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How to Cure Health Care: What We Can Learn from Milton Friedman

I recently read about Michael Ciampi, a doctor from Maine who has stopped accepting payments from insurance companies, both private and public. The article states:
…the decision to do away with insurance allows Ciampi to practice medicine the way he sees fit, he said. Insurance companies no longer dictate how much he charges. He can offer discounts to patients struggling with their medical bills. He can make house calls.
One benefit to his new style of business is that patients who are self-employed, lack insurance or those with a high deductible will see Ciampi as having competitive prices for their medical needs. This is because the doctor has “cut [his] prices in half because [his] overhead will be so much less. I’m not a health care expert, but for quite some time I have been skeptical of insurance companies. I see insurance companies as playing the role of middle man, which in most other areas of economics creates higher costs. My esteemed economist Milton Friedman also recognized this. In his article “How to Cure Health Care” Friedman argues that third parties are (at least, partly) responsible for the rise in medical costs. He writes:
Two simple observations are key to explaining both the high level of spending on medical care and the dissatisfaction with that spending. The first is that most payments to physicians or hospitals or other caregivers for medical care are made not by the patient but by a third party—an insurance company or employer or governmental body. The second is that nobody spends somebody else’s money as wisely or as frugally as he spends his own … No third party is involved when we shop at a supermarket. We pay the supermarket clerk directly: the same for gasoline for our car, clothes for our back, and so on down the line. Why, by contrast, are most medical payments made by third parties?
Friedman goes on to explain how this came about back during World War II when employers first began offering medical coverage to employees (because the government placed wage control upon employers; hence employers offered other ways of payment to get around the regulation). The government quickly pounced on this to regulate it, but people objected. Thus, employers’ medical expenditures were treated as a tax-deductible expense instead being given as the employee’s income and subject to the income tax. Additionally, in 1965 the birth of Medicaid and Medicare brought another third-party into the marketplace of healthcare insurance: the government. In my next post I’ll write on how and why the government’s cost has gone from “an eighth of the total in 1919 to a quarter in 1965 to nearly half in 1997,” according to Friedman.