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Government’s Role in Health Care Only Creates and Aggravates Problems: To Solve the Problems, Eliminate the Role

Hans-Hermann Hoppe

Austrian School economist and libertarian/anarcho-capitalist philosopher; Professor Emeritus of Economics, University of Nevada-Las Vegas; Distinguished Fellow, Ludwig von Mises Institute; Founder and President, The Property and Freedom Society; former Editor, Journal of Libertarian Studies.

Timely truths expressed during the Hillarycare episode in the history of statist arrogance.  Intoler-ably inconvenient truths for champions of affordable health insurance who want another welfare benefit financed by taxation and central bank inflation and the social control it brings.  From The Free Market, April 1993.  I have replaced Dr. Hoppe's original title (“A Four-Step Health-Care Solution”).

Anthony Flood

Posted September 9, 2009

while Obama's “make or break” pitch

for (even more) intrusive government

commandeered an hour of primetime television.


It’s true that the U.S. health care system is a mess, but this demonstrates not market but government failure.  To cure the problem requires not different or more government regulations and bureaucracies, as self-serving politicians want us to believe, but the elimination of all existing government controls.

It’s time to get serious about health care reform.  Tax credits, vouchers, and privatization will go a long way toward decentralizing the system and removing unnecessary burdens from business.  But four additional steps must also be taken:

1.   Eliminate all licensing requirements for medical schools, hospitals, pharmacies, and medical doctors and other health care personnel.  

Their supply would almost instantly in-crease, prices would fall, and a greater var-iety of health care services would appear on the market.  

Competing voluntary accreditation agencies would take the place of compulsory government licensing—if health care providers believe that such accre-ditation would enhance their own repu-tation, and that their consumers care about reputation, and are willing to pay for it. 

Because consumers would no longer be duped into believing that there is such a thing as a “national standard” of health care, they will increase their search costs and make more discriminating health care choices.

2.   Eliminate all government restrictions on the production and sale of pharmaceutical products and medical devices.  

This means no more Food and Drug Ad-ministration, which presently hinders inno-vation and increases costs.  Costs and prices would fall, and a wider variety of better products would reach the market sooner.  

The market would force consumers to act in accordance with their own—rather than the government’s—risk assessment. And competing drug and device manufac-turers and sellers, to safeguard against product liability suits as much as to attract customers, would provide increasingly bet-ter product descriptions and guarantees.

3.   Deregulate the health insurance industry.  

Private enterprise can offer insurance against events over whose outcome the in-sured possesses no control.  One cannot in-sure oneself against suicide or bankruptcy, for example, because it is in one’s own hands to bring these events about.  Be-cause a person’s health, or lack of it, lies increasingly within his own control, many, if not most health risks, are actually unin-surable.  

“Insurance” against risks whose likeli-hood an individual can systematically influ-ence falls within that person’s own respon-sibility.  All insurance, moreover, involves the pooling of individual risks.  It implies that insurers pay more to some and less to others.  But no one knows in advance, and with certainty, who the “winners” and “losers” will be.  “Winners” and “losers” are distributed randomly, and the resulting income redistribution is unsystematic.  If “winners” or “losers” could be systema-tically predicted, “losers” would not want to pool their risk with “winners,” but with other “losers,” because this would lower their insurance costs.  I would not want to pool my personal accident risks with those of professional football players, for in-stance, but exclusively with those of peo-ple in circumstances similar to my own, at lower costs. 

Because of legal restrictions on the health insurers’ right of refusal—to exclude any individual risk as uninsurable—the pre-sent health-insurance system is only partly concerned with insurance.  The industry cannot discriminate freely among different groups’ risks.  As a result, health insurers cover a multitude of uninsurable risks, alongside, and pooled with, genuine insur-ance risks.  They do not discriminate a-mong various groups of people which pose significantly different insurance risks.  The industry thus runs a system of income re-distribution—benefiting irresponsible actors and high-risk groups at the expense of re-sponsible individuals and low risk groups. Accordingly the industry’s prices are high and ballooning. 

To deregulate the industry means to re-store it to unrestricted freedom of contract: to allow a health insurer to offer any con-tract whatsoever, to include or exclude any risk, and to discriminate among any groups of individuals. Uninsurable risks would lose coverage, the variety of insurance policies for the remaining coverage would increase, and price differentials would reflect genuine insurance risks.  On average, prices would drastically fall.   And the reform would restore individual responsibility in health care.

4.   Eliminate all subsidies to the sick or unhealthy.

 Subsidies create more of whatever is being subsidized. Subsidies for the ill and diseased breed illness and disease, and promote carelessness, indigence, and de-pendency.  If we eliminate them, we would strengthen the will to live healthy lives and to work for a living.  In the first instance, that means abolishing Medicare and Medi-caid.

Only these four steps, although drastic, will re-store a fully free market in medical provision.  Until they are adopted, the industry will have serious problems, and so will we, its consumers.