Another Reason Why Third Party Payer Health Care Must End

With the demise of the GOP “repeal and replace” effort, I thought it would be a good time to (finally) post something on this blog and chime in on the health care dilemma.

Free market economists and commentators have long held that the third party payment system of our health care market is the primary reason health care is prohibitively expensive for many Americans. Procedures that are paid for out of pocket, for example, have become cheaper over time. Abortion, for example, is not covered by insurance. It is paid for directly by the consumer. Prices have stayed the same over time, and in some cases has fallen. Cosmetic surgeries and elective lazer eye surgeries have also become cheaper over time.

The typical explanation for this is that, when someone else is doing the paying — in this case, a private insurance company or a government agency — there is no incentive to shop around for a better price. When someone else is paying, it is easiest to just opt for convenience, or simply go for the best care possible. There is no balancing act between cost and quality; there is, in essence, no true competition because prices are not transparent.

An interesting study on taxi drivers could potentially have some influence on the health care debate. An interesting new study sent researchers on 400 different taxi rides in Athens, Greece. The passenger would always tell the driver that they were unfamiliar with the city, but half the time, they would tell the driver they were the ones paying. The other half told the drivers that it was their bosses that were paying. For the second group, they were charged 7 percent more than their self-paying counterparts. Why? Because the drivers knew they could overcharge their business account without the passenger noticing, all because prices are not transparent when a third party is paying for the expense.

The taxicab market is similar to the health care market in that, in situations where a third party picks up the tab, prices are higher. The GOP’s replace plan was destined to lose, even if it passed, in the long term because it did little to tackle the actual problem with the health care system. It catered towards moderates who won’t vote to repeal the ACA anyway. The GOP needs to begin advocating for market-based solutions that drastically reduce the amount third party payers pay for health care, and they need to keep pushing for that until it becomes a mainstream idea. Until they do that, the health care system will continue to be as broken as ever.

As for political advice (and not just policy), it might be best for them to just let Obamacare fail, as Trump suggested (before again pushing for a repeal and replace reform), because Obamacare failing might be the best shot the GOP has to implement real free market reforms. Hopefully, the moderate would support such a plan if the system they have been shielding from reform ceases to exist under its own weight.

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