Why healthcare should be managed as a natural monopoly

In industries in which there is inelastic demand, in industries in which people have to buy a product or service regardless of prices charged, free competition does not work in the best interest of customers. Prices charged are not inexorably driven down by competition to an optimum level for all stakeholders, to the lowest prices that fairly compensate all factors of production in the industry, including a rational return for the owners of capital.

In such industries the price system degenerates in such a way that providers can fix prices about the way they want, as in the case of high priced drugs, and engage in price discrimination, as in the case of medical services and treatments, that is, charging different prices to different customers. This behavior creates chaotic situations in which almost no one knows what many treatments will or should cost.

The solution is to regulate such industries by the state as full monopolies, or as what are called natural monopolies, in which prices are set by the state, as in the cases of electricity and water utilities. In such cases, under capitalism, effective and ethical regulators set customer prices at levels that provide competitive market prices for suppliers of raw materials, competitive wages and salaries for workers and managers, and competitive returns on investment for the owners of employed capital.

Medicine and health services are basically public utilities, since they are required, like electricity and water, demand being inelastic, caused by people not wanting to die or become impaired or go blind or go crazy and empathetic human beings not wanting to suffer grief and sadness caused by having to observe these things happening to people in droves, unnecessarily.

Consequently, if people cannot pay for their medical treatments providers have to treat them free for humanitarian reasons, and this forces and allows providers to set exorbitant uneconomic prices for customers that can pay to compensate for their losses on those that cannot or will not pay, causing chaos and widespread unfairness.

Therefore, as Obama pointed out, a decent society must provide affordable health insurance for everyone in order to control medical prices. What Obama did not fight hard enough for, unfortunately, is the solution for the whole problem, the logical conclusion that the federal government must provide affordable health insurance for everyone, aka Medicare for All, as a good natural monopolist, not only setting prices for national health insurance, but also fair and rational national prices for drug and medical treatments, just like good state regulators set prices for electricity and water.

The US is the only developed nation on Earth in which medical bills are a major cause of bankruptcy for citizens, a painful and degrading fate, but a fate less painful and degrading, perhaps, than people becoming debt slaves the rest of their lives, harassed by horrendous medical bills hanging over their heads, and bill collectors, caused by avoiding premature deaths and impairments, by agreeing to pay for drugs and medical procedures at the time of service, or die.

The only cure for this inhumane mental anguish, pain, and suffering is the federal government regulating the healthcare industry as a natural monopoly, using proven time-honored necessary and rational procedures under capitalism.

The federal government should allow insurance companies to sell all the life, automobile, and home insurance policies they want, but it should get them out of the business of selling health insurance; and federal regulators should start fairly and rationally regulating drug and medical prices, while providing rational and fair rates of return on invested capital for all providers, using standard procedures used forever in regulated natural monopolies.

Federal regulators probably won’t do this because politicians won’t let them do it, since elected senators, representatives, and presidents need campaign contributions from fat cats running the healthcare industry, one of the most profitable industries in the US, earning exorbitant irrational uneconomic profits because of being allowed to operate as an unregulated monopoly. To verify this just take a look at the stock price increases of healthcare corporations relative to the Standard & Poors index since the Crash of 2007.

To consider that satisfying the money, power, and fame needs and drives of one hundred thousand or so politicians, healthcare industry corporate fat cats, and healthcare industry professionals and employees, caused by not having a national health service, would count more in the US than curing the spiritual, economic, and psychological pain and suffering of one hundred million or more ordinary citizens caused by not having a national health service is mind boggling, another sad example of the venality, callousness, corruption, obtuseness, and ethical incompetence now reigning in Washington.

Richard John Stapleton is an emeritus professor of entrepreneurship, organizational behavior, ethics, and business policy at Georgia Southern University, who writes on business and politics at effectivelearning.net.