This article was originally published on GrasstopsUSA.com.

             Previously, I discussed the ways in which government intervention in and aid to higher education dramatically raises the cost of college for most Americans. Health care constitutes the second area in which Americans pay tremendous amounts of money and an ever rising fraction of their incomes. Once again, government is responsible – and the consequences are even more disastrous.

While it is still possible for ambitious and talented college students to receive merit scholarships at some schools and thereby offset the costs of their education, health care costs are not always avoidable. One can, of course, reduce the likelihood of having to seek health care by taking diligent care of one’s body. But even there, prophylactic medicine can help, and even the most conscientious among us can fall prey to bad luck or a rare disease. Thus, it is in everyone’s interest to know why health care costs are so astronomically high and what institutional forces are responsible.

Health care was not always one of the biggest expenses. In fact, prior to World War II, the best health care of the day was quite affordable to the average American. It is true that the available medical technology was also at a much less advanced level, but in a functioning free market, technological improvements are typically accompanied by lower costs, not higher ones. So the dramatic rise in health care costs after World War II has been despite, not because of, phenomenal technological progress.

Health care before World War II was affordable because it largely took place in a free-market framework of direct patient-physician transactions. The doctors were free to offer their services to patients at whatever rates the patients were willing to pay, and the patients most often paid for health care out of their own pockets. When individuals spend their own money on health care – just as when they spend their own money on groceries, furniture, or electronic equipment – they have an incentive to get the maximum possible value for what they pay. At the same time, a doctor – like a seller of groceries, furniture, or electronics – has a strong incentive to give the customer what the latter wants and needs. Without a third party paying the bills, there was no incentive either for patients to demand superfluous treatments nor for doctors to deny care to patients who requested it and were willing to pay for it.

But this changed during World War II, when the federal government froze prices and wages. As a result, companies that wanted to reward their employees or compensate them for rising costs in the standard of living had to do so indirectly; most chose to offer health insurance plans with low premiums.

 Indeed, offering insurance to employees is not a natural free-market employer behavior. After all, people typically do not purchase automobile insurance or homeowners’ insurance from their employers, and there is nothing about health insurance that makes it dramatically different from the other kinds. Only the peculiar circumstances surrounding government regulation and price controls during World War II made company health insurance a widespread practice. Unfortunately, this trend continued after the war, primarily because employees had gotten used to their new perks and were unwilling to renounce them – even in exchange for proportional outright wage increases.

Thus, the number of people using health insurance increased far beyond what would have been the free-market outcome. For a low, fixed, regular contribution, the employees of many firms could now get all the health care they desired – provided that they could convince the managers of their insurance plan to pay for it. This naturally led to greatly increased demand for health care, along with dramatic increases in price. The insured, of course, could afford the new higher prices, but the uninsured were left at a disadvantage. Thus, more companies were pressured to offer health insurance policies to their employees, contributing to yet further increases in the price of health care and leaving health care further out of reach of the uninsured.

As it tends to do, the federal government decided to “correct” the damage of its prior intervention through yet another, more disastrous intervention – the introduction of managed care and health maintenance organizations (HMOs) in the 1970s. Indeed, advocates of socialized healthcare who point to the inefficiency and patient mistreatment that occurs under HMOs as signs of “market failure” mysteriously overlook the fact that HMOs were a government creation – a response to an earlier perceived “market failure” which was also brought about by the government. HMOs offered many Americans lower insurance premiums; but along with that came restrictions on the kinds of health care patients could get, the physicians they could see, and the quality of care they would receive. Furthermore, HMOs exacerbated the disconnect between patients and physicians – plunging American healthcare into the current third-party-payment system. Of course, in any system, he who pays the money makes the rules; hence, many Americans today justifiably feel out of control of their own health care decisions and unable to receive the care they need and would have obtained on a free market.

In the meantime, the government did more to exacerbate the rising cost of healthcare by becoming a major health insurer itself. The government currently controls the market for health insurance for the elderly (through Medicare), the disabled and unemployed (through Medicaid), and even many working Americans (through massive subsidies to health care providers and insurers). Many analysts estimate that the government now pays for as much as 50% of Americans’ health care expenditures!

Government subsidies to health care have the same effect on costs incurred by patients that government aid to higher education has on costs incurred by college students. By subsidizing health care, the government raises its overall cost – first, to the unsubsidized and then to the subsidized as well – far above free-market levels. This is one reason why today those without health insurance are almost always bankrupted when they undergo any serious medical treatment – while those with insurance pay premiums that increase much faster than incomes. Moreover, Americans are steadily seeing their health care choices dwindle as increasing government control results in rationing of health care by the state. After all, he who pays the money makes the rules. Whenever the government pays the money for health care, it will be in charge of deciding who gets what – and in many cases, who lives and who dies.

The only solution to the current health care crisis is to get the government out and allow the market to restore the once-existing direct financial relationship between physicians and patients. Socializing health care will not reduce Americans’ costs; indeed, it will make all health care even more costly than it is now – funded, of course, by a gargantuan increase in taxes. Only removing the source of the upward-spiraling prices – government regulation and subsidization of health care – can place this vital service within most Americans’ reach.    

G. Stolyarov II is a science fiction novelist, independent philosophical essayist, poet, amateur mathematician, composer, contributor to Enter Stage Right, Le Quebecois Libre,  Rebirth of Reason, and the Ludwig von Mises Institute, Senior Writer for The Liberal Institute, weekly columnist for GrasstopsUSA.com, and Editor-in-Chief of The Rational Argumentator, a magazine championing the principles of reason, rights, and progress. Mr. Stolyarov also publishes his articles on Helium.com and Associated Content to assist the spread of rational ideas. His newest science fiction novel is Eden against the Colossus. His latest non-fiction treatise is A Rational Cosmology. His most recent play is Implied Consent. Mr. Stolyarov can be contacted at gennadystolyarovii@yahoo.com.

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