What's Really Wrong with the Health Care Industry

By Vijay Boyapati

On May 3, 2010, I gave a talk to a class of students studying public health policy at the University of Washington. I began the talk by asking the students how many of them believed that the current healthcare system in America was flawed; everyone in the class raised their hand. I then asked how many of them believed that the recently passed healthcare legislation, supported by President Obama, was a step in the right direction in reforming America's healthcare system. Once again, everyone raised their hand.


While I agreed with the students on the first point, I disagreed that the recently passed legislation was a step in the right direction. My aim in giving the talk was to present the students with a consistent, libertarian, free-market perspective on healthcare reform, covering both the morality and the economics of why it would be desirable to eliminate government interference in the market.

The Morality of Healthcare Reform

One of the most important factors animating the libertarian rejection of public policy in general is the recognition that any state action must ultimately resort to the use or threat of aggression. As Ludwig von Mises observed,

It is important to remember that government interference always means either violent action or the threat of such action. Government is in the last resort the employment of armed men, of policemen, gendarmes, soldiers, prison guards, and hangmen. The essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning.

Libertarians who value justice and recognize that the use of aggression cannot be logically justified must reject all state action in principle — this includes the use of aggression in implementing healthcare policy.[2]

The Economics of Healthcare Reform

A common argument advanced in support of greater government intervention in the American healthcare market is that a large and growing fraction of the gross domestic product (GDP) is spent on healthcare, while the results, such as average life expectancy, do not compare favorably to the Western nations that have adopted some form of universal healthcare. This argument is spurious for two reasons:

A growing fraction of GDP spent on healthcare is not a problem per se. In the early half of the 20th century, the fraction of GDP spent on healthcare grew significantly as new treatments, medical technology and drugs became available. Growth in spending of this nature is desirable if it satisfies consumer preferences.

Attributing national-health results to the healthcare system adopted by different countries confuses correlation with causation and ignores the many salient variables that are causal factors affecting aggregate statistics (such as average life expectancy). Factors that are likely to be at least as important as the healthcare system include the dietary and exercise preferences of a population.

Another argument commonly used in healthcare-policy debates is that there are almost 46 million people who have no health insurance at all.[3] Again, this is not a problem in and of itself. According to the National Health Interview Survey, 40 percent of those uninsured are less than 35 years old, while approximately 20 percent earn over $75,000 a year.[4] In other words, a large fraction of those who are uninsured can afford insurance but choose not to buy it or are healthy enough that they don't really need it (beyond, perhaps, catastrophic coverage).

The real problem with the American healthcare system is that prices are continually rising, greatly outpacing the rate of inflation, making healthcare unaffordable to an ever-increasing fraction of the population — particularly those without insurance.

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Vijay Boyapati is a former Google engineer. In 2007 he started Operation Live Free or Die, a grassroots organization to help Ron Paul's 2008 presidential campaign. Since 2009 he has devoted himself to studying Austrian Economics.