The Free Market Prescription for Soaring Healthcare Costs

America’s healthcare system is at a crossroads. Despite repeated promises from elected officials to rein in costs, healthcare spending in the United States continues to increase at an alarming rate. In 2022, the U.S. devoted 17.3% of its GDP to health expenditures, nearly 40% more than Germany, the next highest-spending G-7 country. This excessive spending is not just a matter of abstract concern. It has real, tangible impacts on American families, businesses, and the nation’s fiscal health.

For years, rising premiums for job-based health insurance have suppressed wage gains for many households. Meanwhile, the federal government’s debt burden grows at an alarming rate, with rising expenses for Medicare and Medicaid as primary culprits. The situation is untenable and demands urgent action.

However, the solutions proposed by many policymakers – more regulation, price controls, and government intervention – have consistently fallen short. The Affordable Care Act was enacted in 2010 with the promise of controlling costs. Since then, National Health Expenditures as a percentage of GDP have risen, not fallen.

The core of the problem lies not in a lack of government intervention, but in the disconnect between healthcare pricing and market forces. In a functioning market, prices are set based on the marginal costs of providing services. However, in the U.S. healthcare system, because of regulations and an opaque pricing structure, fees are often sharply disconnected from basic costs. 

To solve this issue, we need to reduce the external factors which interfere with the healthcare system. The solution lies not in more government control, but in harnessing the power of market forces.

One key step towards market-based reform is promoting price transparency. The Trump administration’s rule mandating that hospitals post their prices publicly was a step in the right direction, but implementation has been lacking. Three years after the rule took effect, 75% of American hospitals are still not adhering to it. Enforcement of this statute could help alleviate healthcare inflation by giving consumers the information to make cost-conscious healthcare choices.

Another important element of market-based reform is empowering patients through Health Savings Accounts (HSAs). HSAs give patients more control over their healthcare spending, encouraging more conservative spending on the part of the consumer.

Regulatory reform is also essential. Nearly three dozen states still have certificate of need laws, which require hospitals to secure government approval to expand their facilities, build new ones, or offer new services. These outdated regulations restrict care and increase costs. as evidenced by the fact that per-capita health expenditures are 11% higher in states with need certificates compared to those who don’t.

Embracing market principles doesn’t mean abandoning all regulation or oversight. It means finding the right balance that allows for competition and consumer choice while maintaining necessary protections.

If we fail to address the rising tide of healthcare costs, we risk exacerbating healthcare inequities, particularly for low-income populations. Metropolitan anchor hospitals, which play a vital role in advancing health equity, are already operating on thin margins. The financial strain from these regulations could force these institutions to make tough decisions about their ability to provide care to every patient.

By encouraging price transparency, empowering patients through tools like HSAs, and cutting burdensome regulations, we can boost competition and help deliver affordable, accessible, quality care for all. Market forces have improved quality and reduced costs in every other sector of our economy. It’s time we allowed them to do the same in healthcare.

By promoting free market economics in medicine, we can transform our healthcare system into one that serves the needs of all Americans. In reducing healthcare costs, we are taking strides to ensure that both America’s physical and economic health will remain strong for decades to come.