When it comes to debating healthcare in Britain and me being from Scotland, I constantly hear the argument from those who defend the NHS that American healthcare is some how an example of the free market or that American healthcare costs are too high. The argument they use is “If you love their healthcare so much, why don’t you go live in America and if you fall and break your arm don’t blame me if you can’t afford it.” It’s the most overused silly argument anyone could use in the book for the simple reason being, the United States of America does NOT have free market healthcare, instead the United States has an over bureaucratic Socialist-Corporatist healthcare system where the US government funds more in healthcare than any Western European nation.
There are several reasons why American healthcare costs are so high many of which are in relation to the over regulation of the healthcare market caused by government; the third party payer system and a government granted monopoly that led to the extremely high costs of healthcare in the first place. The reason it’s a fallacious argument to blame the healthcare costs on the free market is because there’s no free market there, not even in healthcare, there’s an absence of the free market.
The AMA Monopoly
One of the main reasons for healthcare costs being as high as they are was a government granted monopoly that government granted the AMA (American Medical Association). First we need to understand about Supply and Demand to grasp why costs shot through the roof due to this government granted monopoly. When we speak about the Supply and Demand curve it’s best to use this analogy: if you stood in the middle of the Sahara Desert with one bottle of water, how valuable is that bottle of water to your life? Take the same bottle of water and stand in the middle of Scotland filled with flowing crystal clear rivers, streams, waterfalls etc, how valuable is that same bottle of water worth to your life then? The simple answer is, in the middle of the Sahara Desert due to a shortage of water, that’s all you have to survive upon in order to reach safety, therefore it’s worth a higher value, it’s worth everything to you; whereas in the middle of Scotland it’s worth nothing, you can easily pour the bottle of water out and refill it because there’s an abundance of water available to you.
So when you have a high supply of something, there is a lower demand for it as there’s more of it to go around, therefore there’s a lower cost; if there’s a lower supply of something, there’s a higher demand for it therefore the higher costs. This is the basic laws of supply and demand, so what does this have to do with the American Medical Association monopoly?
From 1904 to 1907 the AMA due to a government granted monopoly closed down 25 medical schools and then from 1907 to 1910 they closed down a further 10 medical schools, making that a total of 35 medical schools within that 6 year period. The first 3 years when 25 medical schools were closed down there was 50 percent fewer doctors being trained and available, this alone drove up physician’s wages artificially, why? The lower supply of medical doctors there are and higher demand for medical treatment, the higher the cost is going to be. This not only affects the costs for medical care, it affects the costs for those who wish to train to become medical doctors, thus the costs for medical schools increases. This is because the fewer medical schools available, the fewer the placements there are, therefore if you have a higher population in demand for placements to become medical doctors but fewer placements, you have higher costs of medical school. This same principle applies to education in general.
So you can see that this relates to a Supply and Demand issue and is a problem that stemmed from a government granted monopoly, this had nothing to do with the free market, it’s an absence of the free market. From 1910 to 1996 the population of the United States had vastly increased and within that time period 123 medical schools in total were closed down, this is why with the fewer medical schools available and the high demand for placements to become medical doctors, there’s a higher cost. Likewise that increase in the population means a higher demand for medical treatment and if it was 50 percent fewer medical doctors being trained after the first 3 years between 1904 to 1907 just think how many are available since that period over 100 years ago. As stated, the fewer medical doctors but higher increase in demand for medical treatment, the extremely high costs for medical treatment.
Add to this as mentioned earlier, due to the government over regulating the healthcare market, the government has stamped out competition of the smaller hospitals and in turn drove healthcare costs through the roof. So the solution is simple; we need to get the government out of the way, increase the number of medical doctors and nurses, medical schools and hospitals so we can simply reduce the costs of medical treatment, therefore there’s a higher supply and lower demand.