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Capitalism will never solve our healthcare problem – because capitalism is the problem

Some ill-informed but perhaps well-intentioned people opine that all we need to do to solve the healthcare cost problem is unleash the free market.

Their thinking seems to be that creative approaches and Adam Smith’s “invisible hand” will conquer the cost:quality:access conundrum.

That is wrong for several reasons.

First, no for-profit insurance company wants to “insure” a person with cancer, depression, heart disease, asthma. Nor do they want to keep insuring someone who gets sick.

That would be irrational and stupid, a bad business decision indeed.

Second, there has been ample time and much experimentation with various types of “free market” solutions – yet here we are. Family insurance premiums are close to $20,000 and come with sky-high deductibles, medical trend continues to climb, and big insurers are not jumping into markets.

The free marketers will argue that allowing people to buy skinny healthplans like those pushed by the Trump Administration that don’t cover stuff like drugs or pregnancy is the solution, that this keeps insurance costs down by eliminating coverage that’s “not needed”.

Funny thing about health insurance – no one can predict when they’ll find out they have Hepatitis C, have a motorcycle accident, or have an aneurism.

There’s another problem with the skinny plan idea – insurance requires the many subsidize the few. If healthy people aren’t in the regular insurance pool, costs for sick folks will go up a lot – and inevitably lead to insurance market death spirals where only the wealthiest people can afford insurance.

To be fair, free marketers will assert that this is exactly the problem – a big part of healthcare costs (e.g. maintenance drugs, child health, care for chronic conditions) shouldn’t be insured as they are not a classic “insurable risk”; somewhat unpredictable and random. That’s true. But it begs the question – most Americans can’t afford to pay for needed medical care without support from an insurer or third party.

Which leads us to the real problem – healthcare in this country is very much a profit driven business, and the companies and individuals making gazillions on healthcare are going to fight to the death to keep it that way.

As evidence, see California’s attempt to limit the profits of the dialysis industry. The big dialysis companies spent $111 million dollars to prevent this – which makes perfect sense. However, one needs to understand that almost all dialysis treatment is paid for by you, the taxpayer. And a big chunk of Californians’ tax dollars going to fatten up corporate profits – 3 billion dollars to be precise.

It’s not just dialysis.

Investment firms are buying up dermatology practices, and, according to some reports, encouraging providers to order lots of expensive and potentially unnecessary treatments.

I’m not blaming private equity firms – they are doing what they are supposed to do, generate big returns for their investors. (to be fair, I know several PE firms that are NOT like this – they believe in doing well by doing good.)

And they are very, very good at it.

Finally, Invisible Hand fans will argue that dialysis is the issue – if we get government out of the mix, then the consumer will force down the price.


What does this mean for you?

Can you afford dialysis? Is it right for those who can’t afford it to die? Because that’s what the invisible hand would do – push many of us right into a long and painful death.

Note – friend and colleague Tom Lynch must’ve been thinking the same thoughts I have been, as his post is a data-rich, elegant and thoughtful discussion of single payer, and government’s role in healthcare. 


9 thoughts on “Capitalism will never solve our healthcare problem – because capitalism is the problem”

  1. Hi Joe. Thanks for your hard work. I guess it all boils down to whether you believe healthcare is a right or a privilege and if it is the governments job to provide healthcare to its citizens. I’m not so sure it is. Socialism in any form, especially with government at the head of it, is a slippery and scary slope to be on. With greed and incompetence the government can’t be trusted. I would rather see individuals take care of themselves with the help of family, friends and the community then to just turn our lives over to the government. I get many that don’t have those family, friends and church connections. But I do believe people are generous when given the chance to help but not generous when the government forces them to help or takes their hard earned money away. So a tough situation all around. I would ask though…For those who believe in Medicaid for All, nothing is stopping them from donating a large percentage of their income now. Why aren’t we seeing people like Bernie Sanders voluntarily paying more taxes right now instead of living a luxoureous life? I find it interesting that he pretends to care yet has mutliple homes and a ton of money. Does he really care about people or is it just political? If he cared he would pay more taxes now. And for others who want socialized medicine, like Bernie, just give more money to the government now. What’s stopping him and others? I am sure the government would love more money donated to them.

    1. Spencer – good to hear from you again.

      First, government’s job is to solve huge problems individuals and other organizations can’t solve on their own. Medicare and Medicaid are two great examples; so is public health, air traffic control, weather monitoring. Healthcare is clearly in that group these days for the reasons I’ve laid out in this post and preceding ones.

      I have a different perspective on government. My parents both served in the CIA, my sister and her husband in the FBI, my aunts in the Dept of Defense and the VA, my son-in-law in the VA. All were/are dedicated, hard working, committed, and focused on doing the right thing. Two uncles were in Dept of Agriculture and FTC; both were average at best.

      Point is, like any organization there are great people and people most definitely not great. Our County Legislator here is in the second group: lazy, incompetent, ignorant, and self-absorbed. I ran against him last year; he won because he’s an R in a very R area.

      My takeaway is that people get the government they deserve.

      “Government” is us. The vilification of government workers is counter-productive, usually based on random anecdote, and I’d suggest unfair at best. Politicians are often a different story; Mitch McConnell’s call for bipartisanship after blocking Merrick Garland and everything President Obama tried to do is prima facie evidence of this.

      Every other developed country has some form of single payer, and it works mostly much better than our “system”.

      Last point – clearly our system is unsustainable and delivers mediocre outcomes at best. What solution do you propose to fix it?

  2. I’d offer another perspective on why there’s simply no such thing as a ‘free market’ in health care, not health insurance. My husband died last year after a 6 year battle with pancreatic cancer. No family history of cancer and no one knows why anyone gets pancreatic cancer. He was one of only 9% of all people diagnosed with pancreatic cancer to survive longer than 5 years. His survival was due solely to the introduction of new drugs just before he was diagnosed. Those drugs were billed to our insurance company at more than $50,000.00 per month. There was no market we could turn to that would have offered those drugs for less, so without our very rich insurance coverage, my husband wouldn’t have lived to see our daughter married, or watch our grandchildren grow up. As you know, when a pharmaceutical company brings a new drug to market, no one else can manufacture that drug for many years, so how was he supposed to survive by using the ‘free market’? Or by having ‘skin in the game’? For most people, $50,000.00 a month isn’t something they can manage under any circumstance, which is why I favor Medicaid for all.

    1. Valerie – so sorry for your loss, while happy your husband did live longer than most.

      My dad died of lymphoma from Agent Orange exposure; he lived 18 years after diagnosis so we are grateful indeed he got to meet his grandchild. We treasured every day.

  3. Joe,

    I am glad you mentioned dialysis, as I am undergoing peritoneal dialysis now, and if it wasn’t for Medicare, I could not afford the treatment. As it is, I have to pay for Medicare Part B every three months at $400, while I am unemployed. I would welcome the kind of health care we see in countries in the OECD, and disagree with Spencer above about “socialism of any kind”. None of the countries that have universal, single payer health care are socialist. This fact escapes the supporters of free market health care time and time again, and they retreat to that old bugaboo first peddled by Reagan when Medicare was being debated. After all the studies and articles written about how bad our health care system is, it is high time we try what other nations already have, and give every American single payer, Medicare/Medicaid for All (expanded). We divide health care into too many silos, something that no other country does. We have the aforementioned Medicare/Medicaid, CHIP. Tricare, VA health care, etc. Why? Because we don’t believe health care is a right. It is not a privilege of wealth or of some outdated notion that you take care of yourself (the Horatio Alger “pull yourself up by your own bootstraps” mentality). We need to stop thinking about profit when we discuss health care and the right to it, and start thinking about how to provide all Americans with the same care provided for in other nations. It is the right and logical thing to do.

  4. Much thanks for sharing your observations about the industry – I have been a follower of your writing over the years.
    Under ACA health insurance is now molded after a public utility – must spend 85% of premium on medical services, refunding any under spending to policy payers. It ain’t a high profit margin business anymore. (Compared to other insurances) The issue is the cost of care delivery, which produces health insurance premium levels. With care producers – hospitals in particular – leveraging government granted monopolies and oligarchies maximizing their margins, costs are raising with every merger. And those margins are funding such non-community benefits as high risk venture start ups, over a billion a year in advertising. Source of those funds – higher rates demanded of payers – passed on in higher premiums.
    The competitive forces that could push against these costs are not head to head competition, but alternatives to hospital owned services. However as hospitals have acquired physicians and demanded their referrals for the down stream revenue, free standing alternatives are fewer and fewer. Insurance companies play a role in starving alternatives on rates to fund the demands of hospitals and hospital enterprises.
    For example, the push back to the dialysis example, better than profit caps, is home dialysis – but the financial coverage is insufficient to support home dialysis.

    1. Robert – thanks for the note, and glad you’ve followed MCM.

      Agree about health insurance margins, that said I’d suggest the margin is thin, but the dollars are anything but.

  5. Thanks Joe for a thoughtful post. You might want to read a fascinating new book called”OverCharged” by Silver and Hyman. They are pro-free market, but they show many examples where capitalist competition does not occur in health care. Sometimes this is obvious because patients are dying and/or desperate, in other words a captive market. That I knew about. But what surprised me are the number of times that competing firms just decide to match high prices and join the gravy train. In other words, if the established firm is charging $275 for insulin, the competing firms do not say, “let’s charge $75 and steal away the market”…………instead they say, “let’s also charge $275 and make more money.”

    1. Thanks Bob – will get the Silver and Hyman book.

      Given the success of the Chinese economy, one wonders if the free marketeers are reconsidering their position that a completely unregulated economy is the “best”.

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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