective of an insurance company, the ideal situation would be to provide insurance to healthy people who will never actually utilize it, thus reducing costs and increasing profits for the company.
Most economists have come to see these informational weaknesses as being endemic to healthcare markets. Most consumers of healthcare have come to understand that insurance companies do not necessarily operate in the best interests of their customers. As a result, there is relatively widespread agreement that markets are not an efficient way of providing insurance for healthcare. This is why, for example, the Affordable Care act that was recently passed in the United States requires insurance companies to provide insurance for pre-existing conditions. Very few believe that such protection would be afforded if free markets were relied upon to provide insurance. Nevertheless, there continues to be some economists who advocate for free markets with respect to healthcare. Understanding the weaknesses in their arguments is quite instructive.
Economists advocating free markets in healthcare often make the argument that asymmetric information occurs in many markets, not just in the healthcare market. Why they see this as an argument justifying free markets in healthcare, rather than an argument that helps to explain why there are many markets that do not work well, is somewhat mystifying. One example that is often used by free market economists concerns the provision of automobile repair work. Most consumers do not understand how their cars work, while auto mechanics do, a clear case of asymmetric information. But suppose a consumer makes a mistake and has their car repaired by a less skilled auto mechanic. The cost of such a mistake is a few hundred, or perhaps a few thousand dollars. Now while it is undoubtedly true that this can be a significant burden, especially for low income families, it is ordinarily not a life shattering experience. How is this at all comparable to a case, for instance, where a person has a stroke and not only loses their employment, but has their entire life savings (assuming they had any) wiped out?
Another common example is illustrated by the case of legal representation. The law is a highly technical subject that requires extensive educational training. When one requires the services of a lawyer, one is again in a situation of asymmetric information since the lawyer knows the law, while the consumer does not. Yet, according to free market advocates, we permit markets to operate with respect to the provision of legal representation; we do not expect it to be provided for by the government. But is this really true? In most developed countries, everyone is entitled to legal representation, at least in most serious cases. And, it is widely understood that poor and middle income people often do not have sufficient resources to obtain legal representation, and hence that legal representation must be provided by the government. Indeed, one of the serious complaints about the American legal system is that it does not provide adequate resources for poor and middle income individuals, a fact that often results in inadequate representation and unjust legal outcomes.
But the case of inadequate legal representation provides insight for the case of health insurance as well. Even if the information obtained in healthcare markets is close to perfect, this would not mean that adequate insurance would be provided for all people. It is not sufficiently understood by most people that when economists talk about demand, they do not simply mean that a person desires something. For economists, before one can actually have a demand, one must not only want something, one must also have the ability to pay for it. The fact that a poor or middle income person wants medical insurance does not mean that they have a demand for it if they are unable to afford it. There is nothing in economic theory that guarantees that even a perfect market provides sufficient income for poor and middle income people to be able to afford health insurance.
The United States surely exemplifies this problem. Even though it is one of the richest countries in the world, there are millions of people who receive less than adequate medical attention because of an inability to pay for it. And, every year people find their life savings wiped out because their health insurance covers far less than their medical costs. Politicians and journalists alike were surprised recently by an announcement from the Trump administration that it would be supporting a legal case winding its way towards the Supreme Court, a case that if successful would bring about the end of the entire Affordable Care Act (Obamacare). While Obamacare certainly has many weaknesses, it has nevertheless enabled 23 million people to have health insurance, people who otherwise would not have had insurance coverage. While Democrats are campaigning on improvements to Obama care, Republicans have remained steadfast in their silence on healthcare issues, largely because they see this issue as one of the principal reasons why the Democrats were able to regain control of the House of Representatives in 2018. Trump’s announcement that the Republican Party would become the party of healthcare has dismayed many Republicans, mainly because they do not have a healthcare plan. And, they do not have a healthcare plan precisely because their free market ideology makes it impossible for them to discover a plan that will actually work.
And this is what presents a dilemma for Republicans. Increasingly large majorities have come to believe that medical services are something that people have a right to obtain, that it should not be the case that a person’s life is entirely upended because of an unexpected accident or illness. But even a perfect market will not respect such a right. And real world markets, in which information is asymmetrical and far from perfect, do not come close to satisfying such a right. This is why all developed countries, except the United States, provide significant support to ensure such a right for all of its citizens. While the form such support takes can vary, and will undoubtedly be an important issue among Democrats in the next presidential election, it is no longer possible for anyone to seriously maintain that a free market is capable of providing for such a right. But while most Republicans remain committed to the idea of a free market, many of them have come to the realization that there cannot be a free market solution to the health insurance crisis. The honest position for Republicans to take would be to admit that a right to healthcare cannot be satisfied without government support, but to then argue that such a right is not justified if one believes in free markets. But to do this is not politically viable, for the belief in the right to medical services is now a belief that is widely shared by the public. So, instead of being honest, Republicans wish to simply not address the issue of healthcare at all. And this is why Trump’s statements about Republicans becoming the party of healthcare is causing such consternation among leading Republicans. Expect to see much fuzziness and prevarication should healthcare become an important issue in the next election, as it most certainly will.