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We stand at a crossroads in dealing with the most important sector of our economy and the linchpin to our freedom and prosperity. Republicans have a unique opportunity to not only repeal Obamacare but to offer a vision that addresses the root of the health care problem: that government and the insurance cartel have cut the consumer out of the process, preventing health care from working like a real market – with all the competition, innovation, quality delivery, and choices associated with it. Over the past week, we have posted several articles and podcasts (here and here) explaining why health care is so convoluted, who is at fault, and how it can be fixed. Yet, Republicans can’t seem to talk for two minutes about their beliefs on health care other than passing a blank bill with the word health care stuck in it. Ironically, health care is the one thing nobody is discussing. Everyone is discussing health insurance but failing to address why the price of health care is so over-inflated. This system of third- and fourth-party payment for health care is unsustainable. All of the public and private funds are being sucked into the administration of government and cartel price fixing rather than the delivery of care. There’s a reason why the highest earners in health care are not the M.D.s, but the insurance cartel administrators. We are going to get single-payer either way. The question is if it’s going to be single-payer government takeover of health care or true free-market single-payer (i.e. the consumer pays the provider directly). At present, the reason we have third- and fourth-party payments is because the cost of health care is supposedly too expensive for consumers to pay directly. But the reason why most health care is so expensive is precisely because of government interference and the insurance cartel, which has been given a monopoly to price-fix health care, thanks to tendentious treatment from the government. It’s time Republicans offer a vision for fixing the health care problem, placing the consumer back in the driver’s seat, and cutting out the insurance cartel from government favors. This is a more compelling message than directly repealing Obamacare, would be more effective than repealing Obamacare, and offer us the only path to alleviating the epidemic of government dependency. Ultimately, it would make Obamacare, which deals with insurance, moot. Rather than trying to fix the insurance cartel, it’s time to leave them in the dust and reduce the price of health care itself. It’s time to get the government out of any third- or fourth-party payer scheme and to stop manipulating statutes, subsidies, and the tax code in order to line the pockets of third-party payers. Here are some guiding principles on true health care reform: Health care is not medical insurance The cost of health care should be solved before the cost of insurance Medical insurance, the way it’s currently constituted and propped up by government favors, is not the solution, it’s the problem and self-perpetuates a need for the cartel We should seek to eliminate all government influence that has led to third- and fourth-party payer and put the doctor and the patient back in the driver’s seat By fixing health care first and dealing with the “private” sector before the government dependency, we will reduce costs and make reforming Medicaid and Medicare a no-brainer The best way to offer a hand out is to give a direct handout – to empower the poor consumers to pay their bills directly rather than creating a market-distorting government program or lining the pockets of the venture socialist insurance cartel to administer a convoluted third-party program. Aside from the original sin of third-party payer, we must identify every area where government regulations or interventions inflate the cost of health care on the supply side Were these principles to be followed, much of the impasse over Obamacare and the insurance issue would become moot and could even open the door for some bipartisan work.

Stephen, May 2020, “Why the Economic Aspects of Healthcare are not Unique,” NIH, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7328842/

Many authors who want to claim the healthcare market is different from markets for other goods are also those who advocate governmental intervention in the market. It is no coincidence that they strongly wish to point out healthcare’s differences because they believe it provides them with some basis for advocating for government’s involvement. As DiLorenzo explains, “having ‘proven’ that markets ‘fail,’ the analyst then proposes government intervention under the assumption that no such failures will infect government”. This point betrays their economic ideology, if not their political one, because if they were free market advocates, they would not be calling for government intervention in the first place and secondly, they would be proposing ways that the free market could prevent and correct market failure. Instead, they point to the supposed failings of the market to deliver efficiency, using these as a pretence for government intervention while completely ignoring government’s failings. This line of thinking is deceitful, or at the very least demonstrative of an unsophisticated understanding of market operations. It is a further illustration of the fallacy of the Nirvana perspective that Demsetz referred to. This is not just a Western capitalist viewpoint. The principles of Islamic economics, based on the teachings of the Qur’ān and the Sunnah literature recording the traditional social and legal customs and practices of the Islamic community, promote a free market without regard to the type of good or service being offered. This practice assumes that such items are allowed (halāl) for a Muslim to consume. The Qur’ān contains verses which specifically allow and encourage trade and uphold the right to private property. Islam approves of using the market mechanism rather than government intervention to set prices and handle the distribution of goods. This approval is demonstrated by the example of the Prophet Muhammad who refused to fix the price of goods when people asked him to do so. Nevertheless, this article is not about whether a free market or government intervention approach is desirable but rather about the validity of the arguments of those who claim the healthcare market is essentially different from other markets.

In virtually every realm except for health care, Americans expect to know the cost of a good or service before purchasing it. Consumers and employers have grown accustomed to scheduling and paying for medical appointments and procedures without any idea of the out-of-pocket costs after insurance coverage. Stories abound of people being charged for trips to the emergency room, ; being invoiced for going to an in-network hospital but unknowingly being  provider; and receiving . Such unexpected outlays frequently lead to financial stress and even . In such an opaque market, it’s no surprise that employer costs for health care have been .

These high costs have multiple causes, including post-World War II wage freezes, which led to the tax exemption for employer-provided health insurance—; rising administrative and drug costs; perverse insurance-company incentives; and price-insensitive customers.  the federal agency that administers Medicare and Medicaid, in 2018 U.S. health care spending grew 4.6 percent, reaching $3.6 trillion, or $11,172 per person—a 17.7 percent share of the nation’s GDP. The average among , a proportion that the U.S. surpassed in the 1970s.

Robert, 2020, "The Truth About Government-Controlled Health Care ," https://www.heritage.org/article/the-truth-about-government-controlled-health-care

When access and quality performance measures are broken down by payer, the comparative performance of the United States is compromised by the plight of Medicaid enrollees. Not surprisingly, according to the research team writing in the Journal of the American Medical Association, the Medicaid cohort registered the highest number of asthma-related hospital admissions. This is not surprising. Compared to patients in private-sector health insurance, Medicaid patients have historically had a difficult time getting doctors and medical specialists to take care of them because of excessive regulations and low Medicaid reimbursements, and they have thus failed to secure the same level of access to high-quality care and the superior medical outcomes enjoyed by private-sector patients.

John C., 10-17-2019, "Why Not Try Free Market Health Care?," Forbes, https://www.forbes.com/sites/johngoodman/2019/10/17/why-not-try-free-market-health-care/?sh=4df713de5358

I’m often asked if the free market can work in health care. My quick answer is: that’s the only thing that does work.

Larry, 06-05-23, "Free-Market Medicine," Free Market Medicine, https://fee.org/articles/free-market-medicine/Top of Form

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What has emerged as a result of this manipulation of healthcare consumers is that ST is liberally applied without a thorough understanding of its effect on patient health and economic outcomes. Clinical decisions are now being driven by centralized, economically motivated insurance plans rather than by their value to patients. This may lead to lower overall medication uptake and adherence as patients discontinue their medication because of their inability to navigate the complicated ST system. It is interesting to note that the state-based insurance commissions that regulate insurance companies often do not require any type of transparency from the plans they regulate. For example, how to obtain an exemption from the first-line therapy and what constitutes as failure are not often clear to either patients or their health care providers. The key problem with centrally planned medicine implemented by plans is that it uses a “one-size-fits-all” approach, which is inappropriate when each patient has unique symptoms and side effects, making them respond differently to mandated choices. This problem is not exclusive to ST, but encompasses all health plan restrictions, including differential copays, pre-authorization rules, and quantity limits on prescriptions. What works for one patient may not work for another – this is best understood on a decentralized level, as a patient and his (their) doctor typically know what’s best for that given patient. Thus, the goal of a plan’s policies should be to promote the optimal matching of patients to existing therapies rather than to declare, without medical expertise, that one therapy is better than another for everyone. This is the fundamental issue with centralized versus decentralized medicine.

From the 1970s until the recession of 2008–2009, medical expenses in the U.S. rose at a rate significantly faster than inflation. This is commonly believed to be the result of market imperfections. However, federal and state governments have long suppressed the functioning of the market system in the medical industry. Third-party payment, with its moral hazard, has increased demand and thereby driven up prices. Medical suppliers that work with relatively low levels of third-party payment have seen significantly lower price increases over time. The Patient Protection and Affordable Care Act (PPACA) has increased the usage of high-deductible insurance, but has other features that work against cost containment. Increasing Demand through Third-Party Payment In order to function properly, insurance can only cover insurable risks. For a risk to meet this qualification, it must share three common characteristics: the chance of a loss is small; the magnitude of the loss is financially devastating to an individual; and when the risk is spread over a large group of people, premiums are affordable. For example, getting hit by a car is an insurable risk because the chance of such an occurrence is small; the required medical services are too expensive for many individuals to afford; and when the risk is spread over a large group, the premiums are affordable. Yet, many of the services covered by health insurance do not fit this definition, and instead involve predictable expenses or minor care.1,2 In fact, the Patient Protection and Affordable Care Act (PPACA) mandates coverage of immunizations, alcohol misuse screening and counseling, blood pressure screening, depression screening, diet counseling, obesity screening and counseling, tobacco use screening, anemia screening, breastfeeding comprehensive support and counseling, folic acid supplements, and iron supplements, among other “preventive” services. Some argue that medical care needs to be treated differently from other market transactions because proper health is essential to life. Yet food is essential to life, and grocery insurance does not exist—nor should it. If this insurance did exist, consumers would become less sensitive to price increases. Grocery stores could then raise the prices of their products, and grocery insurance premiums would increase in order to account for the change in prices. That a good or service is “necessary” does not make it insurable. Unlike health insurance, other forms of insurance have not typically stepped outside of their proper role. For example, automobile insurance does not cover predictable or inexpensive services such as emissions testing or oil changes. The reason health insurance has been able to expand beyond its original market function is the extensive intervention of government.

Stephen, May 2020, “Why the Economic Aspects of Healthcare are not Unique,” NIH, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7328842/

In considering the question of whether healthcare is a unique good with a market in need of a different means of understanding, a nuanced view is required because healthcare can be acknowledged as different in that it has its own important features and related challenges to solve. However, it is amenable to being analysed and managed with existing economic tech-niques and principles applied to other goods and industries. Pauly proposed that the question of difference can be considered in three parts. He stated that very few aspects of healthcare were not amenable to analysis with the usual tools, suggesting that the majority of healthcare’s characteristics can be treated the same or similar to other industries, and where those methods are not a perfect fit, they still work reasonably well. While the individual attributes of the healthcare market are not unique, Arrow said when “taken together, they establish a special place for healthcare in economic analysis”. However, Fuchs refuted this view, stating that “health care is, in many respects, similar to other goods and services. It is produced with resources that are scarce relative to human wants”. Healthcare exists as a market which can be divided into sectors or segments depending on the needs and preferences of consumers. This type of division is also found with other goods and shared characteristics between these markets are apparent. Thus, healthcare can be analysed using generic methods and tools that are applied across the entire market. Demarcating healthcare as unique inhibits the transfer of knowledge between healthcare and other sectors.

Largely absent from the vigorous debate over reforming the nation’s health care laws is the understanding that simply being covered by health insurance does not reduce health care costs. Before the Affordable Care Act (ACA) passed in March 2010, President Obama repeatedly promised that the typical family’s health premiums would go down by (sometimes “up to” but frequently “on average”) $2,500. That decline did not occur because the ACA strengthened the control that insurance companies—as opposed to patients—have over health care spending. In fact, Americans’ increasing dependence on health insurance over the last seven decades has been a major contributor to exploding health costs. It’s a fundamental economic truth that too much health insurance actually increases costs. That is why other types of insurance—think of car accidents or warehouse fires—only cover catastrophic costs. According to my new study published by the Mercatus Center, the full cost impact of our health insurance, provided by both government and private insurers, is staggering. In 2014, real health spending per person was $9,532. However, if government policy had not encouraged control of health spending to shift from patients to governments and insurers, spending would have been about $4,316 per person—less than half of what we actually spend. The difference is explained by waste, fraud, and abuse that quickly finds its way into markets controlled by third-party payers, who then impose costs to try to control these problems. If a politician promised to reduce the cost of driving by forcing auto insurers to pay for our cars, gasoline, tires, engine oil, windshield-wiper fluid, and all the other items and services we need to be on the road, we would all understand why our premiums would skyrocket—because those added costs would have to be accounted for. And that’s just the beginning. Since drivers would not pay for our cars directly, we wouldn’t be careful about how we managed their costs. We wouldn’t search for cheaper gas or efficient mechanics, or care whether a more expensive tire was really worth it. We’d go to Maserati dealers for their latest model without worrying about how to finance the purchase, and simply tell the salesperson which insurer to bill. Obviously, auto insurers would respond the same way health insurers have: Build networks of dealers, gas stations, and mechanics; and impose all kinds of rules and bureaucracies between them and drivers. However, because insurers are removed from drivers’ experiences, those rules would be ineffective—just like they have proved in health care. In 1999 and 2001, the Institute of Medicine at the National Academies of Science published two scathing reports on health quality. The first concluded that tens of thousands of patients died in hospitals unnecessarily. The second recommended principles to guide the health system across the so-called “quality chasm.” It noted payment was an important factor in improving quality, and that “even among health professionals motivated to provide the best care possible, the structure of payment incentives may not facilitate the actions needed to systematically improve the quality of care, and may even prevent such actions.” A decade later, the institute published an equally disturbing 825-page report on waste. Experts convened by the institute concluded that $765 billion (31 percent) of the $2.5 trillion spent on U.S. health care that year was wasted. Clearly, the rules and bureaucracies imposed by third-party payers are not improving our health care or making it more affordable. However, control by third-party payers is not some law of nature. It is the result of deliberate policies that can be amended or reversed. As recently as 1960, just under half of health spending was controlled directly by patients. Because the costs paid by insurers were mostly related to hospitalization; That meant many families that needed only primary care went for years without ever processing a claim through a health insurer. Nevertheless, they had access to doctors. Today, only 11 percent of health spending is controlled directly by patients, but solutions are at hand. Among the privately insured, the dominance of third-party payers is the consequence of decades-old tax policy that allowed medical spending covered by insurers to be excluded from taxable income, while direct spending was taxable income. This was fixed somewhat through Health Savings Accounts, which came into being in 2005 and allows beneficiaries to spend pre-tax dollars directly on medical care. Similar mechanisms could be used in Medicare, Medicaid, and other government programs to reduce costs. We need to do more than repeal and replace the ACA. We need to repeal insurers’ and governments’ control over our health spending and replace it with a payment system controlled directly by patients.

Nearly two months into an unprecedented global economic downturn, the U.S. unemployment rate has rocketed to 14.7%, far outpacing Europe and other developed economies like Japan, the United Kingdom. The effects of the coronavirus have marked a sharp reversal for the US, which in the years prior to the spread of the COVID-19 pandemic was enjoying one of the strongest job markets in the developed world. Just a few months ago, the national unemployment rate was 3.5%, the lowest in 50 years and far below the average rate of 6.2% in the European Union. The jobs report released by the U.S. Bureau of Labor Statistics on Friday morning showed that the U.S. lost 20.5 million jobs in the one-month period ending in mid-April, a stunning figure without precedent in the country’s economic history. The job losses were spread across industries, with the leisure and hospitality industries showing the largest declines. The release from the BLS comes just one day after the Department of Labor reported that an additional 3.2 million American had filed unemployment insurance claims in the previous week, bringing the total in the seven weeks since virus-related lockdowns began to 33.5 million people. The number of Americans receiving unemployment benefits fluctuates, as not everyone who applied for them in previous weeks has their claims accepted, and others find new employment. The Labor Department also tracks continuing claims, the number of people currently receiving benefits. That number, which is reported a week later than the data on initial claims, rose to 22.6 million in the week ending April 25, the highest on record.

In Europe, by contrast, the average unemployment rate has jumped far less dramatically, and is expected to rise to about 9.5% in 2020, according to projections released Wednesday by the European Commission. To be sure, Europe will face a severe economic downturn as a result of the pandemic. This week, the European Commission’s Spring 2020 Economic Forecast predicted a “deep and uneven recession” and “an uncertain recovery.” Some countries, like Italy, Greece, and Spain, which already were facing double-digit unemployment before the pandemic, will see rates spike into the high teens, according to the report. The stark contrast between the unemployment figures in the U.S. and those in most European countries reflects the very different policy choices made by lawmakers in Washington by those across Europe. By and large, governments across Europe have been subsidizing the wages of employees of private companies, in some cases effectively paying them to stay home. “European governments are choosing to use their unemployment funds to keep workers attached to the firms that they're working for through what are known as work-sharing, or short-term compensation programs,” said Robert E. Scott, senior economist and director of trade and manufacturing policy research at the Economic Policy Institute in Washington. “That means that workers keep the benefits that they have associated with those jobs,” he said. “But it also, more importantly, keeps the workers attached to the firm and not unemployed.” These programs serve two main purposes. The most immediate is that they guarantee that millions of people who could face financial disaster if they lost their stream of income are able to remain solvent. In the long term, the programs are designed to maintain the connection between workers and employers, making it easier and more likely for businesses to start back up once the crisis is past. In France, for example, a chômage partiel program, which translates as “partial unemployment,” has more than half of private sector workers receiving government-subsidized paychecks despite the fact that they are either not working at all or are working a dramatically reduced schedule.

Alex, 2020, “Can Subsidized Employment Tackle Long-Term Unemployment? Experimental Evidence from North Macedonia*” https://www.ucl.ac.uk/~uctppca/ACTX_SEP_JLE.pdf

Overall, this analysis suggests that the main beneficiaries of the SEP are individuals with lower attachment to the labor market, such as women, the inexperienced and those with low education levels. In the absence of the intervention, the employment rates of these workers would be at or below 10%. With the intervention, they are between 15 and 30 percentage points higher. One possible interpretation for this finding is that SEP created job opportunities that these workers would not have otherwise sought, and that these individuals were able to secure the job by accumulating work experience and skills.

Katsuhiro, 2020, “Wage Subsidies for Reemployment and Unemployment Insurance,” The Conference Exchange, https://nta.confex.com/nta/2020/mediafile/ExtendedAbstract/Paper4013/Komatsu_UI_reemployment.pdf

This paper studies the welfare implications of providing temporary wage subsidies to people finding a job after unemployment. Following earlier studies on UI, I construct a dynamic model of consumption, saving, and job search, and derive a formula for the welfare impact of wage subsidies that can be evaluated with several reduced form parameters. Using parameter values common in the literature, I find that providing wage subsidies for reemployment brings about a large welfare impact by reducing the cost of UI. Specifically, the policy outperforms many historical policy changes targeting adults considered in Hendren and Sprung-Keyser (2020) in terms of cost effectiveness. I also calibrate parameters in the model and show that (i) given the current UI generosity, the optimal level of wage subsidies is the same as the level of UI benefits, and (ii) providing wage subsidies makes the optimal UI more generous, which means that wage subsidies enable the government to provide more generous protection against consumption declines during unemployment as an optimal policy than currently provided.

Oren, 8-19-2015, "A Better Wage Hike," US News & World Report, https://www.usnews.com/opinion/economic-intelligence/2015/08/19/wage-subsidies-are-better-than-raising-the-minimum-wage

For these reasons, economists tend to dislike minimum wage increases and argue instead for expanding the Earned Income Tax Credit, known as the EITC. Low-income households receive this credit when they file their taxes at the end of the year, getting additional money from the government for each dollar earned up to a limit. For instance, a single mother with two children who earns $18,000 (equivalent to 30 hours per week for 50 weeks at $12 per hour) receives an EITC of more than $5,000 that lifts her family above the poverty line. The EITC solves the minimum wage's critical problems: It encourages more people to work instead of shutting some out of jobs and it uses tax dollars so the cost is distributed in the same way as for other government programs. But while the EITC looks great on the blackboard, it cannot deliver that well in practice. Recipients tend to be only vaguely aware of how the program works and what they could receive, which means it cannot provide much of an incentive to start working. They receive one huge payment long after their work year is over, which makes covering day-to-day necessities difficult. And because different workers receive different credits depending on the size of their family and how much they work, the labor market skews in favor of some at the expense of others.

Ed, 1-14-2020, "Can We Put Everyone to Work? — The Alternatives to a "Job Guarantee."," Niskanen Center, https://www.niskanencenter.org/can-we-put-everyone-to-work-the-alternatives-to-a-job-guarantee/

First, even though guaranteed jobs would be designed not to compete directly with the private sector, a JG would still be disruptive. Private employers would lose workers if they did not match a job-and-benefit package worth some $20 per hour. JG advocates are confident that private employers have enough slack to raise wages without cutting employment, but I am not so sure. JG jobs would not only offer good wages and benefits, but also, as advocates promise, they would be more accommodating than many private sector jobs to workers’ personal schedules, family needs, and disabilities. A large outflow from private employment to guaranteed jobs could raise the cost of the program sharply.

Julian Jacobs, “Should reducing inequality be a central bank mandate?” Official Monetary and Financial Institutions Forum, 1-27-23, https://www.omfif.org/2023/01/should-reducing-inequality-be-a-central-bank-mandate/

Moreover, a central bank’s political independence is particularly important to its functioning, especially in a moment of heightened polarisation and partisanship. A more holistic model that identifies inequality as a specific mandate could threaten to erode that independence and encourage more partisan behaviour. Such an outcome would be both economically hazardous and politically toxic – central bankers are unelected officials with no mandate to weigh into partisan policy debates beyond their monetary responsibilities.

Mehdi El Herradi and Aurélien Leroy, “Monetary policy and the top one percent: Evidence from a century of modern economic history,” Working Paper No. 632, De Nederlandsche Bank, April 2019, https://www.dnb.nl/media/jbybr2et/working-paper-no-632_tcm47-383633.pdf

5 Conclusion

Juan Antonio Montecino and Gerald Epstein, “Did Quantitative Easing Increase Income Inequality?” Publisher, 4-24-17, https://www.cepweb.org/wp-content/uploads/2017/11/Montecino-paper.pdf

7 Concluding Remarks

Calvin He and Gianni La Cava, “The Distributional Effects of Monetary Policy: Evidence from Local Housing Markets,” Research Discussion Paper, Reserve Bank of Australia, February 2020, https://www.rba.gov.au/publications/rdp/2020/2020-02.html

***Note: cash rate is the Aussie equivalent of the federal funds rate***

Betsy Vereckey, “Should central banks address inequality? Experts weigh in,” MIT Sloan School of Management, 8-3-21, https://mitsloan.mit.edu/ideas-made-to-matter/should-central-banks-address-inequality-experts-weigh

How do interest rates affect inequality?