Cheaper Than Free

The other night, over a few beers and board games, I got to listen in on a very interesting conversation about how much better Canada’s free healthcare system is than our own. At first I was stunned—I had no idea that Canadian doctors had stopped charging for their services, that pharmaceutical companies are distributing medicationFraud-150x150 to Canadians without asking for anything in return, and that medical-device makers build and innovate out of the kindness of their own hearts. But after a few minutes I realized, much to my dismay, that this wasn’t the case. Loosely translated, “free,” in Canadian, means “a large, public, third-party payer that collects money directly from individuals through taxation.”

With that new definition in mind, I propose we do what sounds impossible: provide care that is cheaper than free. Because let’s face it, free is expensive. In 2014, free cost roughly $618 billion through Medicare and $495 billion through Medicaid. Thus, the price tag for free healthcare was over $1 trillion, not counting the expenditures from the Department of Defense, the Department of Veterans Affairs, and other relatively minor sources of funding.

Canada is not all that different. The total health expenditure in Canada is about $219 billion. Roughly 70% of care in Canada is free. Canada doesn’t cover prescription drugs, home care or long-term care, glasses, or dental care—so those things aren’t free. About 30% of health care expenditures in Canada are not free by our working definition. Rather than a large, public, third-party payer, non-free services in Canada are provided by smaller, private, third-party payers.

So by my calculations, free is quite expensive. Policy experts, bar room philosophers, and everyone in between should start thinking about how we can make care cheaper than free. That’s not to say that the richest individuals shouldn’t bear the costs of the poorest, sickest individuals. And it’s definitely not to say that we should institute an obviously regressive tax policy, like Canada does when it taxes alcohol and cigarettes. What we need is redistribution coupled with first-party payment. Get people off of Medicaid and Medicare, and transfer the savings to the poor through Health Savings Accounts. Mandate catastrophic insurance but nothing more. Let people decide if they want more coverage, more out-of-pocket spending, or more savings for unforeseeable events.

This would create a healthy, functioning market—the same type of market that puts high-powered computers into the pockets of the working poor, the same type of market that creates incentives for car manufacturers to make safer cars, and the same type of market that will finally make space travel a relatively affordable reality. We don’t need an Elon Musk of healthcare, although with the right incentives we should see one. We just need to let the market make care cheaper—cheaper than free.

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