The Dismal State of American Healthcare

“In an ideal world, health insurance is a secondary institution. It's only real purpose is to facilitate the market for medical care, rather than be a substitute for it. Failure to understand this one fact is the single most important reason for the failed health care policies that we see in this country and throughout the developed world” – Priceless

Passed in 2009, Obamacare promised lower costs and higher quality, along with universal coverage for all.   After more than a decade, ongoing cost increases for taxpayers through premiums and deductibles are the rule, rather than the exception. To help the unemployed or disabled, those with low wages, and pre-existing conditions, Obamacare completely usurped coverage for everyone.  Then, by outlawing limited and low-cost plans, nearly 4 million workers have turned down employer insurance as too expensive.  Diminished options for those with preexisting conditions include narrower networks and increased waiting periods.  The result: Obamacare accelerated the managed decline of American health care. 

Since 1998, American healthcare spending has increased, while enrollment has declined.  After Obamacare, Medicaid enrollment has nearly doubled, while enrollment in employer-provided insurance is down.  Obamacare also wreaked havoc in the individual market by increasing its costs by 129 percent between 2013 and 2019.  Enrollees were so much worse off that by 2021, Congress was forced to pass an enhanced premium tax credit to save a failing system.  Unfortunately, that quick fix only resulted in more federal dollars for the system. 

Healthcare is now the principal source of the federal deficit, with expenses at nearly twenty percent of GDP.   Besides Obamacare, the government’s other two healthcare monopolies, Medicare and Medicaid, grew per capita spending at twice the rate of GDP, as Medicare recipients use twice the resources as those on private care.   The 4 trillion in healthcare costs per year is affecting the economic stability of the country, even as life expectancy declines.

In John C. Goodman’s 2024 book, “Priceless”, Goodman’s newest edition gives an up-to-date assessment of the state of American healthcare, following ten years of Obamacare. The prognosis: absent of any meaningful price system, America’s fundamentally flawed structure has rid the markets of any meaningful competition.  To remedy the situation, Goodman offers a new way of thinking about the healthcare system and how an arrangement that operates like all other markets may be the solution.  In a third-party payor system, there is no incentive for a cost-benefit analysis for either the patient or the doctor.  So, while patients overconsume and doctors overprovide, higher taxes and/or higher premiums are needed. 

Healthcare is one of the most regulated industries in America, where third-party payers (insurance companies, employers, and governments) have nearly complete control over what is covered and what is not.  As such, the people who determine the rules are the ones who pay or deny services to curtail expenses, leaving doctors to view the system itself as their customers, rather than their actual patients.   Then, by providing first-dollar coverage for routine services, the system overprovides for the healthy and underprovides for the sick, leaving catastrophic costs to the patient.  In our current form of socialized medicine, the government takes on the full cost of healthcare, with the private sector left to make up for gaps in coverage.  The opposite should be the norm. 

As Goodman shows, American healthcare also ignores the laws of economics.  Costs are artificial, with a different rate applied to every type of insurance.  While Medicare determines the fee schedule, most plans simply follow along.  In a private market, vendors sell their goods in a fee-for-service exchange, yet hospitals and doctors are not allowed to price their services to compete in the healthcare marketplace.  Thus, there is no cost-benefit analysis.  Then, with healthcare consolidated into vertical markets following Obamacare, fewer options now exist.  Such integration has caused increased costs, lower quality, and more spending, with services dispensed in high-cost settings versus lower-cost outpatient alternatives.   Since price and incentives drive up costs in the current healthcare markets, if services are free, they are overused; if services are too expensive, services are delayed or avoided.    

The majority of Americans have consistently been dissatisfied with the healthcare system.  Now, many are forced to choose the plan with the highest deductible, highest copays, and highest out-of-pocket expenses, simply to put a plan in place. 

To restructure healthcare, Goodman recommends that all healthcare services be removed from the government and returned to the innovative marketplace.  Treating healthcare like every other market will reduce costs, increase quality, and provide greater efficiency in its delivery.  To make certain that appropriate care is provided for all, the private sector would supply all healthcare, with the government acting only as stopgap coverage.  The key relationship of doctor/patient would return, with entrepreneurs freed to offer services in a competitive market where the consumer makes voluntary payments to competing health plans. 

The new system would reflect a change from a defined benefit to a defined contribution plan, much like auto coverage, where large, unexpected events are covered, but small-dollar routine events, like oil changes and preventive care, are not.  Competition would determine prices, and innovation would give providers a variety of options to meet a diversity of needs.  The use of actuarial premiums that reflect each person's risk at entry would be used, with future premium increases or decreases applied equally across the board at renewals.  Adding a tax-free healthcare spending account for small expenses, that both employers and employees can contribute to, would assist patients in funding low-cost expenses with unspent dollars rolling over year to year without penalty.   

Health comes from lifestyle, the environment, and family genetics. Under the current system, there is little incentive to improve one’s health through natural means.  Obamacare has shown that an increase in healthcare spending hasn’t produced better health.  Obamacare was passed to help a small percentage of Americans obtain coverage.  Instead, it reduced the number of options available for a diverse group of 330 million people.  Now, the entire system is broken.