On American Healthcare
Part 3 of 6: Conservative Reform Proposals
In this article, I will focus specifically on the proposals put forth by libertarian conservatives — like F. A. Hayek and Milton Friedman — and by traditional conservatives — such as John Médaille and various writers at The American Conservative and The Imaginative Conservative. Outside of the libertarian (neoliberal) conservative and traditional conservative traditions, few conservatives have said anything constructive on the topic of healthcare.
Conservative and libertarian proposals for healthcare reform generally hinge on harking back to something more like what we had before government got involved in the first place. The conservative asks the following questions: What if we could revive the old lodge practice model? What if we could recreate a free market for healthcare? What if we could remove or scale back the regulations that have contributed to making healthcare so expensive? Most libertarian and conservative proposals have been multifaceted and involve the following key elements: (1) changing the way healthcare is provided at the level of primary care physicians, (2) reforming licensing and patent laws, and (3) having government provide universal catastrophic insurance.
Libertarian and traditional conservative theorists recognize that there were problems with the system we had before, so they do not see a simple return to that system as a viable option. For one thing, people who did not belong to a fraternal organization usually couldn’t find affordable healthcare. Furthermore, the lodge practice was great for ordinary doctors visits but didn’t necessarily help much with medical emergencies. So, conservative and libertarian proposals have not been about a plain return to the “good old days,” but have rather taken a more nuanced and thought-out approach.
Transition from Employer-Financed Insurance to Direct Primary Care
Libertarians and traditional conservatives see concierge medicine (aka retainer medicine) and direct primary care as great options. In these approaches, patients pay a monthly or annual fee rather than paying per doctor visit. This is sort of the modern take on the lodge practice or company doctor model, only you don’t have to be a member of a fraternal society to sign up. This model makes doctors visits much more affordable. Plus, it simplifies healthcare and takes out the middleman of the insurance company.
“Employer financing of medical care has caused the term insurance to acquire a rather different meaning in medicine than in most other contexts. We generally rely on insurance to protect us against events that are highly unlikely to occur but that involve large losses if they do occur — major catastrophes, not minor, regularly recurring expenses. We insure our houses against loss from fire, not against the cost of having to cut the lawn. We insure our cars against liability to others or major damage, not against having to pay for gasoline. Yet in medicine, it has become common to rely on insurance to pay for regular medical examinations and often for prescriptions….
“If the tax exemption for employer-provided medical care and Medicare and Medicaid had never been enacted, the insurance market for medical care would probably have developed as other insurance markets have. The typical form of medical insurance would have been catastrophic insurance (i.e., insurance with a very high deductible)….
“The high cost and inequitable character of our medical care system are the direct result of our steady movement toward reliance on third-party payment. A cure requires reversing course, reprivatizing medical care by eliminating most third-party payment, and restoring the role of insurance to providing protection against major medical catastrophes….
“The ideal way to do that would be to reverse past actions: repeal the tax exemption of employer-provided medical care; terminate Medicare and Medicaid; deregulate most insurance; and restrict the role of the government, preferably state and local rather than federal, to financing care for the hard cases.” — Milton Friedman, How to Cure Health Care
Many conservatives and libertarians believe that we need to transition away from employer-financed health insurance and move towards direct primary care, where your payments that would go towards health insurance go towards membership dues at a direct primary care physician’s office. The tax-exemptions offered for employer-financed health insurance ought to be taken away and money spent on direct primary care ought to be made tax-exempt. Also, we ought to give significant tax incentives to doctor’s offices that switch over to a direct primary care model. Taxes ought to be reduced for physicians that switch to a direct primary care model and increased for primary care physicians who do not transition to direct primary care or concierge medicine.
Private insurance companies operate based off of the profit motive. They are driven to maximize profits. In most industries, the profit motive and competition lead to companies providing the best quality product at the lowest possible price, but health insurance is one area where markets routinely fail. Insurance is supposed to reduce the cost of healthcare, but it doesn’t. The insurance company has more money than an individual does and therefore can afford to pay more. Furthermore, the individual no longer has an incentive to shop around for the best price since the insurance company will end up paying the bulk of the cost. Thus, our health insurance system actually drives up the cost of healthcare.
Insurance generally works better when it is linked to the provision of a related service. Competition tends to naturally regulate quality and price of services. In a free market, a person selling a service has an incentive to provide the best quality service they can at the lowest possible price, otherwise their customers will leave them and become a patron of one of their competitors. Direct primary care combines the insurance element of affordable monthly or yearly payments with the actual provision of primary care, this creates the best of both worlds, with mutual insurance lowering the price by spreading the cost out over a larger group of individuals and with competition forcing prices down. And this is not just theoretical speculation. Direct primary care is observably cheaper and more efficient than the alternatives. Direct primary care replaces the need for health insurance for ordinary doctors visits.
Licensing Reform & Patent Reform
Libertarians have argued that the American Medical Association artificially limits the number of doctors in order to ensure that doctors make more money. Additionally, they have argued that patents restrict free competition and allow for monopoly pricing, which makes healthcare more expensive. Yet, more conservative thinkers on the right have argued that the existing system is not all bad. We don’t need to overturn the whole system, just fix the parts that don’t work the way they ought to. John Médaille, for instance, argues that we could reform existing licensing and patent laws in order to reduce costs and improve healthcare overall.
“However, there can be no question that a continuing stream of innovations have been provided under the patent regime, and medical licenses have guaranteed at least a minimum level of training for medical personnel. Is there any way to reform these systems and yet maintain their advantages?…
“Milton Friedman is undoubtedly right that medical licenses restrict the supply of medical services, and under the current system, this will not change. However, the current system may be an over-reaction to the lax standards of the 19th century. And any group that sets its own standards is likely to set them too high in order to limit supply and keep their income high.
“I believe that we can drastically increase the supply of medical services — and therefore decrease the price — by providing a range of licenses: midwives, nurse practitioners, medical practitioners, medical doctors, and more advanced doctors of medicine. First-line care could easily be provided by NP’s and midwives working in their own neighborhood clinics, perhaps under the general supervision of a medical practitioner or medical doctor. Another area where this applies is in orthodontics. There is no reason why anybody needs a degree in dentistry to install orthodontics; the work could be as safely performed by techs, and at a far lower cost. It is only the legal monopoly that dentists have on the business which keeps the prices so high, thereby denying this useful and normally affordable service to many poor people, while charging the rest of us unreasonable prices.
“A series of licenses would provide another benefit. As things stand now, a student will spend most of his youth and all of his fortune in getting an MD, and will still be left with staggering debts. Yet, he will have a degree in a profession he has not actually practiced. A series of licenses will provide the student with a career path by which he may alternate education with practice. He will have an income stream with which to finance his education, but he will also have practical experience to take to each successive layer of education. This will produce doctors who are more practiced.” — John Médaille, Distributism And The Healthcare System
Martin Feldstein, Ronald Reagan’s chief economic advisor, also argued that increased use of paramedical personnel and nurses for more routine treatment and diagnostics might be a good way to reduce healthcare costs. However, it will be difficult to reduce healthcare costs without addressing the problems posed by patents on pharmaceuticals.
A patent grants a pharmaceutical company a monopoly on the medicine it produces. This monopoly privilege allows them to charge monopoly prices. The most blatant example of such monopoly pricing in pharmaceuticals is when Martin Shkreli acquired the license for the drug Daraprim and raised the price from $13.50 per pill to $750 per pill. Médaille has argued that we ought to replace patents with manufacturing licenses, with the licensing fees going to the firm that produced the pharmaceutical in question. Furthermore, he suggests that if the patent system is not reformed then price controls in the pharmaceutical industry are necessary in order to combat monopoly pricing.
“Contrary to received wisdom, patents are not necessary for research in any field. Even today in the medical field, 40% of research funds come from the government or from non-profit organizations. Hence, even a sudden end to the patent system would not end medical research. What research does require is a reliable funding source, which can come more efficiently from manufacturing licenses than from patents. That is, when a firm develops a new medicine they get the right to license that product to any number of production firms. The licenses should be for a longer term than the current patents, which will provide R&D firms with a much more secure revenue stream from which to fund further research….
“If, however, the pharmaceutical firms insist on maintaining their current monopolies, then the only way to control costs is to have government set the prices. This is anathema to a free-market system. However, monopolies are the antithesis of the free market. And the monopoly cannot have it both ways: they cannot insist that the government enforce their monopoly rights while demanding that the government take no role in pricing. If they wish the government to withdraw from pricing, then the government should cheerfully agree, but it should also withdraw from enforcing their patents. This system of price controls already obtains in countries with a ‘single-payer’ system. The government negotiates the price of the drugs with the manufacturers. This is why American drugs are usually cheaper in other countries than they are in America. The American taxpayer bears all the burdens of research, but gets none of the price benefits.” — John Médaille, Distributism And The Healthcare System
Others have proposed alternative ways of reforming patent laws. Patent laws are supposed to encourage innovation, but corporations are now exploiting patents in order to prevent innovation from taking place. Intellectual property law is now preventing innovation rather than encouraging it.
“This isn’t the capitalism of competitive free markets. This is rentier capitalism, where the size of corporations and the power of governments are utilized to extract profits without innovating. We see this kind of behavior in drug companies all the time. If someone invents something new and innovative, and they sell the idea to a big pharmaceutical company, that company may lock away the patent and use it to prevent anyone else from using the new idea. It can then continue business as-is without productive investments to improve itself. The result is a lack of innovation — the exact opposite intent of patents.” — Scott Santens, The Zombification of Intellectual Property and The Tool That Could Finally Reform It
Furthermore, patents and copyrights are being allowed to extend indefinitely, preventing anything from ever entering into the public domain. Scientific papers are even being held out of the public domain, placed behind paywalls that prevent scientific progress. Scott Santens argues, “Copyrights being as long as they are serve to actively restrict our total knowledge base.”(ibid.) Santens proposes a “fee and dividend” approach to intellectual property reform. If a company wants to hold a patent that gives them monopoly privileges, they ought to have to pay for that privilege and the revenue generated ought to go back to the people as a dividend.
“Because we want a large public domain upon which we can all use to build new ideas, and the granting of intellectual property rights is something we grant collectively, I propose we charge an annually increasing fee to those wanting IP protection, where the revenue goes immediately to every individual as their share of what’s being withheld from the public domain. Call it an IP fee and dividend (or IP fee and rebate).
“Intellectual property dividends could work like a carbon fee and dividend, and for the same reasoning. By introducing an annually increasing price for IP protection, it would eventually become too expensive for companies like Disney to continue excluding IP from the public domain. But at the same time, the longer something is kept from the public domain, the public itself would be increasingly enriched, so either way, the public wins.
“To illustrate, let’s take Mickey Mouse as an example. Imagine if Walt Disney had been granted 15 years of protection on Mickey Mouse for an initial fee of $10. At the end of 15 years, to renew protection for another year, it could cost say $20. The next year it would be $40, the next year $80. These are numbers that most people can afford, especially Disney. But the increase is exponential.
“At such a rate, in 1966, on the 38th year of copyright protection (which remember has been calculated as the uppermost boundary of an ideal length of protection for maximum public benefit) in the year of his death, Walt Disney would have needed to pay $167 million to maintain exclusive rights to Mickey Mouse. Had The Walt Disney Company wished to then continue maintaining exclusive rights after Walt’s death, they could have done so, but it would have been increasingly expensive. In 1970, the fee would have surpassed $2 billion. In 1980, it would have surpassed $2 trillion.
“In 1980, with a population of the US being 226 million people, each person’s share of the fee Disney paid that year to prevent everyone from freely using Mickey Mouse would have been around $12,000. That’s a basic income, and it would have been paid for entirely by Disney, and not by any taxes whatsoever.
“Realistically of course, Disney could never pay $2 trillion, but that’s exactly the point. Every year beyond 38 years of protection should be prohibitively expensive to the point everyone looking to maintain exclusive rights would need to eventually conclude it’s no longer worth it to maintain exclusive rights, at which point the IP would become available to all. But for every year they do consider it’s still worth it, the public being prevented from a larger public domain would still benefit in the form of a cash dividend. Win-win!”— Scott Santens, The Zombification of Intellectual Property and The Tool That Could Finally Reform It
If we apply this “fee and dividend” approach to intellectual property to patents as well, it means that pharmaceutical companies won’t be able to afford to maintain monopolies in the long run. They will enjoy their monopoly privilege for a while, but it will benefit the people as a whole. Eventually, the maintenance of their monopoly privilege will become too expensive and they will be forced to give up their patent and the market for their product will be open to competition.
Such patent reform would greatly reduce the cost of pharmaceuticals and of high tech diagnostic and treatment options. With such patent reforms, you wouldn’t need insurance in order to be able to afford prescription drugs.
Universal Catastrophic Insurance: Government as Insurer of Last Resort
Conservative libertarians like F. A. Hayek and Milton Friedman have argued that accident and severe illness are genuinely insurable risks that could reasonably be expected to be provided for on a social insurance basis. If we move to direct primary care as the normal mode of healthcare provision and reform patent laws to make drugs more affordable, then you no longer need health insurance for doctor visits or for purchasing prescription drugs. Those things would be much more affordable under the new system. With these things taken care of, there would still be a role for insurance but it would be a much smaller role. Insurance would be needed for cases of emergencies. If you got in a car accident and needed to visit the emergency room or if you were diagnosed with cancer and needed more expensive treatment from a specialist, then health insurance would still be needed. Insurance works best when resources are pooled together. The more people on the same plan or using the same insurance, the cheaper and more efficient the provision of insurance will be. Thus, these two leading libertarian economists concluded that government ought to provide universal catastrophic insurance for those cases where the market falls short.
“Nor is there any reason why the state should not assist the individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision. Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance — where, in short, we deal with genuinely insurable risks — the case for the state’s helping to organize a comprehensive system of social insurance is very strong.” — F. A. Hayek, The Road to Serfdom
“A more radical reform would, first, end both Medicare and Medicaid, at least for new entrants, and replace them by providing every family in the United States with catastrophic insurance (i.e., a major medical policy with a high deductible). Second, it would end tax exemption of employer-provided medical care. And, third, it would remove the restrictive regulations that are now imposed on medical insurance — hard to justify with universal catastrophic insurance.
“This reform would solve the problem of the currently medically uninsured, eliminate most of the bureaucratic structure, free medical practitioners from an increasingly heavy burden of paperwork and regulation, and lead many employers and employees to convert employer-provided medical care into a higher cash wage. The taxpayer would save money because total government costs would plummet. The family would be relieved of one of its major concerns — the possibility of being impoverished by a major medical catastrophe — and most could readily finance the remaining medical costs.” — Milton Friedman, How to Cure Health Care
This approach would be something like the single-payer Medicare-for-All proposal put forth by progressive Democrats, but it would be far cheaper because it would not have to cover nearly as much.
“Universal catastrophic coverage is not meant to cover every healthcare need of every citizen. Instead, UCC would offer protection from those relatively rare but ruinous healthcare expenses that are truly unaffordable….
“Here is how UCC might work, as outlined in National Affairs by Kip Hagopian and Dana Goldman. Their version of the policy would scale each family’s deductible according to household income. The exact parameters would be subject to negotiation, but to use some simplified numbers, the deductible might be set equal to 10 percent of the amount by which a household’s income exceeds the Medicaid eligibility level, now about $40,000 for a family of four. Under that formula, a middle-class family earning $85,000 a year would face a deductible of $4,500 per family member, perhaps capped at twice that amount for households of more than two people. Following the same formula, the deductible for a household with $1 million of income would be $96,000.
“The cost of the catastrophic policy would be covered by the government, either directly or through a refundable tax credit. The policies themselves could, as in the Swiss model, be offered by private insurers, subject to clear standards for pricing and coverage. Alternatively, they could take the form of a public option, for example, the right to buy into a high-deductible version of Medicare….
“Although UCC itself would be a federal program, the supplemental insurance market would continue to be regulated by the states to meet their particular needs.
“Very likely, many middle-class families would forego supplemental insurance and cover all of their routine health care costs from their regular household budgets, the way they now pay for repairs to their homes or cars. Doing so would be easier still if they took advantage of tax-deductible health savings accounts — a mechanism that is already on the books, and could be expanded as part of reform legislation.” — Ed Dolan, How the GOP Can Win on Healthcare
This idea of universal catastrophic insurance was promoted by Martin Feldstein, Ronald Reagan’s chief economic advisor, who argued that it would result in a transition to a healthcare system in which “most physician and hospital care would be paid for directly by the patient.” Because of this, universal catastrophic insurance is far more fiscally conservative than ObamaCare, in spite of it effectively guaranteeing more and better coverage. As Martin Feldstein observed, “For families that exceed their expense limit, [it] would be equivalent to comprehensive insurance,” which is to say that this conservative plan could effectively provide universal healthcare.
“Fiscal conservatives would, quite properly, want to know whether UCC would be affordable not only to families, but to the federal budget. As it turns out, the numbers don’t look all that bad. Because UCC leaves responsibility for routine care with individual families, in line with their ability to pay, it would be far less expensive than a system that offered first-dollar coverage to everyone. Hagopian and Goldman estimate that their version of UCC would cost less than half as much as the projected costs of the ACA.
“The impact on the federal budget would be further moderated if the tax deduction for employer-sponsored insurance (ESI) were phased out as UCC came online. Tax expenditures for ESI currently cost the budget an estimated $235 billion per year, an amount that rises to some $250 billion if related deductions for the self-employed are included.
“Healthcare policy aside, many conservatives object to employer-sponsored insurance in part because of the disproportionately large administrative burdens it imposes on small businesses, which, unlike large corporations, cannot afford to self-insure. Furthermore, ESI undermines the flexibility of the labor market through the phenomenon of job lock. Workers who have jobs with good insurance fear to leave them for jobs elsewhere that would make better use of their skills but might not have the same health benefits. Quitting a job with ESI to work as an independent contractor or start a small business of one’s own is even riskier.” — Ed Dolan, How the GOP Can Win on Healthcare
Critics on the left tend to object to UCC because it is not “progressive enough.” However, most versions of the plan include a low-income threshold, below which any and all medical expenses would be covered in full. This effectively guarantees universal coverage. Furthermore, UCC plans usually include deductibles and copays, but the amounts and rates vary based on the individual’s ability to pay. Overall, this makes the plan actually fairly progressive in terms of cost to individuals relative to benefits when you take taxes and transfers together into consideration. The poor would pay basically nothing in and receive free healthcare, the middle class would pay some in and get benefits too, but millionaires and billionaires would generally pay a lot in but not receive any benefits at all. This is far more progressive in terms of taxes and transfers than Bernie Sanders’ Medicare for All plan, where 20% of the program’s cost is funded by employee premiums and a billionaire would receive just as much in benefits as the poorest person in America. In terms of overall analysis of taxes and transfers, Bernie Sanders’ plan looks quite regressive in comparison. (Cf. Ed Dolan, Could We Afford Universal Catastrophic Health Coverage?)
Recap of Conservative and Libertarian Reform Proposals
Conservative and libertarian reform proposals generally involve the following key points: (1) transitioning away from employer-sponsored insurance and towards direct primary care in order to reduce healthcare costs, (2) reforming patent laws in order to reduce costs of prescriptions and high tech diagnostic and treatment options, and (3) government provision of universal catastrophic insurance to protect people from falling through the cracks as a result of genuinely insurable risks.
In addition to these key elements, the center-right has also proposed other significant reforms that they believe would help improve the healthcare system in America. One such proposal is that patients with terminal illness ought to be allowed to try experimental and unapproved treatments without restriction:
“Institutions such as the Food and Drug Administration also limit cost-effective access to quality care. The approval processes for new drugs and technology is lengthy and expensive. Because of this, the process favors the biggest companies with the most lawyers. There are many stories of patients dying while waiting for approval of a new device or medicine. Instead, Libertarians call for free-market testing which will be inherently incentivized to be efficient and fair in their processes. Additionally, Libertarians believe in the ‘Right to Try’, especially in situations with a terminal diagnosis. The government must not be permitted to deny patients access to new medical advances.” — Libertarian National Committee, Healthcare
This would give more options for patients with no other hope. Additionally, it would make it easier to do legal testing on humans under certain conditions, making it much easier to do the necessary research to develop and get approval for new treatment options.
In the absence of wider reforms, libertarians and conservatives have argued that restrictions on health insurance ought to be lifted: “People should be free to purchase health insurance across state lines.”(2016 Libertarian Party Platform) This would allow for more competition between insurance companies and could potentially reduce insurance costs.
