The Myth of Free Market Health Care

Senator Ron Johnson takes to the Wall Street Journal op-ed page to warn that the Affordable Care Act will lead to reduced levels of technological progress in medicine and reduced availability of health care services. His article is wrong in many points of detail, but it’s at its most insane on the conceptual level. The fundamental issue here is that Johnson starts from the premise that the existing health care system he likes so much constitutes a free market in health care. It simply doesn’t.

Almost fifty percent of health care dollars in the United States currently come from direct government expenditures on Medicare, Medicaid, and the like. And “private” health insurance is both heavily regulated in terms of coverage mandates, and heavily subsidized through the tax code. What’s more, medical research is heavily subsidized by the federal government through direct expenditures and through the patent process. America’s health care sector is innovative for the same reason our defense industries are innovative—they benefit from generous public subsidies. Removing all these subsidies might or might not be a good idea, but clearly one result of radically decreased spending on health care services would be a reduced pace of innovation in the sector. And yet I don’t think Senator Johnson’s main problem with the Affordable Care Act is that it spends too little money.

Conservative politicians often seem to me to be in this web of contradiction. On the one hand, they laud the consequences of generous public subsidies for the consumption of health care services and darkly warn of the perils of rationing. Then on the other hand, they insist that the projected rate of increase in government health care spending is far too high. Which is it?