Licensing and Health Care

I’ve been writing about barbers, but at the end of the day a the more important instances of license-driven cartelization occur in the health care sector. When we talk about health care in the United States, I think it should be uncontroversial to say that we have a cost-growth problem. And as Adam Ozimek observers, one reason is that high-wage occupations are using licensing rules to stifle competition from cheaper alternatives. If you’re a good boy like me and go to the dentist regularly to get your teeth cleaned, you’ve probably noticed that the dentist doesn’t actually clean your teeth. A dental hygenist does. So why don’t the hygenists band together and cut out the dentist? Well, they frequently can’t:

For instance, many states have regulations preventing dental hygienists from practicing without the supervision of a dentist. Dentists have an average of six years more schooling than a hygienists, who on average have 2.6 years of post high-school education. In addition, dentists make on average $100 an hour, and are 80% male, whereas hygiensts are 97% female and make around $37 an hour. Kleiner and Park find that these regulations transfer $1.5 billion dollars a year from hygiensts to dentists. This is a highly regressive transfer to a male dominated, higher educated, higher paid job from a female dominated, lower educated, lower paid job. In a very similar vein with likely similar impacts, many states restrict the ability of nurses to practice without the supervision of doctors. In fact these regulations are currently growing as regulators rush to restrict the number nurses working in retail health clinics in a variety of ways to prevent them from competing with doctors.

Not only does forcing hygenists to be “supervised” by a dentist raise the price of routine tooth-cleaning, it also raises the price of dental health services that really do require a dentist’s skill and training since it induces dentists to spend a share of each day shaking hands with patients who don’t need their expertise. This creates artificial scarcity in the supply of high-end dental services.

The bigger issue — though harder to estimate — is the way that these rules stifle potentially enormous gains from organizational innovation. Imagine a world in which in order to make clothes you needed a license from the State Board of Tailors, and the tailor lobby manages to persuade the state to extend the tailor’s monopoly by saying that to sell clothing you need to be under the supervision of a tailor. This set of rules doesn’t just reduce competition in the fields of clothing manufacturing and retailing. It prevents the technological and organizational innovations that have brought us mass-produced clothing, and retail chains. The cartel would justify its existence in the name of high-quality and consumer protection. And it’s even true that if we all went to work in handmade shirts and bespoke suits that we’d be wearing higher-quality clothing. But the impact on overall living standards would be devastating. There’s no H&M; or Ikea of the health care sector, and there never will be without some relaxation of the rules governing who’s allowed to be a provider of health care services.


I’m perhaps more sensitive to this than most since I’m a first-generation political blogger and I can only imagine what the Massachusetts Board of Journalism would have done to me if it was illegal to provide news media services without a license back in 2002. But the potential social cost to letting professional groups insulate themselves from disruptive innovation is incalculable.