How could a free market in health care bring lower costs?

Published June 06, 2012 in Short Answers by Mary Ruwart

QUESTION: Some people say that without all the government regulations on health care, the price of health care would drop. Could you explain this with a little more detail please?
 
MY SHORT ANSWER: Of course! Let’s use pharmaceuticals as an example.
 
In 1962, Congress passed the Kefauver-Harris Amendments to the Food and Drug Act, which greatly empowered the FDA. The time from the discovery of a new drug until it reaches the marketplace increased from 5 to 15 years; the cost of development increased to about $1.4 billion per new drug. 
 
About 80% of what you pay at the pharmacy is due to the 1962 Amendments. 
 
Any safety increases caused by this extra regulation were more than offset by the number of people who died waiting for life-saving drugs -- 4.1 million from 1962-2002. 
 
Because of the increased cost, fewer new drugs were developed. Since it is much cheaper to take pills than to have surgery or hospitalization, the loss of these new drugs (about half of the innovations) means higher health care costs. 
 
In other words, about 15-50% of current health care costs might have been saved without the 1962 Amendments, depending upon the assumptions that you make to calculate it. More importantly, somewhere between 4 and 16 million people died prematurely because these drugs never made it to market. 
 
Regulations on health care providers and hospitals also drive up costs. Because the regulations are so numerous, it’s not so easy to calculate their costs. My guess would be that these regulations compromise our health, safety, and pocketbooks just as much as the 1962 Amendments.
 
For more detail, you may wish to read Chapters 5 and 6 of my book, Healing Our World, available from the Advocates (2003 edition) or as a free download (1993 edition) at my website, Ruwart.com.
 
LEARN MORE: Suggestions for further information on this topic by Liberator Online editor James W. Harris: 
 
“How Lack of Consumer Choice Drives Up Health Care Costs” by Conn Carroll. This short blog entry from the conservative Heritage Foundation has a fascinating excerpt from a 2009 Atlantic magazine article. It points out that costs have dropped by 80% in Lasik surgery, which is not covered by insurance and where consumers shop and make informed decisions. That’s in sharp contrast to other medical services, the article points out.