A Health Care System Rent Apart

Republicans in Congress failed to fulfill their promise to repeal the Affordable Care Act (ACA), called by them “Obamacare.”  The fight over the fate of the ACA reflected a narrow ideological battle over health insurance in the United States.   At issue were different world views on who should provide health insurance (private firms, public programs, or both), who should pay for health insurance, what health care costs insurance should cover, and who should get insurance.  Many Republicans characterized this as an ideological fight between advocates for socialism (the ACA) and free market capitalism (repeal of the ACA).

Unfortunately this ideological crusade to repeal the ACA missed the fundamental issue.  Problems in so-called insurance markets are just a small part of the failures in the larger system of health care.  Making these insurance markets competitive is a false promise.

The health care system is far from a competitive marketplace, which is described by economists as a market where there are many buyers, many sellers, homogeneous products or services traded, low barriers to entrance, and good information about the attributes of the goods and services being traded.  The health care market does not come close to any of these characteristics except that there are many buyers (over 300 million Americans).

As I pointed out in an earlier blog on health care, the American health system fails dramatically in comparison to other rich countries in the world.  We dedicate much more of our national income to health care costs than many rich countries.  We provide health coverage (insurance, if you will) to a smaller portion of our population than others do.  And we Americans live shorter, less healthy lives.

One reason for this system in tatters is the role rent seeking played in the development of health care policy. (See my earlier blog on this concept of rent seeking.)  Princeton economist and Nobel Laureate Sir Angus Deaton explains well how rent seeking relates to our health care system:

“The United States spends 18% of GDP on health care yet has one of the lowest life expectancies of any rich country. If spending were reduced to 12% of GDP, in line with France, Germany, or Switzerland, a trillion dollars—$8,000 for every family—could be transferred out of unproductive activities and could supplement median earnings, the stagnation of which owes much to rising health-care costs. Much of that trillion dollars goes to enrich the owners and executives of drugs companies, device manufacturers and relentlessly consolidating hospitals. This rent-seeking is supported by an army of lobbyists: there are more than twice as many lobbyists for the pharmaceutical and health-products industry than there are Congressmen. All of this works to keep prices high, to force the government to buy any drug approved by the Food and Drug Administration, and to fend off the creation of an evaluative agency like Britain’s NICE.

“Perhaps the most egregious case today is America’s opioid epidemic, which in 2015 killed 16,000 people from overdoses of prescription drugs, in essence legalised heroin sold as painkillers. The producers of these drugs have made billions of dollars in profits.”*


There are a lot of individual changes related to rent seeking I would make in the health care system to make it work better.  For one example, we could allow the Federal government to negotiate with drug companies over the costs of drugs provided under Medicare.  Such negotiations were prohibited when Congress approved and President Bush signed the expansion of Medicare known as “Part D.”  Or we might once again prohibit drug companies from advertising prescription pharmaceuticals to the public, which has been shown to lead to increased unnecessary use of certain drugs.

But such policies are examples of insignificant changes if we do not face up to the fundamental question that Congress is avoiding.  Why do we pay so much for and get so little from our health care system?

Part of the answer to this vexing question is that every time a change is proposed we all first ask, how is this going to affect me?  What am I going to lose if we put a new system in place?  Consumers, drug companies, doctors, hospitals, nurses, and every other group that is part of this system have a stake.  How do we transcend this natural tendency to concern ourselves only with ourselves?  Like the drug companies Deaton describes, we are all rent seekers in the politics of health care.  We all want to get more and pay less.

There is an alternative mindset.  I have written before about the idea from American philosopher John Rawls who developed a theory of justice.  A Rawlsian approach to health care reform would have us ask not what the system would do for us personally.  Rather the question would be, what should health care look like if I were ignorant of my personal position?  What if I did not know whether I am a doctor or a patient?  Rich or poor?  Young or old?  Male or female?  Employed or disabled?  Robust or with chronic health problems?  Living in an urban or rural setting?  A nurse or a drug company executive?  By pretending to be ignorant of our own particular circumstance, we could be deciding what health care system works better for all people.  We would then weigh the risks and benefits of a new system regardless of the particular circumstance in which we find ourselves.  This mindset recognizes that we are all in this together (one nation, indivisible?).

It is not going to be easy to make a better health care system because we are starting from a situation that is rent to pieces.  Ideological debates over insurance markets are not going to address the fundamental problems we have.  There are lots of examples from other countries of what works better, what provides better health at dramatically lower costs.  Let’s demand our members of Congress do for us the hard work of making the system better.  Let’s expect a system that works for us whatever our place in society.


*Deaton, Angus. (2017). A Question of Inequality: IF the State Got Out of the Redistribution Business. The Economist, July 15, 2017. p. 13.

Mark W. Anderson

About Mark W. Anderson

I am proud to be a Mainer, born in Caribou and schooled at Brewer High School, Bowdoin College, and the University of Maine. I am grateful for a 35 year career at UMaine, the last decade in the School of Economics.