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Health care not immune to free market principles

October 15, 2012
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Editor:

I read with particular interest the article in the Oct. 9 Business Journal about the choice young doctors will face in whether to join a private practice or the large hospital systems (“Are independent docs an endangered species?”). My daughter is a third-year resident in Grand Rapids and is currently confronted with making those choices.

But the follow-up editorial in which you state these choices are another example of how “health care cannot be compared to private enterprise or ‘free market’ principles” threw me. This is because you can take the “free” out of markets, but you can never take "free market principles" out of any market.

When you have a shortage of doctors, isn't that a consequence of free market principles? When a young doctor is confronted with a choice of the type of service to provide, isn't that a free market principle? When a competitor seeks economy of scale but risks being beaten out by a smaller practice that may be able to provide more personal care, better service, or convenience, aren't those factors responding to free market principles? And when a large provider seeks to deny a smaller competitor its services, like it or not, that is a free market principle.

But what about third payer, you say? When you introduce a third party into the transaction you have not destroyed the free market in health care, only changed the rules that consumers and providers must play by and thereby affect the result. It will probably produce a market reaction you don't want, but a "free market" principle it will be.

When the recipient of health care is not the payer for that service market forces will dictate a different result than when the recipient is the direct payer. This is because if health care benefits are a good part of an employee’s compensation, then that employee must avail themselves of that health care to receive that benefit. This is a benefit in economic terms that they themselves have actually paid for. (As an employer I can attest it makes little difference to me whether I write a check to the employee or the insurance company; it is all labor cost to the business.) This has altered the cost/benefit of that service but doesn't change the fact free market principles are at work here.

Likewise, government-provided health care has as one of its supposed benefits the containment of cost. But government has no real effective means of lowering the cost of anything, much less health care. They can only shift or refuse to pay those costs. This may create the illusion of benefit and a triumph over "free market principles" in the short run, but in the long run, those principles will not be denied. Markets will respond in kind, with likely shortages and exploding costs due to those shortages. The end result will be denial of service, limited choices and rationing.

When that happens, only the rich will be able to afford the best health care. Then, will you blame "free market principles" for this disastrous result?

A favorite philosopher of mine once said, "You can ignore the consequences of your actions, but you cannot ignore the consequences of ignoring the consequences of your actions."

Markets exist everywhere people trade anything, even in health care. Changing the rules of markets can have the effect of making them less free. But changing rules don't change the existence of "free market" principles, and no market, including health care, is immune to these principles.

This is a big benefit to those who recognize these principles and take advantage of them. But a painful lesson to those who don't. The big question for us is, do we have the foresight to avoid that pain?

Jon Daly

Pentwater

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