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Another Myth: Health Care’s Free Market

This article has a clear, factual approach to why the US health system is expensive from price gouging by providers, denial of coverage by insurers, onerous patents by drug companies, high salaries of doctors, and the lack of single-payer system.

It also questions the fundamental rhetoric behind the ‘free market:’ “When opponents of the Affordable Care Act argue for patients negotiating health-care prices they make as much sense as proposing that passengers haggle over pay with an airline pilot.”

Has it ever occurred to you to negotiate with the pilot of the plane you just boarded about her pay?

Assuming the pilot was willing to take bids for her services, would you have any idea of how to evaluate the worth of that particular pilot compared to anyone else who might be at the controls?

How long would it delay the flight while you and other passengers haggled over that fee?

And what of the risks in having a pilot focused on whether she negotiated good deals with her passengers, rather than getting everyone safely to their destination?

 posted this January 03 2014 on Newsweek
The Myth of Health Care’s Free Market

                Ever wonder why an appendectomy costs $8,000 in one place and $29,000 elsewhere?                                              REUTERS/Jim Bourg

While haggling with pilots is absurd, the idea that individual Americans should negotiate the prices each pays for health care is getting a lot of serious discussion right now.

The reason is the Affordable Care Act, a.k.a. Obamacare, which critics are desperate to find some way to stop.

For weeks, politicians and writers in the opinion pages of The Wall Street Journal and other critical outlets have declared Obamacare a failure with plenty of victims.

Those are silly assertions because the law only took effect this week, on the first day of 2014.

These critics are all outrage with no detailed alternatives, except the mantra that competition will magically bring down health-care costs.

The libertarians at the Cato Institute argue “we need market competition more than ever. Not the mealymouthed substitutes bandied about by most health policy wonks. We need something that none of us has ever seen – real competition in a free health-care market.”

No. We need something easier, simpler, and already proven to cut costs.

1. For starters, markets can push prices up as well as down.

The electricity market rules, initially written by Enron (at the urging of former Vice President Dick Cheney, who was pals with the company’s late founder), can raise prices to 90 percent of what an unfettered monopolist could charge, as I showed in my book Free Lunch, citing research by Professor Sarosh Talukdar of Carnegie-Mellon University that no one has challenged.

2. There’s the knowledge component of markets.

When one side knows and the other side is ignorant, you get price-gouging. Under current policies, prices for medical services are generally confidential. You could call hospitals and your health insurer to ask the cost of a standard medical procedure, say cataract or gall-bladder surgery. I tried that, and was told at every turn that prices were proprietary information – none of my business, until I got a bill.

More than 4 decades ago the Supreme Court defined a fair market as the “price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.

How many of us have “reasonable knowledge” of medical procedures, costs, or even the difference between a neurologist and a nephrologist?

Is an accident victim writhing in pain, life’s blood flowing out of his body, free of compulsion?

And how many of us know the assortment of facts needed to price an MRI, an angiogram or just a dozen stitches?

Or, for that matter, whether any of those procedures is the best alternative, or even necessary?

We don’t have a free market for health-care services.

If we did, we would see a narrow range of prices for the same service. After all, a Ford F-150 pickup with the same options costs about the same in Washington, West Virginia, or Wyoming.

Not so hospital and medical costs, a fact brought home in the 2012 Pricing Report of the International Federation of Health Plans, a trade association for health insurance companies.

While the average U.S. hospital stay is just under $4,300 per day, one in four patients are charged $1,514 or less and one in 20 pay $12,537 or more.

The total cost for an appendectomy ranges from $8,156 for a fourth of these procedures to more than $29,426 for the most expensive 5 percent. The average cost is $13,851.

Economists learn before they get their undergraduate degrees that such huge variations are signs of inefficient markets or even “faux markets“.

Such wide price variations may even indicate collusion among some providers to jack up prices, which is generally illegal.

Even if we ignore these huge price variations, the trade industry report illustrates another problem: American health-care costs are completely out of line with the rest of the modern world.

In France the average daily cost of a hospital stay is $853; in the U.S., it’s $4,287.

An MRI costs on average $335 in Britain and $363 in France, but $1,121 in the U.S.

Routine and normal childbirth costs, on average: $2,641 in Britain and $3,541 in France but in the U.S. averages $9,775. Caesarean section delivery runs $4,435 in Britain, $6,441 in France; $15,041 in the U.S.

This pattern holds for all 21 procedures examined in the report.

Excessive health-care costs drain both the public purse and private purses, make manufacturing noncompetitive and force employers to divert attention from running their firms to dealing with health insurers.

Our universal single-payer health-care plan for older Americans, Medicare, has lower costs and lower overhead than the system serving those under age 65.

If everyone in the U.S. was on Medicare, the savings would move the federal budget from deficit to surplus.

Of the 34 modern economies, the U.S. has by far the costliest health care system.

For each dollar per capita that the other 33 economies spend on health care the U.S. spends $2.64, my analysis of Organization for Economic Cooperation and Development data shows.

Canada, Germany, and France each spend about 11.5 percent of their economy on health care, compared to 17.6 percent in the U.S.

We could have eliminated the income tax in 2010 had we adopted the Canadian, German, or French health-care systems.

Look at your pay stub and how much goes to federal income taxes, then think about the unnecessary economic pain American health care causes you.


One important distinction between other modern countries and the United States is that they all provide universal health care, while 48 million Americans had no health insurance in 2012 and another 30 million had coverage for only part of the year.

Millions have coverage riddled with loopholes and exceptions, not paying for such vital services as an ambulance, even when the patient is unconscious.

And all private health insurers try to avoid paying claims in various ways, from requiring onerous paperwork to denying a procedure was necessary.

On top of all this are restraints on trade in American medicine, like limiting the supply of doctors and nurses. The American Medical Association has acknowledged that it worked to hold down the number of physicians to push up income for doctors.

Under state licensing rules, many of even the best-trained foreign doctors cannot practice here.

And there are the drug and other medical patents. Economist Dean Baker notes that in America, “we grant patents to providers and then let them charge pretty much whatever they want, while other countries also grant patents, but then limit the prices charged.

When a patent expires, American law allows the drug company to pay would-be makers of generic versions to not produce the drug. That keeps prices, and profits, high. It ought to be illegal.

Congress expressly forbids Medicare from negotiating wholesale price discounts for the Medicare Part D program initiated by President George W. Bush, so Americans pay far more for drugs available in other countries, which negotiate huge discounts.

Finally, not everything should be judged by price competition.

The love and affection of our families, the loyalty of our diplomats, and the integrity of jetliner makers and of the airlines that hire pilots are not matters for market economics.

We could experiment with the kind of price competition that the Cato Institute proposes. It might even work, though I doubt it. But why?

We already know that universal coverage with a single payer is much cheaper than what America spends now. And we know that the quality of U.S. health care is far from the best – 37th in the world, according to the World Health Organization, which ranks France No. 1.

When opponents of the Affordable Care Act argue for patients negotiating health-care prices they make as much sense as proposing that passengers haggle over pay with an airline pilot.

Open letter to President Obama (part 3) (November 7, 2008)


Mr. President Obama; this my last trilogy of open letters to you.  I have published yesterday a letter congratulating you and the people of the USA on their bold choice.  I listened to the joy of billions of people around the world and the “Hope and Change” of hundred of Nations that took your message at heart, simply because this world dearly wanted to hold on to hope and change after a catastrophic decade lead by the Christian conservatives or better known as the new Christian-Jews of this century.  I had apprehensions and I stated them as boldly as the US citizens voted you in.

And then I read the comments of Ralph Nader, the lead defender for the “consumers”, in his article “Hope and Change” about your character during your electoral campaigns for Senate and then for the Presidency, and Nader knows much better about your character and he followed closely your progress.  I should have doubts, Mr. President, about what you mean by “Hope and Change” and whether they coincide with what the little people in the USA and the world take for granted.

As for the citizens of the USA, if you succeed in activating the general health coverage promptly then you would have achieved the basic minimum: you cannot have the economy back on track if the little people are constantly worrying about their health and safety and their expectancy for a better life shot to smithereens in its infancy.

            I read that during your whole campaign you were very shy to recall your origins, from your father side a Black from Kenya and a Moslem to boot; your childhood upbringing in Indonesia, and your other non-white adoptive grandmothers.  You never visited a mosque while even George W. Bush had sense enough to visit main mosques at crucial moments when the Moslems in the USA were very apprehensive. You were very shy indeed to mentioning the little people and the minorities during the campaign and then, miracle of miracle, you remembered them at your “victory” speech without much conviction or intentions at investing much time to their plight later on.  Mr. President, your are the adoptive son of many communities around the world and lately academia and political circles; you are literarily the President of the world.   Very rare are the hard working immigrants or minorities or color tainted who denigrate and disdain their origins and their communities that were the sources of their potentials and millions of hard to get-by communities need an adoptive supporter.

            Ralph Nader reminded us that the crux of your program is to relieve those earning less than $250,000 from taxes, as if the cost of living has increased after the downturn of the economy and this period of deflation! 

Nader reminded us how you fawned to the AIPAC Israeli hard line lobby when over 60% of the Israelis want the peace process to progress at a higher speed.  Now that the Palestinians and Israelis are converging toward peace you want to take the reverse direction, why?  Why when many Israeli political parties are communicating directly with the democratically elected Palestinian Hamas you stated that you would not?  Mr. President, we sincerely hope that another miracle in diplomatic change would materialize outside your campaign lack of character behavior.

            I read today that your first two choices for important offices went to hard line Zionists. You will be lending an ear each day and very frequently to your chief-of–staff Emanuel; your special envoy to the Middle–East is another hard line Zionist.  Evidently, peace and stability in this region is not in the offing from the start!

            Mr. President, the talking heads on financial problems have been focusing on the “how” mechanism for the current crisis.  Would you order a full fledge investigation to unravel the “what, who, and why” this crisis came to be? This financial crisis is not the first and will not be the last so may we get a report written in plain language for the benefit of all?

            Mr. President, there are two images that the people cannot forgive their leaders and representatives. First, the image that their leader is training the people to cower when the tough gets going in the reform challenges. Second, the image that their leader is mainly shuffling winds instead of putting bread on their tables.  Before you deliver a speech, please make sure to start expounding on your decisions and actions that delivered bread and butter; then, and only then you may soar high on abstract notions and no harm would be done!




June 2023

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