The worst enemy of rational health policy is partisanship. For the past three decades the two major parties have followed the same script. They devise a major health reform with no input from the other party. Then, they put a bill on the floor in Congress that no one in the other party will vote for. So, to get across the finish line they need the help of special interests – primarily, insurance companies, drug companies and the hospital industry.

But the special interests invariably have a few tweaks to the legislation that they insist on. What we end up with is a reform that channels billions of dollars to special interests while creating almost no improvement in overall population health.

The Republicans did this with Medicare Part D (drug insurance) during the George W. Bush administration. The Democrats did it with Medicaid expansion and the Obamacare exchanges. Hillary Clinton tried and failed with the same approach during her husband’s presidency. Paul Ryan tried and failed under Donald Trump’s first term.

How could things be different? By following three simple rules that shouldn’t be partisan at all. (In Part I, I will address the first rule.)

Rule 1: Let the private marketplace meet all the needs it can meet, leaving to government any important needs that are left unmet.

With over a century of experience behind us, it is obvious to any thoughtful person why free markets work better than government. In a free market system, people tend to reap the full benefits and bear the full costs of their actions. Under bureaucratic systems, that almost never happens.

That is why, prior to reunification, West Germany was so much more prosperous than East Germany. It is why South Korea is so much more prosperous than North Korea today.

The same people with the same culture and the same genes behave differently under different economic systems.

So, in health care it makes sense to let the market solve all the problems it can solve and rely on government for anything that is left over. Unfortunately, we have done the very opposite.

Health care in the U.S. is a highly regulated, bureaucratic system – leaving the private marketplace to meet all the needs the bureaucracy does not meet.

Seeing a doctor. In the United States today it takes an average of 31 days for a patient to see a new doctor. The wait is more than three weeks for a primary care doctor.  In response, the marketplace is offering alternatives. You can see a highly qualified nurse at a MinuteClinic in, well, a few minutes. The average wait to see a doctor at an urgent care clinic is just 15 minutes.

For emergency care in Dallas, low-income patients and Medicaid enrollees typically turn to Parkland Memorial – the city’s “safety net” hospital. Parkland tells you online that the average in-and-out time is 5 hours and 12 minutes. Since studies suggest that as many as 60 percent of ER visits are avoidable, walk-in clinics and urgent care clinics, which charge unregulated market prices, are an attractive alternative to government-provided ER care.

Other private innovations. There are numerous other ways in which private sector entrepreneurs have been meeting needs left unmet by bureaucratic medicine:

• Twenty years ago, RX.com became a mail order pharmacy competing with local pharmacies for patients who buy drugs with their own money.
• Fifteen years before telemedicine became widely available in response to Covid, Teladoc began offering phone consultations (outside of normal health insurance) to a customer base that grew to 20 million patients nationwide.
• What used to be called “concierge care,” available only to the very rich, has now become “direct primary care” –  accessible to a quarter of a million patients, contracting with as many as 10 percent of family physicians.
• A Dallas firm called Paydhealth has found a way to let employees bypass health insurers and pharmacy benefit managers and buy drugs directly from  drug companies for their cash price (often less than half the list price).
• The field of mental health care is being rapidly privatized. Only one-third of psychiatrists now accept Medicare.

The idea of a private market meeting needs not met by government (rather than the other way around) is at odds with the way Econ 101 textbooks tell the story. 

But using the marketplace to provide services that the government fails to provide is not as unusual as you may think. There are more private security guards the U.S. today than there are public police officers.  

Internationally, this oddity is often the norm in health care. The latest report on the matter from the Fraser Institute finds that 63,459 Canadians travelled outside the country for non-emergency medical care. This means they were paying out-of-pocket for care that theoretically the government provides for free.

Unlike Canada, Britain allows private medicine and private health insurance, even though the government promises to provide all the care people need free of charge. Roughly 12 percent of the population is paying out-of-pocket for private health insurance, and one third of the population say they have used private health care at some point. A popular rule of thumb is, “If it’s serious, go private.”

If we want health care to work as well as the markets for other goods and services, we need government to stay in its lane and fulfill its traditional, supplementary role. 

Getting from here to there. If private markets can do such a good job around the edges of the health care system, why aren’t they doing even more? Answer: government regulations don’t allow it. The solution: roll back regulation and bureaucracy and let the market do its thing. In other words, liberate the marketplace. Here is a start.

Liberating Medicaid. When people enroll in Medicaid, their visits to the emergency room increase by almost 40 percent. Yet, if Medicaid enrollees could buy medical care the way they buy food with food stamps, they would have access to any doctor and any clinic. They could supplement Medicaid’s price-controlled fees with out-of-pocket cash and pay the market price. If they could manage their own primary care with a Health Savings Account, they would discover that walk-in clinics and urgent care clinics cost society less than the ER and they could benefit financially from making cost-effective choices. With access to direct primary care, they could have a 24/7 relationship with a doctor in return for a low monthly fee.

Liberating the private sector. With few exceptions, people in our health care system never see a real price for anything. No patient. No doctor. No employer. No employee. The reason: providers do not compete on price. And when they don’t compete on price, they don’t compete on quality either.   This could change if private health plans followed the advice I gave above for Medicaid.  In the private sector it is called “reference pricing.” 

To illustrate, almost two decades ago, the state of California discovered that the cost of hip and knee replacements for its employees and their dependents ranged from $15,000 to $110,000 across the state. Then, the state’s health insurer (Anthem Blue Cross) announced that going forward it would pay only $30,000. Enrollees were free to go to any hospital of their choosing. But they had to pay out-of-pocket for any charges exceeding $30,000.

Within two years, the average cost of a joint replacement across the entire state was less than $30,000.

With reference pricing, patients become price-sensitive. And that forces providers to compete on price. A similar experience arises with medical tourism. Canadians who come to the U.S. for hip and knee replacements generally pay something close to Medicare rates – about one-third to one-half of what a typical American patient is paying. 

Americans can do what the Canadians are doing and get the same deals form US hospitals as long as they (1) pay in advance, (2) are willing to travel and (3) agree that an insurer is not going to argue that the whole procedure was unnecessary after its completion.

Public policy could help. When employees waste money in the health care system they are spending pre-tax dollars. When they save money, they and their employers only get to keep what is left after taxes. Our tax system subsidizes waste and penalizes efficiency. That should change.

I’ll have more suggestions in Part II.