By:

Dave Kingsley

Time to Debunk the “Free Market Myth.”

    The American, healthcare system operates on the faulty assumption that private corporations will deliver medical care more effectively and efficiently than government. The pseudoscientific belief that a “free market” system will result in a higher caliber of service at a lower price is serving as justification for outsourcing medical care to corporate America. Consequently, the American people are paying more for medical care than U.S. peer countries and getting less care overall.

    The free market myth is easily debunked for many reasons, and following are four important ones: (1) the healthcare market isn’t competitive – prices are set through politics rather than through competition in a real market;[i] (2) investors extract excessive cash through financial engineering and political influence without reinvesting a reasonable amount for long-term improvement and innovation; (3) an oligopolistic trend is leading to a small number of powerful and dominant players in the marketplace; and (4) patients are not consumers and cannot negotiate prices for their medical care.

   When speaking to legislators or professional organizations, I’m becoming increasingly emphatic in telling them that outsourcing medical care to private industry is not capitalism. They need to quit thinking that it is. Furthermore, there is no evidence that government  does a worse job of running medical care systems.  Conversely, there is evidence that public run hospitals and nursing homes are managed better and at a lower cost than profit seeking entities. Indeed, handing over medical care to the likes of UnitedHealth, CVS/Aetna, and nursing home corporations has resulted in rigged markets, suppressed labor, and overpriced goods and services.  Economic power and the concentration of markets into an ever smaller number of corporate behemoths are draining healthcare resources into upper income wealth and harming the health and well-being of U.S. citizens.

The Trillion Dollar Medicaid Program is Dominated by Five Corporations: That’s an Oligopoly – not a Free Market

    An oligopoly is a structure in which entry into the market and prices are unduly influenced by a few big players.[ii] Although, the government – via the taxpayers – provide all of the funds for the massive Medicaid program, five corporations manage half of all state Medicaid funds.  As managed care organizations (MCOs), UnitedHealth, CVS/Aetna, Centene, Elevance, and Molina –  the “Big Five.”[iii] – are receiving half of the dollars flowing into Medicaid.

    Mega corporations such as UnitedHealth and CVS/Aetna are rapidly growing healthcare conglomerates spreading their influence across the entire healthcare industry through sales of Medicare Advantage and a wide array of other products and services in the $5 trillion healthcare sector of the U.S. economy.  Molina, Centene, and Elevance have focused more on Medicaid in growing their businesses than the “big two,” but are nevertheless finding lavish returns in the Medicaid space.

    The rapid growth and size of these MCOs presents the typical hazards of oligopolistic market structures: price fixing, continuous reduction in quality of service for the purpose of increased extraction of capital for shareholders, rent seeking through political lobbying, and media influence.  In 2000, none of the big five were in the top 30 of the Fortune 500.  By June of 2023, all but Molina had advanced into the top 25. 

    UnitedHealth with $324 billion in revenue is the 5^th largest corporation in the U.S. behind Walmart, Amazon, Apple, and Exxon Mobil.  CVS/Aetna, slightly behind UnitedHealth with $322 billion in revenue, is 6^th on the Fortune 500.  Elevance is ranked at 22 ($156 billion in revenue) and Centene is at 25 ($144 billion in revenue).[iv] In the past few years these companies have engaged in stock buybacks worth tens of billions, paid their CEOs from $20 to $30 million per year (not to mention board members and other executives), paid robust dividends, have had impressive increases in the value of their stock, and have expended huge sums in national and state legislatures and political campaigns for pursuing their interests over the public interest.

Medicaid is Characterized by Weak Regulation and Discrimination Against Low Income Americans

    Medicaid is poverty medicine.  It is lower tier medicine and far too often provides low quality and neglectful care.  Only the very poor can get Medicaid and in many states – including where the big five have contracts – beneficiaries are humiliated by government officials in the process of proving they are poor enough to qualify for benefits, and suffer the same humiliation in maintaining eligibility.

    Powerful corporations with weak federal and state regulators opens the door to abuse of people who qualify for Medicaid benefits.  The HHS Office of Inspector General has found that denials are excessively high and that states are doing far too little to monitor the common practice of denying care for the purpose of increasing returns on capitated rates.[v]

    In a free market, consumers have bargaining power.  If they are not satisfied with a price or the quality of a product or service, they can take their business elsewhere.  Furthermore, it is assumed that the two parties haggling over prices have equal access to all the information of relevance in the negotiations. In the rigged U.S. health care system, the lowest income strata eligible for healthcare benefits are stigmatized as lazy and dishonest. Their strength in the political process is nonexistent.

    In an oligopoly, choices are few and collusion between the providers regarding pricing puts buyers at a disadvantage.  Opportunities to shop around and haggle over the prices of medical procedures are not feasible when buyers depend on professional advice provided by sellers – often in emergency situations. Benefits and distribution of funds throughout the system are not driven by the power of people to bargain. Rather it is a system of winners and losers in the political process. In the current corrupt political process, wealth is power. Therefore, residents in the lowest economic strata have the least amount of power and are treated accordingly.

Rent Seeking

    Rent seeking is a synonym for excessive extraction – a technical economic term which refers to companies that “seek to gain added wealth without any reciprocal contribution of productivity.”[vi] In the case of Medicaid, U.S. residents have a right to receive the quality of care for which they are paying at the best possible price.  Unfortunately, there are no real evaluations of what taxpayers  are receiving given the amount of their tax dollars going to investors and lavish executive and board compensation.[vii]

     Corporations can take excess cash from public funded healthcare when industry lobbies buy unjust influence over the political process.  In 2023, United Health alone spent $1,246,462 on political contributions and $8,990,00 on lobbying.[viii] When U.S. campaign and lobbying expenditures are added up, contributions from corporations in the health insurance, real estate, finance, hospital, and nursing home industries sum to billions in political payouts for enhancing shareholder value at the expense of healthcare quality and equity. 

It’s All About the Narrative, Nay the Propaganda

    No other economically advanced country in the world has a separate medical system of inferior quality for poor people, denies access to a large number of poor citizens it is supposed to serve,  and diverts immense amounts of the program’s funds to the wealthiest citizens.  The U.S. does this very thing with very little pushback from the public. Why?

    A narrative without opposition simply works.  Misguided, faux conservatives have a simplistic view that can be reduced to this:  “Government bad, profit seeking corporation good.”  Whether it’s libertarianism, extremist-rightwing-Christian Nationalists, or conservatives in general, all forms of private enterprise are considered special and even holy among some groups.  President Reagan was responsible for selling the idea that government was responsible for societal problems and that we needed to look to capitalist enterprises to save us.

    Chicago school economics which are more theology than science and its patron Saint Milton Friedman became de rigueur in the 1970s.  The notion that government should step back and turn over its functions to corporations caught on with a boost from Ronald Reagan and Margaret Thatcher.  Throughout the 1980s Friedmanomics jelled into a fanatical and aggressive “starve the beast” movement. 

    Even the New Democrats formed in the Clinton era bought into the need to scale back previously institutionalized and cherished New Deal and Great Society programs.  During his administration’s ostensible “reform of welfare,” President Clinton announced that the “era of big government is over.” Most of the scaling back was directed at poor peoples’ programs.

The Consequences of Government Funded Healthcare Privatization are Dire & Getting Worse

    Most Americans are aware that the U.S. spends two to three times as much on healthcare per capita than peer countries in Europe and Asia.  Also, a large proportion of the population feels the burden of health insurance premiums, co-pays, and deductibles.  In peer countries, bankruptcy due to medical bills and total lack of access to medical care for millions do not occur.  Taxpaying residents of the U.S. are forced to choose between necessities such as food and needed medication for diabetes and other illnesses.  Corporations force the people responsible for their revenue, i.e., the taxpayers, into these dire situations while they pay CEOs tens of millions of dollars in revenue, buyback tens of billions of dollars in stock and pay robust dividends to investors.    

The corporate exploitation of Americans is not inconsequential.  The amount of wealth passed up from lower SES groups to the wealthiest Americans is creating a dangerous maldistribution of overall wealth in the U.S. economic system.  Indeed, life expectancy is declining, public confidence in institutions of government is weakening, and democracy is becoming less sustainable. The question is, “When will taxpayers say enough?” UnitedHealth, CVS/Aetna, and the variety of other corporations profiting from Medicaid, Medicare, Obamacare, and a plethora of tax write downs will grab whatever the traffic will bear.

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[i] For excellent insights into pricing through politics (i.e., “rent seeking), see Nobel Prize winning economist Joseph Stiglitz’s discussion The Price of Inequality, pp. 28-51.

[ii] For a more elaborate discussion of the meaning of oligopoly and the implication of this market structure for a specific sector such as healthcare see: https://www.investopedia.com/terms/o/oligopoly.asp.

[iii] See for instance.: https://ccf.georgetown.edu/2021/02/23/medicaid-managed-care-2020-results-for-the-big-five/

[iv] These data are from: https://fortune.com/ranking/fortune500/2023/search/.

[v] https://www.oig.hhs.gov/oei/reports/OEI-09-19-00350.pdf

[vi] https://www.investopedia.com/terms/r/rentseeking.asp

[vii] It is important to note that shareholders, executives, and board members are particularly well compensated when stock prices rise.  Therefore, stock buybacks are driven by placing the culture of wealth enhancement over a culture of service to the public, employees, and communities.

[viii] https://www.opensecrets.org/orgs/unitedhealth-group/summary?id=D000000348