The year was 2003. My former wife and I were living in Nevada and expecting a child. Problem was, we were without health insurance and were faced with paying for the baby’s delivery and a subsequent hospital stay.
As a former health care senior administrator responsible for several medical centers in the Midwest, I figured I could exert influence to ensure that our bill was manageable. So a few days before my wife was admitted while in the throes of labor, I took the initiative and asked a Nurse Manager whether he could provide an itemized estimate of our hospital bill. Open-mouthed in disbelief at my question, he was clearly lost for words.
As an advocate for free market competition in the healthcare industry, I am astounded that a price list is not provided prior to medical services being rendered. Pricing is something that every consumer deserves to know in light of the fact that more than one-sixth of the U.S. economy is devoted to healthcare spending, a percentage that continues to rise every year. The ramifications of this are severe: higher costs for health insurance (even under the Affordable Care Act, a.k.a Obamacare), the perilous state of our nation’s flimsy safety net and our long-term fiscal woes.
Rand Paul, Republican Senator from Kentucky and a Presidential Candidate, says in his new book ‘Taking A Stand: Moving Beyond Partisan Politics to Unite America’, the problem with Obamacare, and even the old system, is that when insurance or government pays for the first dollar of healthcare, the consumer doesn’t care about the price and neither does the physician; without a market, the price keeps going up.
Paul, who is a board-certified Ophthalmologist, believes that consumer choice is the key to transforming today’s broken healthcare system into one that truly places the patient first. He bristles at the lack of thoughtful consideration on the part of political leaders with respect to a solution. He advocates a model that combines tax-free health savings for routine visits with a catastrophic insurance plan for serious health issues. Doing this, he says, would force healthcare providers to compete on price and quality care: two fundamental elements in a high-quality healthcare system. “
Higher Education Institutions are In Even Worse Shape
As with the healthcare industry, our nation’s colleges and universities are seeing a meteoric rise in the price of tuition. According to the College Board (a not-for-profit organization with a mission of promoting excellence and equity in higher education), the average cost of tuition and fees at a private four-year university is $31,231. This is an astonishing increase from the1971-72 price, when it was a mere $1,832 (in current dollars). At public four-year institutions, tuition and fees register in at about $9,139 for this year, versus less than $500 in 1971.
As a result of these seemingly unjustifiable price increases, the debt load carried by students and their families continues to soar to unprecedented levels. Shockingly, around $100 billion a year is being borrowed via an amalgamation of private and publicly-funded loan programs.
Why are prices continuing to rise? The answer is actually quite simple. Higher education institutions are responding to the bottomless sea of student loan money that’s readily available to them via student loans. So why wouldn’t they raise their rates, given their carte blanche status with lenders?
As I’ve stated many times, I do not have a problem with making money while delivering value. But what pains me here is that the educational institutions are blatantly taking advantage of consumers while delivering a questionable return on investment. Sadly, this rings true for both our broken healthcare system (low patient satisfaction levels) and also for higher education (high unemployment rates among new grads).
For whatever it’s worth, here is an example of what I mean. In 2013, Gordon Gee, President at that time of my alma mater, The Ohio State University, earned a whopping $6,057,615, according to the Chronicle of Higher Education, making him the top paid public College President in the country… all this on the back of students who endured massive tuition increases throughout his tenure.
Free Market Competition Is the Key
Economic theory tells us that competition is a key element of pricing. In healthcare, this should involve the creation of policy incentives that encourage competition based on cost, access and – perhaps most importantly – quality of care. In this model, consumers decide what they are comfortable with spending, based on their available financial resources.
Again, Rand Paul says in his book: “My healthcare plan would bring a real marketplace to healthcare delivery. Tax-free savings are a big part of this. I have long-supported making all medical expenses tax-deductible; allowing insurance to be bought across state lines; introducing state-level tort reform and empowering all citizens to save for their health expenses by removing high-deductible insurance policy requirements for access to health savings accounts.”
On the higher education front, I believe that the federal government should take the fiscally responsible position of limiting the amount of loans guaranteed to each student for their college education. Doing this would return accountability back to students and their families in terms of helping them make choices that are better aligned with their financial means.
In the end, whether it’s tuition or healthcare costs, prices become more affordable when consumers have the ability to choose how and where they are going to spend their hard-earned dollars. This, my friends, is the essence of a free market economy.
Michael Scott is a Denver-based journalist who specializes on the intersection between free markets and economic freedom. He is easily accessible on Twitter @biz_michael