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Does the U.S. have ‘free market’ healthcare?

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How to make healthcare more competitive

Americans have been debating healthcare for decades. As costs have continued to skyrocket for individuals, employers and the federal government, consumer frustration has also risen.

The U.S. healthcare system is often characterized by opaque pricing, varying levels of quality, and inefficiencies that make getting care confusing for patients and providers alike.

Politically, the debate usually boils down to which path would improve access to care and lower costs – a more centrally-planned healthcare system, or a more free-market approach.

The U.S. healthcare system today isn’t really a free market, but there are some pockets that operate more like one than others. Below, we’ll look at what keeps America’s healthcare system from being a true “free market,” an example of a pocket in healthcare where a free market does operate, and finally, some ideas that could make the country’s healthcare system more competitive.

Why isn’t there a free healthcare market in the U.S.?

Buying healthcare isn’t like buying other goods or services, because healthcare is highly regulated, and consumers are often not the ones paying for their care. Rather, third-party payers — like the government or insurance companies — operate as “central planners,” and have a lot of say over what care occurs, where it happens, and what is paid for.

This keeps the system from operating like other markets, where consumers buy goods and services more directly from the person or organization that sells it.

Here’s an example. If you need surgery, you will typically look for an in-network provider that  takes your insurance, and you usually won’t know what the cost of the surgery will be until after it happens. Afterwards, you pay a portion of the costs, and your insurer pays the rest.

Compare that to the process of buying almost anything else — groceries or electronics, for example.

That said, there are a few areas where medical services are actually provided in a more free market setting. Looking at an example can help illustrate the difference between our current system and a more “free market” healthcare system.

LASIK eye surgery

Most insurance companies don’t cover LASIK eye surgery. Given that the procedure involves cutting eyeballs, it is most assuredly well within the realm of healthcare.

Has LASIK become more expensive over the years like the rest of healthcare? No. Laser eye surgery is one of the few medical procedures that has actually decreased in price while improving in quality. After the procedure was FDA-approved in the 1990s, demand took off. As competition among providers heated up to meet that demand, prices started to fall. At the same time prices were falling, quality improved dramatically.

Arguably, competition was able to flourish because the process took place outside of the insurance landscape. Because LASIK is marketed directly to consumers, and consumers are typically price-sensitive, the costs associated with the procedure are transparent and disclosed upfront, making it a more competitive market.

Should the U.S. add more free market principles to the healthcare system? Proponents argue that the free market would improve competition and lower prices in other parts of healthcare just as it has with LASIK.

Here are some free market ideas that have been suggested for the U.S. healthcare system.

Eliminating Certificate of Need laws

Many states have “CON” laws that regulate where new healthcare facilities can be built. Some people think that this reduces competition, and allowing more hospitals and ERs to be built would lower prices.

Health Savings Accounts

HSAs allow consumers with high-deductible health plans to pay for medical expenses tax-free. Typically, the consumer’s insurance doesn’t start paying for care until the consumer reaches their deductible. Proponents of expanding HSAs argue this makes consumers more price-sensitive, and that this makes buying healthcare more like buying other goods and services.

Direct contracting

In recent years, some large employers have actually stopped working with insurance companies to provide their employees with health benefits. Instead, they contract directly with hospitals.

As politicians and candidates debate healthcare during this year’s midterm elections, some of these ideas may gain traction.

This column was originally published in the October 8th issue of The Tennessean.

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