Matt Yglesias has written a handful of very smart posts on barber shop regulations which are a pretty good examination of public choice theory. Today he goes a step further and discusses the problems with healthcare cartelization, riffing off this post by Adam Ozimek on why liberals should care about occupational licensing. Here’s Ozemik:
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.
Yglesias points out that not only does this raise the overall cost of healthcare by creating artificial scarcity in dental services, it also stifles innovation in the medical field:
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.
This is absolutely correct, and one reason why no matter how we reform the health insurance industry, without reforms to the healthcare supply-side we’ll continue to face an artificial scarcity of health services and providers, decreased access to healthcare and higher costs. Allowing low-cost clinics to set up shop and perform basic medical services without the supervision of a doctor is one step. There are many others as well, including allowing dental hygienists to perform routine cleanings without a dentist present. But organizations like the AMA create all sorts of artificial barriers to entry, including caps on medical and nursing school slots available and rules which require high-cost doctors and dentists to oversee relatively low-skill procedures. Getting around the medical cartels is no easy task, either, especially since it’s more likely that any reforms to the system will benefit the entrenched power structure rather than the competition.
For a somewhat more radical take on the cartelization of healthcare services, see Kevin Carson’s excellent discussion of ‘open-source heatlhcare’.
This also reminds me of Brad DeLong’s healthcare reform proposal from way-back-when – something of a knock-off of the Singaporean model. So-called ‘barefoot nurses’ or ‘barefoot doctors’ were part of that proposal. Essentially these are low-cost, service-specific providers of very basic healthcare services, the idea being that not all our problems need to be handled by a doctor who comes with a very expensive medical school pricetag. Midwives also function this way, providing homebirth services at a fraction of the cost of hospital births.
Of course, many insurance companies won’t cover midwifery and I imagine the same would be true of many of these other low-cost providers. This makes expensive hospital births with insurance competitive with the price of hiring a midwife with no insurance, all of which artificially lowers the cost of hospital births to consumers on the front end, but drastically raises the costs on the back end in the form of higher premiums, deductibles, and so forth.
In other words, our healthcare system is a disaster and we haven’t even begun to fix it yet. Reform to insurance coverage – which is basically what the Affordable Care Act was – is only one step down a very long road.