The Healthcare Industry: A Study in Crony Capitalism

The Healthcare Industry: A Study in Crony Capitalism

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Mitchell Stern, Fiscal Policy Contributor

There is a general perception in America that the healthcare system before the Affordable Care Act was a capitalist industry. Whether one was a leftist or a conservative, there was a view that before the Affordable Care Act, healthcare was market-based whereas after it was implemented it no longer was so. However, despite the belief of conservatives that the Affordable Care Act was a socialist program, the reality is the ACA was not really unprecedented, but rather an expansion of what was already the case in healthcare. Healthcare, both before and after the ACA was implemented, is a thoroughly crony capitalist industry and recognizing this fact is key to understanding how we can ensure healthcare is affordable and accessible.

One can conclude the nature of the healthcare industry just by looking at what the Affordable Care Act actually is. It is frequently praised by liberals as a noble program to ensure every American has access to healthcare, while conservatives deride the program as being a socialist government takeover of healthcare. However, both sides miss the mark on this program. The ACA is clearly not a free market policy, but neither is it a socialist one. In essence, the ACA is a corporatist policy, which compels major healthcare providers to intertwine themselves with the government in the name of ensuring affordable healthcare. However, this is counterintuitive: this policy has the consequence of stifling competition in healthcare, which allows for cartelization and the driving up of prices. Instead of helping make healthcare more affordable, it inadvertently acts to empower the corporations its proponents claimed it would reign in and increases costs for those in need of healthcare.  

Another good example of this kind of cronyism in action is looking at the impact of intellectual property laws on medicine. Increases in costs of life-saving drugs have occurred in the last year. Some of the more drastic increases have taken form in “pharma bro” with Martin Shkreli jacking up the price of Daraprim by over 5000% and the recent drastic increase in the price of epipens. However, these increases in cost are not the result of market forces. Nor are they simply the result of greed on the part of corporate executives--greed alone does not result in these sort of price increases. They reflect a broader issue and that is the laws governing intellectual property in this country. The laws in place currently allow for manufacturers of these drugs to easily acquire a monopoly on them, as these laws shield them from most competition. The lack of competition means they are able to drastically raise prices and, since healthcare is inelastic, demand does not drop just because of these price increases. These laws contribute to increases in the price of healthcare services, benefitting the companies that make these products while harming the consumer.

These developments are nothing new. Prior to the passage of the ACA, there was plenty of cronyism in the healthcare industry. For instance, as John McCain pointed out back in his 2008 presidential run, regulations were in place that prevented insurance companies from competing across state lines. These regulations are almost a parody of regulatory capture. Can anyone discern a reasonable purpose for these regulations for any reason other than preventing unwanted competition to insurance companies? And yet these laws are still in place benefitting a few wealthy companies at the expense of the many. There are also countless laws in place that restrict the ability of individuals who, while not being full-fledged doctors, are still capable of performing the same sort of work from doing so. These laws restrict people like nurse practitioners from providing care that they are qualified to provide and can provide at a lower cost to the consumer. This, of course, has the effect of increasing the costs for consumers. A bill by Senator Ed Hernandez (D - West Covina) to give more autonomy to nurse practitioners died in committee last year, and unfortunately, an opportunity to lower costs for those in need of care was missed. 

Figuring out how America’s healthcare system should work requires recognizing the pervasiveness of crony capitalism in the system. The reality is that more government involvement is a dubious solution at best. The bulk of increases in healthcare costs have been caused by the rampant crony capitalism caused by the government, which means looking to the government isn’t the best way to think about solving the problem. Indeed, the opposite solution of getting government out of the way seems more likely to solve the problem. Reforming intellectual property laws to make it harder for monopolies to develop on lifesaving drugs, repealing the Affordable Care Act, making it possible for insurance companies to compete across state lines and repealing laws restricting the ability of nurse practitioners’ abilities to provide medical care would be a better route to drive down healthcare costs. These reforms obviously would not come easily, but reforms like these would allow for lower costs for consumers.  

Follow this author on Twitter @mitchellastern

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