Universal Health Care Benefits Everyone, Eliminates Free Riders

Positive rights should not just be viewed through the lens of entitlement. Positive rights are similar to public goods in that they provide positive benefits to society as a whole (in economics, this phenomenon is called a positive externality). This is especially true with health care. If everyone has access to good health care, the chance of serious epidemic outbreaks declines. More people are thus eligible to work. American productivity increases because workers require fewer sick days. Healthier people spend more money on other things aside from health care, stimulating the economy. (For good explanations on health care as a public good, click here and here.)

In its proposal for a health insurance mandate, the ultra-conservative Heritage Foundation posed the following hypothetical, illustrating the implicit right to life-saving care in a medical emergency:

If a man is struck down by a heart attack in the street, Americans will care for him whether or not he has insurance. If we find that he has spent his money on other things rather than insurance, we may be angry but we will not deny him services — even if that means more prudent citizens end up paying the tab. A mandate on individuals recognizes this implicit contract.

As the proposal noted, we already pay for health care for “free riders.” Because most of American society consists of people who feel a moral obligation to help one another, we will always try to save the life of someone having a heart attack by allowing them to use emergency room services, regardless of their ability to pay. In 1986, President Ronald Reagan signed the Emergency Medical Treatment and Active Labor Act, which required hospitals to care for anyone needing emergency treatment, regardless of legal status or ability to pay. We pay for uncompensated emergency room care both via increased taxes and health insurance premiums. Some estimates put the additional insurance premium cost per household at around $1,000 per annum. Universal health care eliminates the free rider problem with emergency care.

29 Replies to “Universal Health Care Benefits Everyone, Eliminates Free Riders”

    1. Thanks for reading and commenting. I’m not sure of your source of the $10 billion a year, but the non-partisan Kaiser foundation put that figure at over $40 billion annually. As I mentioned, some health care economists have estimated the cost of this uncompensated care at $1,000 per household. That’s significant. However, I completely agree with you that there is much more to the rising costs of health care than free riders. From what I’ve read ACA did not go nearly far enough to cut costs and we really need another piece of health care reform legislation to do more to address costs. Most of American health care dollars are spent on a very small segment of the population. The problem is that both sides use scare tactics (think Sarah Palin and “death panels”) when we start to consider any cost-benefit analysis of treatment plans, end of life care, and so forth.

      http://www.kff.org/uninsured/upload/The-Cost-of-Care-for-the-Uninsured-What-Do-We-Spend-Who-Pays-and-What-Would-Full-Coverage-Add-to-Medical-Spending.pdf

      1. I linked to my source – it’s John Cogan from Stanford. He says uninsured patients incur $100 billion medical costs per year. Half of that is paid by the patient themselves. $40 billion is paid for by various local, state, and federal government charity programs. Which leaves about $10 billion of uninsured “free rider” costs affecting costs of those who are insured. That $10 billion amounts to about 1% of the higher costs we pay. Not nothing, but certainly not enough to bank the defense of the enormous ACA and the costs it represents.

        Of note, also in that link Cogan says 20% of the higher health care costs are a result of the tax code alone.

      2. I took a quick look at your Kaiser link. It actually follows closely with what Cogan said. The $40 billion uncompensated care is offset by $30 billion in government payments, leaving the $10 billion left over which hospitals and doctors eat and then pass on to their insured customers.

  1. I think another thing to take into account with healthcare costs, is that we run a for-profit healthcare system. If we were to make it a not-for-profit service, we can control the cost much better. For example, the UK spends about 3,200 per person on healthcare services. If that same figure were used here. The Federal Healthcare programs already in existence could pay for 80-90% of all Americans’ health coverage. Obviously there would be startup costs getting the program running, nationalizing the hospitals and doctor offices, and other such things. But once the startup is done, the cost stays pretty static and low.

    1. I think as important as health care is, food is more important. So we should start by taking out the profit motive in the food industry. There should be a federal food price control board which sets prices for basic necessities low enough so that everyone can afford them and has sufficient for their needs.

      1. Except that there’s a seriously bad flaw in your logic. The free market works when regulating the flow of food to the market participants. Health care as a commodity has become dysfunctional in the market. The market has been unable to bring the price of healthcare down to a degree that someone could afford it as an individual. And therefore that’s why government has to be involved. Healthcare, like education is not something that you can run fairly and make a profit in. It doesn’t work, it’s dysfunctional, and every single decision will be made for the good of shareholders and not for patients or the public good. Your analogy of using food is not logical. Food is accessible to all who have even the smallest amount money can obtain a basic food need necessary for survival. Healthcare is not that way. It’s either you can afford $7800/year in health premiums for yourself, or you have to get it from a public source/charitable source that offers it on an income-sliding scale. There’s no middle ground. Even employer funded insurance is becoming burdensome for families as their contribution continues to rise.

        1. And why has health care become dysfunctional in the market? Food is every bit as essential for human well-being as health care is, yet it seems relatively capable of functioning normally in our market. So what’s different about the health care industry?

          1. The purpose of free markets is to capitalize on efficiency. Free market healthcare has proven time and time again that it cannot be efficent and expand access to every person. Whereas food has been able to expand it’s costs and access to all classes in society. The failure of the healthcare market is it’s inability or unwillingness to hold down costs and use innovations being discovered to prevent the cost from becoming unsustainable and unattainable by everyday Americans. That is why it’s broken.

          2. Health care is a public good. That’s one of the major differences. Modern medical technology is also inherently more expensive than basic food stuffs. No matter how many “free market” reforms you make, chemotherapy, heart transplants, and so forth will be prohibitively expensive for a lot of the population.

          3. Another significant way the two industries differ is that health care is all about risk. You don’t need to insure yourself in order to eat. But you need insurance in case you need an organ transplant or some other costly treatment. Not many people are able to save up for an emergency, $500,000 liver transplant.

          4. “You don’t need to insure yourself in order to eat. But you need insurance in case you need an organ transplant or some other costly treatment. Not many people are able to save up for an emergency, $500,000 liver transplant.”

            If all we used health insurance for was $500,000 liver transplants then our premiums would be much lower. But we don’t. The equivalent would be using our car insurance for oil changes and air inflation. We carry car insurance for the big expensive accidents. But we carry health insurance for when our kids get the flu.

  2. Our current health care inefficiency has little to do with free markets.

    Think about how you pay for your food and then think about how you pay for your doctor visit. That’s the difference between the health care market and the food market.

    1. Sure it does. As risk of litigation, increased demand, the pressure from shareholders to profit, and the extreme amounts of inefficiency from administration have shown, is that market healthcare cannot be sustained for the long term. The costs must be controlled, or they will spiral out of control more so than they already have. Unifying the healthcare system under the commons is the way which we can spread the risk and cost out to everyone in society instead of companies with profit motives. It is true the two markets both food and healthcare are not the same. But the difference is one is efficient, and the other is not due to market conditions and availability.

      1. How are costs controlled in the food market? Why aren’t food prices skyrocketing at the same rate as health care?

        A significant part of the answer is that you don’t pay for health care the same way you pay for food.

    1. But why does the food industry care about reducing costs? What drives them to do it? I do. You do. Consumers decide to buy or not to buy food sellers’ products, and a large part of that decision is based on our willingness to pay a certain price. I know how much a gallon of milk costs and I compare my local grocers to find the best price. They compete for my business. That’s a free market.

      But this is not how health care works. I have no idea what a doctor visit’s true cost is. I have a co-pay, but that’s not the true price. My insurance pays the price, which is then filtered through a few layers until it winds up in my monthly premium, which is itself subsidized by my employer and the government.

      In a nutshell, the health care market is not a free market at all. You wonder why prices don’t fall for services? It’s because no one knows what the price is. There’s no incentive to drive prices lower like there is with food. There’s no competition for my purchasing power.

      You want prices to fall and innovation to rise in the healthcare market like it does in the food market? Then let health care be a market like food is.

      1. Firstly, I don’t have health insurance, my company doesn’t offer it because we’re a little ma/pa business. Further, your lack of understanding about what a free market is, is quite disturbing in of itself. A free market meaning a market that the exchange of goods and services is without significant infringement. Healthcare does not flow from firm to consumer easily or readily. It’s burdensome, inaccessible, and needlessly expensive. Admin costs of healthcare are 4 times higher here than in other nations with socialized systems or public systems. Single payer is the way to go. The healthcare market has been given pretty free reign for quite a while, and it keeps going up, and access keeps going down. The fact that you CAN buy it doesn’t mean you’re able to. That is where the market has failed. The Healthcare market is itself in failure because it cannot deliver it’s goods to market without help. Therefore, reform is needed.

  3. Healthcare has been given a free reign for quite a while? No way. Almost half of the market is made up by government already. Which, incidentally, is part of the problem. As government puts artificial price controls in place it exerts upward pressure on the prices you and I pay.

    Again, look at how the market for food works, and then compare that with how the market for health care works. When you want food, you go to the store and pay the posted price. If you don’t like that price you go somewhere else. But when you go to the doctor, you don’t compare prices. You have no idea what the price even is. There is a third party distortion between you and the seller that simply does not exist at the supermarket.

    Prices are what allow me to influence sellers. If the price is too high I go somewhere else. When the seller sees me go somewhere else she feels pressure to lower her prices. Voila, free market principles driving down costs.

    But our health care policies have taken prices out of the equation for me. As such, that little supply and demand graph from economics 101 class is all out of whack. When you say the free market has failed to reduce prices, you’re ignoring the fact that we’ve set up the health care market precisely to ignore prices. Fix that disconnect and you’ll see prices fall.

    1. That’s quite unlikely, because there are other forces in the market that drive the price right back up, such as risk. Risk is one of the big drivers. The other being the high cost of education for doctors, the high stress, the long hours, and other negative job conditions which make the demand for money in the free market much higher than it should be. The fact that about 1/2 of Americans can’t afford insurance on their own and are dependent on their employer to pay for it, is in of itself disturbing and unjust. Government and tax payers should pay for it collectively. You choose the doctor, government/tax payers pick up the bill. Easy, simple, fair, and equitable. Every single other westernized democracy across the world offers healthcare in this manner in some form or another. We should be also, whether it be 50 individual health plans (like Canada) or a nationalized system like that of The VA Medical system or The NHS in the UK…we don’t know what form. The point is…is it’s time to stop thinking of healthcare as a bought and sold commodity and treat like a value, right, and dare I say…entitlement. Every human being deserves to have equal access to medical care regardless of personal ability to pay out of pocket. Maybe we can slide it a bit even, making the cost dependent on income. Make it a flat surtax on income…across the board, same amount, like Social Security.

      1. So you’re saying health care is innately more expensive than food because there’s more greed among the people in that industry than there is among food producers? I’m not sure I buy that.

        I get that doctors have lots of costs to cover, and a stressful, demanding occupation, but so do lots of professions. A job’s difficulty doesn’t necessarily drive its salary. Supply and demand does. My plumber could have the most stressful job in the world, but if he charges me more than I’m willing to pay, it doesn’t matter. He’ll have to lower his price until I’m willing to pay for his services. Or I’ll go find another plumber who does have lower prices. *That* is a free market, and *that* is what is completely absent from health care.

    2. You are right- there is not enough consumer visibility into cost in the health care system. That is something that needs to change. You typically don’t know the cost of a doctor visit until you get a statement from your insurance company showing how much the doctor billed for the service. However, the GOP has yet to offer a system that guarantees universal coverage for all Americans. The simple proposal of allowing purchase of insurance across state lines (a good idea in my opinion), falls far short of the mark. This is because most Republicans don’t believe that access to adequate health care is a right. If someone becomes seriously ill and has to stop working, then loses their job (and their health insurance), they die under any scenario that has been offered by contemporary Republicans. As I stated in an earlier post (http://www.mormondems.com/archives/198):

      “There is always going to be a segment of the population with low skills and little education. Our economy needs these people to work essential low-skill jobs. Can you imagine an America without store clerks, servers at restaurants, maids at hotels, agriculture laborers, etc.? In the wealthiest country this world has ever known, this class of full-time workers should be able to have adequate food, shelter and health care. Part of the American ethos is the belief that anyone who works hard should be able to earn enough money to buy at least the bare essentials. In the reality of a free market economy, that does not always happen. So we should guarantee these things as positive rights for those whose jobs do not pay living wages; this will ensure a minimum living standard.”

      1. You’re conflating health insurance with health care. They’re not the same thing. In fact, demanding universal insurance in response to rising care costs is just treating the symptom and not the problem itself. And likely makes the problem worse.

        1. A pure free market would allocate health care, as it does with any other product or service, only to those who can afford to pay for it. The main reason why I support the creation of universal health insurance coverage via ACA is because it ensures all citizens will have access to care. I view this as a moral issue, which fits in to my broader view on what it should mean to be “pro-life” (http://www.mormondems.com/archives/4). Society must ensure that those least able to afford health care have access to adequate care. Experience has shown us that demanding universal insurance can be a much better way to go. All of Western Europe, in fact all other developed nations, have some form of universal health care, although they range significantly in style and substance. But the bottom line is that the U.S. spends more of its GDP in both gross terms and per capita than any other country. If the rest of the developed world can ensure that all their citizens have access to health care, while spending less than the U.S., and at the same time, achieving similar or even better health outcomes, we certainly can do better. So I ask you this: What kind of health care system would you advocate? What kind of guarantees do you have for ensuring that all, including the poor / elderly / lower working class can afford adequate health care (not just free E.R. care)? While ACA did not go far enough in controlling costs and further reform is likely needed, I view its near universal coverage is the right (moral) thing to do and believe that we will see cost curves continue to improve.

          1. Our health care outcomes are better than any other country. But it’s really expensive. So what’s driving rising costs? RAND studied health care behaviors and found that people who had free health care used 30% more services than those who paid 95% of their own costs, yet weren’t any healthier.

            The same study found that the bottom 8% or so of self payers did see worse health outcomes in a few specific areas. I support public funding to ensure the poorest among us can pay for necessary services.

            Currently, about 20% of the population is on free Medicaid. Another large portion is on Medicare. And these numbers have increased over the last few decades. In 1960 about half of health care was paid for by the individual, with the rest being picked up by insurance and government. Today, that number has flipped. Half of all health care spending in America is paid for by government. Couple that with the study showing free health care equals increased use without any increased health gains, and you have a recipe for today’s boondoggle of skyrocketing health care costs.

          2. Cameron- your statement that “our health care outcomes are better than any other country” is demonstrably false. As this New England Journal of Medicine article notes, the U.S. ranks “39th for infant mortality, 43rd for adult female mortality, 42nd for adult male mortality, and 36th for life expectancy.” http://www.nejm.org/doi/full/10.1056/NEJMp0910064

            Yes, our health care is really expensive. Yes, we have some of the best treatments and care centers in the world, but health outcomes, because of great inequalities in access to health care, have lead to the poor rankings in the key health indicators I mentioned above, as well as many others.

            I’m a little confused by one of your arguments- you say “half of health care was paid by individuals and half was paid for by insurance and gov’t” in the 1960s, but now the # is flipped. How do you flip 50%? I’d like to see links to the RAND study you’re citing. I don’t think the analysis is correct. One of the real problems with health care spending is that half of the population spends little or nothing on health care, while 5 percent of the population spends almost half of the total amount. Our society spends a ridiculous amount of money to extend life, sometimes for just a few months. That’s a difficult conversation to have with people, but the reality is that a plurality of our health care expenditures come from the elderly.

  4. Aaron, my claim isn’t demonstrably false, not when you look a little deeper at those studies, as this economist did:

    https://www.commentarymagazine.com/article/the-worst-study-ever/

    An interesting discussion on this topic with that economist can be found here:

    http://www.econtalk.org/archives/2012/07/scott_atlas_on.html

    Here’s a link to the RAND study I referenced:

    http://www.rand.org/health/projects/hie/blog1.html

    It’s the largest health care study of its kind, and showed that people who got their services for free used 30% more than those who paid 95% of their health care, but were no more healthy than self payers.

    I probably wasn’t very clear in my final paragraph. Let me try again. In 1960 people paid about half of their own health care services, and government paid 24%. Today, that ratio has flipped. Government pays for half and we pay just 12%. Combine that information with what RAND tells us about health care usage rates and you have a recipe for skyrocketing health care costs.

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