The virtue of free markets in health care

Several days ago, The Wall Street Journal ran an extended interview with Fred Smith, the founder and CEO of FedEx. (here) After serving two tours of duty as a Marine in Viet Nam, Smith began a parcel delivery service using small aircraft and limited scheduling. Under his leadership, FedEx has grown into the largest parcel delivery system in the world. The company currently employs 560,000 people in 220 countries.

Smith's economic philosophy, and guiding principle, is really quite simple. Instead of using "ism" categories, such as socialism and capitalism, he sees only two economic options – free markets or government control.

As he has clearly demonstrated with FedEx, free markets grow the economy and provide benefits for customers and employees alike. Governments do not grow the economy – they simply transfer wealth from one group to another. It's like taking water out of the deep end of a swimming pool, putting into the shallow end, and believing the pool is now larger.

At the end of the day, health care is simply an economic activity – the most personal human activity between providers and patients. The tragedy is that the U.S. health care system has developed with several critical non-free market precedents. The fundamental problem is that 90 percent of Americans have their health care paid for by a third party – either their employers, their spouses' employer, or the government through Medicare, Medicaid, or Obamacare.

A third party doesn't pay for our food, or clothing, or housing, or other necessities. We obtain them in free markets with our own resources. Yet, because of the way our health care system developed, Americans are not in charge of their health care financing.

Opponents of a free market health care system complain about information asymmetry between providers and patients. However, there is always a difference in information levels when dealing with any professional service. We go to lawyers, dentists, architects, auto mechanics, and so forth because they know more about their specialties than we do.

To eliminate the third-party payer system in health care, a few things need to change:

• Price transparency and more competition among providers

• Change in the tax code to give individuals the same advantages employers now use

• Health insurance reform

• Eliminate mandates and greater use of high deductible plans

• Greater use of health savings accounts

• Reform of Medicare and Medicaid

• Greater use of high-risk pools

The alternative to a free market in health care is more government intervention and control.

Unfortunately, this is the current direction of the U.S. with incremental movement toward a single-payer system. When looking at countries that now have socialized medicine, it is clear that health care is rationed by government officials using wait lists and denial of care. Obviously, this is not in the best interest of patients, who need to be in charge of their own health care.

- Dr. Roger Stark is a senior fellow for the Center for Health Care at Washington Policy Center and a retired physician.