The Harm of Conflating Price Distribution with Rationing
Whether price distribution counts as a type of rationing is not merely some semantic dispute. Conflating price distribution with political rationing obliterates the crucial distinctions between the two. A system of property rights and voluntary association is nothing like a system of political control of goods and services.
Price distribution on a free market rests on the right of producers to their property. If you produce something, using your own resources and in voluntary interaction with others, you have the right to exchange your product with others as you see fit. Generally on a free market people exchange goods and services using money as the intermediary, according to the principles of supply and demand.
Political rationing means that some governmental agency assumes command of some set of goods or services, in violation of the producer’s rights to the product and of the consumer’s rights to offer a voluntarily exchange. Rationing entails collectivism in ownership.
In her 1946 letter (see pages 320 to 327 of Letters of Ayn Rand), Rand writes, “Rationing IS coercion, that is, orders, and nothing else whatever. The essential distinction of a free market, as against any other kind of system, lies in the absence of coercion and in the method of exchange by voluntary choice” (page 322).
She continues:
If we accept the idea that a free pricing system is a form of rationing, the unavoidable logical implications and consequences are as follows: if a free pricing system is a form of rationing, then every person living under it has an equal claim upon and title to all the goods produced. (To ration means to share; a free pricing system is not based on the idea of sharing anything; a rationing system is.) But anyone can see that under a free pricing system everybody is not getting an equal share of everything. Therefore, this form of rationing is not working well or fairly. Why isn’t it? Because the rationing is done by private persons in their own selfish interests. What is the solution? Another form of rationing — which would be run by disinterested public servants for the common good of all.
Once the people’s mind has reached this state of confusion, the rest is easy. The collectivists have won, because their basic premise has been accepted. …
And here is the payoff: when the groundwork is ready, a collectivist says to the average American: “Don’t fool yourself, brother. You’ve always lived under a system of rationing and always will. The only choice you have is this: Do you want to be rationed by selfish, greedy capitalists for their own private profit — or would you rather be rationed by a public authority who will have no motive except your own good and the general welfare?” (page 323)
Either people have the right to control their produce and to make voluntary exchanges with others, or their property is collectively owned and rationed by politicians. That is the basic choice.
What is amazing is that 63 years ago Ayn Rand anticipated the precise nature of today’s debate over rationing.
Politically-Controlled Insurance and Rationing
The Big Lie in the modern health policy debate is that the current system represents a free market and that our choice is between the status quo and more political controls. The modern system is emphatically not a free market, and advocates of liberty in medicine call for free-market reforms as the only just and practical alternative to existing and proposed political controls.
Not only do politicians spend nearly half of all health-care dollars today, but they extensively control the so-called “private” insurance market. Health care, and particularly health insurance, is already mostly controlled by politicians; proposed “reforms” such as those offered by Obama threaten merely to expand those controls.
Yet Obama repeated the lie, ironically, in the very sentence in which he accused his critics of lying. Obama said health policy “should be an honest debate, not one dominated by willful misrepresentations and outright distortions, spread by the very folks who would benefit the most by keeping things exactly as they are.”
Obama steadfastly refuses to acknowledge those who seek to reform health care by restoring free markets and individual rights in medicine.
In today’s mixed economy, health insurance companies are neither entirely private nor entirely controlled by politicians. Thus, health insurance is not characterized by the price distribution and firm contracts of a free market. It is characterized by political distortions. This significantly complicates the question of whether insurance companies ration care and whether this rationing is political in nature.
Before turning to particular claims about insurance rationing, it is useful to briefly review some of the major political distortions of the insurance market. (Many of these points are covered by Lin Zinser and Paul Hsieh.)
* Through tax policy, the federal government drives the expensive, non-portable, employer-paid insurance system.
* Because most people are locked into the insurance program offered by their job, there is very little market competition for health insurance.
* The federal government imposes various other controls restricting entry into the health insurance market.
* State controls also impede a competitive insurance market.
* Because of the tax distortions, employer-paid insurance has moved away from real insurance (see my previous article) and toward pre-paid health care, leading to exploding costs.
* Because politicians have driven “insurance” into pre-paid health care, today most people rely on a third party to pay for all or nearly all of their health expenses, rather than pay health providers directly for routine care.
* Federal and state politicians significantly control whom insurance companies must cover and which benefits they must finance. This again helps turn insurance into pre-paid health care, contributing to exploding costs.
* Because of political controls, some people wait to get insurance until they get sick, or they change to more costly insurance once they get sick. This drives up costs to insurance companies and premium payers.
* Because politicians have forced insurance into a pre-paid health model, insurance is increasingly used to pre-pay minor expenses but not cover (or not entirely cover) major ones. Thus, in some respects insurance has been turned on its head. Rather than cover only high-cost, unexpected costs, now insurance covers low-cost, routine care and not all emergency care.
* Because of ever-changing political controls at the state and federal level, insurance companies simply cannot offer long-term or stable insurance contracts. Stable contracts have effectively been outlawed. One result has been that insurance contracts have become partly vague and ambiguous. (See also my article on pre-existing conditions.)
* One consequence of the host of political controls on health insurance is that, to control skyrocketing and unpredictable costs, insurance companies have sometimes turned to capricious methods of rationing care. Insofar as they do so, they do so because they are, in effect, agents of political controls, not part of any free market.
Despite the fact that political controls have largely destroyed the free market in health insurance, Obama and his supporters use existing insurance as their foil to advocate more political controls.
Downplaying the many cases of overt political rationing of health care, such as Jacob Appel describes, and ignoring existing political controls on health insurance, Obama and his supporters pretend that the way to overcome the partial rationing of the mixed economy is to adopt the total rationing of politicized medicine.
Of course, Obama is coy about the rationing his proposals would entail. On June 24, Obama said, “Maybe you’re better off not having the surgery, but taking the painkiller.”
By August 11, Obama was pretending that everybody can get all the “free” health care they could possibly desire, an impossible promise. Yet, rather than outright deny the rationing of politicized medicine, Obama tried to turn the debate by tarring the status quo with rationing:
The underlying argument I think has to be addressed, and that is people’s concern that if we are reforming the health care system to make it more efficient, which I think we have to do, the concern is that somehow that will mean rationing of care, right? — that somehow some government bureaucrat out there will be saying, well, you can’t have this test or you can’t have this procedure because some bean-counter decides that this is not a good way to use our health care dollars. And this is a legitimate concern, so I just want to address this. …
Another way of putting this is right now insurance companies are rationing care. They are basically telling you what’s covered and what’s not. They’re telling you: We’ll cover this drug, but we won’t cover that drug; you can have this procedure, or, you can’t have that procedure. So why is it that people would prefer having insurance companies make those decisions, rather than medical experts and doctors figuring out what are good deals for care and providing that information to you as a consumer and your doctor so you can make the decisions?
Here Obama conflates clear insurance agreements, by which consumers agree ahead of time which services insurers will cover, with arbitrary decisions by insurers to deny care in some cases. Thus, Obama attempts to treat any sort of distribution system, including the price distribution of a voluntary market, as “rationing.” Only decisions that are ad hoc, and not specified by contract, plausibly count as rationing, and these are precisely the sorts of decisions driven by political controls.
An August 22 article by Michael Booth and Jennifer Brown of the Denver Post describes some examples of health-insurance rationing. The title of the article illustrates the strategy of Obama’s “reformers:” “Health care reform advocates say insurance companies already ration coverage.” The journalists write:
All health insurance plans, whether privately run for profit or financed by the government, rely on a structure where some services are not covered. From prescription drugs to experimental surgeries, patients face limits in a plan’s fine print or from people paid to make choices in a process called “utilization review.”
“No system is wealthy enough to pay for every single request that comes from doctors and hospitals,” said Wendell Potter, a former national vice president with insurance giant Cigna who now argues in favor of sweeping reform.
“Insurance companies have corporate bureaucrats on staff who many times will deny coverage for something recommended by a doctor. It happens all the time, in the name of ‘not medically necessary,’ ” Potter said.
The Denver Post article contains not a single mention of how existing political controls have fostered such problems, nor how true free-market reforms would restore competitiveness and accountability to health insurance companies. Instead, the “debate” is summarized as the (ill-defined) “rationing” of the status quo versus the rationing of Obamacare.
On a truly free market, health insurance companies would compete, in part, on clarity of contract (as Brian Schwartz suggested to me). Moreover, the government would resume its proper role of ensuring enforcement of contract and resolving contractual disputes.
However, on a free market, insurers and their clients have every right to voluntarily agree to terms. As with the fictitious Twentieth Century Motor Company, people could voluntarily agree to enter a system of rationing, such as one involving ad hoc decisions about medical necessity. Significantly, on a free market, people would also be free to exit such a system. No doubt practically everyone would prefer a stable, long-term, well-defined insurance contract — if only insurance companies were free to offer one. Such contracts would involve no rationing when insurers declined to cover care explicitly not covered by the contract.
Today health rationing is carried out by government agencies that control vast tracts of health care. To a minor degree, it is carried out by insurers acting under severe political controls. A free market features no political rationing. Any rationing in a free market must involve people voluntarily entering into contracts that allow it, and in such cases people are free to exit the system.
The advocates of politicized health care ignore the nature of rationing. They try to turn any sort of distribution into “rationing,” and they ignore the fact that existing rationing in health care is caused by political controls. Their goal is to promote the notion that health care is collectively owned by the nation and properly distributed by politicians, rather than owned by its producers and properly distributed through voluntary exchange.
Those who value their lives, their health, and their liberty won’t let such “reformers” get away with their distortion of the language or their political take-over of health care.
