Quarterly Journal of Austrian Economics
Review of Priceless: Curing the Healthcare Crisis, by John C. Goodman
Volume 17, No.1 (Spring 2014)
In Priceless: Curing the Healthcare Crisis, “libertarian” economist John C. Goodman has written one of the most misperceived books in recent memory. While as of this writing Priceless has been published a little more than a year, it seems to have been favorably blurbed and reviewed across a wide range of ostensively right-leaning publications far more than it has been actually read. Clearly something is amiss when statist neoconservative to free-market anarchist reviewers seem to all agree that Priceless is a wonderful opus. This reviewer wonders if most if not all of them read the entire book, which is incoherent and unabashedly statist, with a focus on replicating market efficiency through state planning.
Some of Goodman’s arguments against the mainstream progressive policy perspective are strong. Progressives feel that low-income households should receive free care at the point of service. But prices and quality go hand-in-hand; prices signify quality, and thus cannot be removed from markets without quality being adversely affected. Besides making health services more dangerous, eliminating money has paradoxically exploded costs. Costs in terms of time are now higher and in strata of waiting: first in pain and discomfort for the next available appointment (days in the U.S., weeks in Canada); and then when the patient arrives at the appropriately named waiting room (say, for an hour); and then finally, in the examination room (for a half to full hour of time).
Progressives think trading away money for time is in the best interests of the poor, who have low opportunity costs of time. This is where Goodman struggles. He wants to portray the poor as worse off under progressive policy, but seems befuddled. Yes, the rich, celebrities, and friends of physicians are routed to the front of waiting lines, but queue jumping is irrelevant, as most of the middle class does not have it as an option either.
Goodman’s instincts are correct here, but the embarrassingly elementary point he misses is that the poor have high time preferences for consumption, and this is what makes it so sadistic of “compassionate” progressives to force them to wait four hours for a strep test at a state-run clinic. Patient A feels hot with a fever, but after three hours of waiting decides she probably does not have strep (when she actually has dangerous meningitis), goes home to a familiar bed to “sleep it off” only to end up dying early the next day. This is not implausible, as Goodman reveals that the rate of queue abandonment at emergency rooms has been found to be about 20 percent (p. 22).
Where Goodman is refreshingly different from so many other conservative writers is in acknowledging the sometimes terrible quality of U.S. care. In Priceless, he adduces his own shocking figure of up to 187,000 inadvertent patient deaths in U.S. hospitals per year (p. 95).1 However, Goodman does nothing to drive home to his readers the significance of this carnage. This simple mean of 512 deaths per day is the equivalent of the 9/11 terrorist attacks (approximately 3,000 dead2) occurring every six days for a total of sixty-two 9/11 calamities per year. This does not include approximately 6 million annual injuries and infections (p. 95).
Amazingly, even after underscoring the dangers of stripping prices (and thus quality) out of health-services markets, Goodman embraces the typical conservative/Republican yarn that obscenely high awards given in dubious malpractice cases are a significant, if not the main, driver behind the cost explosion in U.S. care.3 In terms of supporting this, he does not get very far. He regurgitates the standard adverse-outcome taxonomy of the establishment medical journals where unfavorable outcomes fall into three categories: malpractice (25 percent), preventable with no negligence (33 percent), and other (42 percent) (p. 190).4 Even by this methodology, which could be said to greatly understate malpractice, only 2 percent of “genuine” cases are filed with only a fraction of those receiving an award for damages (p. 190).
Now for the really bad of Priceless. Goodman:
Healthcare [sic], we have seen, is a complex system, undoubtedly the most complex of all social systems. None of us can ever fully grasp or understand a complex system. It is futile to even try. We should understand, however, that perverse incentives usually lead to perverse outcomes. Therefore, it is almost always a bad idea to create them. Where we discover them, it is almost always wise to eliminate them.
Perturbations of complex systems always produce unintended and unexpected consequences, even when all we are doing is eliminating perversion. Nonetheless, the wise course of action is usually to admit our ignorance and avoid giving people incentives to engage in antisocial behavior. (p. 309)
For all the alleged futility in attempting to understand a complex system, Goodman’s book is certainly one more protracted exercise in it. Perverse incentives do not usually lead to perverse outcomes, they always do or they would not be perverse. If perturbing a complex system always produces unexpected and unintended results, how are Goodman’s many policy prescriptions somehow exempt from this? If the “wise course of action” is usually to concede ignorance and avoid implementing perverse incentives, what is the point of his book? One thing is certain: Goodman is indeed a man with many central plans and perturbations in mind.
In one of several unintentionally funny statements in the book, Goodman writes, “[s]ince free or highly subsidized care is already largely available in the United States, what is needed is not an alternative to free care but a way to subject the free care system to market forces” (p. 122). By market forces, you might assume he means free markets, but you would be wrong. The “father of health savings accounts (HSAs)” is not too impressed with them anymore. Now he has a new car for conservative dogs to chase: Roth HSAs, which would be funded by after-tax dollars and allow tax-free withdrawals (p. 152). Their adoption would end tax-free, employer-provided health benefits. To Goodman, this tax change represents a “level playing field,” but it is a tax-rate increase for workers receiving health benefits through their employers who do not qualify for or receive a compensating tax-rate reduction on income or a subsidy.
The other purported advantages of Roth HSAs are one, that they are the “most compatible with subsidizing health insurance with lump-sum tax credits,” and two, that big-government Republican John McCain favors them! The chutzpah of it all and how Goodman has gotten away with it for so long is stunning, never mind there would be no role for HSAs in a real free market anyway.
Another surprise is that the Children’s Health Insurance Program (CHIP), i.e., “children’s Medicaid,” is (or at least its appropriations are) part of the free market as well. Goodman proposes that CHIP spending be redirected into vouchers that pay for parents to enroll their children in either their employer’s health insurance plan or another private plan (p. 168). Even better, to him, is using Medicaid and CHIP appropriations to subsidize private insurance so all members of each household can get enrolled in the same health insurance plan (p. 168).
Goodman is afraid that real free markets are too extreme to advocate to American voters, so here is his macro plan:
Accordingly, I propose a new approach. It combines an old concept, casualty insurance, with two relatively new concepts: universal Health Savings Accounts (to control demand) and a proliferation of centers of excellence or “focused factories” (to control supply). I believe this is the approach that would naturally emerge if we relied on markets, rather than regulators, to solve our problems. (p. 173)
It is another amazing contradiction. Do not educate people on the benefits of free markets and advocate them. No, our best hope is regulating our way toward what would emerge if we did not rely on regulators!
The next idea is breathtaking: resurrecting fee schedules (p. 181). Patients would be allowed to pay the additional expenses for out-of-plan doctors or facilities out of pocket or from an HSA, but they better not complain too much as Goodman has little patience for people getting too uppity about their freedom:
I am not suggesting that we give the insured complete freedom of choice…. I am suggesting that if people were largely free to make their own treatment choices and the market were free to meet their needs, health insurance would take a major step in the direction of the casualty model (pp. 182–183, emphasis added).
In other words, return prices to medicine to fix them. Never mind that Goodman either forgot or never knew that “fees” replaced prices in the U.S. as one of a number of anti-competitive actions by organized medicine to significantly boost revenues and physician incomes (Rockwell, 1994). Thus the whole flawed premise of the book: the last thing that the state-cemented medical cartel wants is prices, genuine markets, and transparency returned to medicine. No matter anyway, since Goodman is not really interested in such prospects either, and no proposal in his book moves us even a single step down that road.
To keep Medicare afloat, Goodman would squeeze its current distinct parts into a single plan with a single premium (covering about 15 percent of the costs of the average enrollee) and a $2,500 deductible. Current Medicare enrollees would be allowed to choose the new system over the old one, but new enrollees would be forced into the new plan. Current enrollees who opt for private plans will have a “risk-adjusted” premium paid for them by the government that would cover the difference in costs above the aforementioned 15-percent level to maintain comparable coverage (pp. 230–231).
For current workers, health insurance retirement accounts (HIRAs) would be funded by a new 4-percent tax evenly split between workers (2 percent) and their employers (2 percent). With the Chilean social security system as a model, the revenue would be invested by “private security agencies” (read: Wall Street) which would supposedly compete against each other not on rate of return but on the nebulous basis of “reporting, accounting, and other services (p. 242).”
It gets even better. HIRA holders “own” their accounts, but if they die before becoming Medicare-eligible, their HIRA gets redistributed to all other working HIRA owners. Risk-adjusted premiums in the new comprehensive health plans would be covered by the government early on, but eventually HIRAs with high account balances would be taxed to pay risk-adjusted premiums for HIRA holders with low account balances (pp. 242–243).
At retirement age, HIRA holders would be forced to choose one of three options. The first is giving the HIRA to the government in return for a comprehensive Medicare plan. The second is exchanging the HIRA for an annuity paying for premiums and care. The third is keeping the HIRA to pay premiums, but being subject to an annual withdrawal ceiling set by the government (p. 243).
Goodman advocates three alternatives for Medicaid (p. 244). The first one is to abolish it and CHIP and place their members into private plans with government vouchers of $2,000 per person. What is Goodman’s response to critics who object that $2,000 is arbitrary or too low? The funniest part of the book: Goodman will not abolish Medicaid after all! It will act as a “stopgap” with low-income households spending their government vouchers there or at a private plan (pp. 252–253).
The second alternative for Medicaid is to open it up to all households regardless of income. The same $2,000-per-person/$8,000-per-
Just on its almost proud embrace5 of statist corporatism alone, it is stunning to this writer to see that this book was published by the Independent Institute. To paraphrase what James Taranto said about his former employer (The Heritage Foundation) when it endorsed the individual mandate, I thought they were for freedom.
HealthGrades. 2004. “Patient Safety in American Hospitals.” Health Grades, Inc. Available at http://www.healthgrades.com/
Institute of Medicine. 1999. “To Err is Human: Building a Safer Health System.” Available at http://tinyurl.com/234nxwf.
Rockwell, Llewellyn H., Jr. 1994. “Medical Control, Medical Corruption,” Chronicles. June, pp. 17-20. Available at http://www.lewrockwell.com/
Starfield, Barbara. 2000. “Is U.S. Health Really the Best in the World?” Journal of the American Medical Association. July 26. Available at http://silver.neep.wisc.edu/~
- 1. While Goodman’s 187,000 figure is higher than the Institute of Medicine’s 1999 estimate of 44,000–98,000 annual preventable deaths, it is lower than the Health Grades (2004) estimate of 195,000 annual preventable deaths and definitely lower than Starfield’s (2000) estimate of 225,000 with a high range of 230,000 to 284,000 iatrogenic deaths.
- 2. This is a round generic estimate, based on estimates from various sources which put the death toll from 2,995 to 3,000.
- 3. The most extreme versions of this argument come from Republican politicians and sympathetic writers such as Sally Pipes. In a 2004 campaign speech, George W. Bush insinuated that the only driver of the continual cost explosion in U.S. care was that of excessive awards from dubious malpractice cases.
- 4. The only source Goodman lists for these adverse-outcome proportions is “National Center for Policy Analysis” (p. 190).
- 5. On page 254, reflecting on this proposal to make Medicaid a “public option,” Goodman writes, “(I realize this ‘public option’ proposal puts me in the same camp with many on the political left, but public policy sometimes creates strange bedfellows.).” This is hilariously ironic, as most readers of these pages would reasonably conclude that there are fewer differences between Goodman and his progressive opponents than Goodman imagines.
Cite This Article
Steinreich, Dale. Review of Priceless: Curing the Healthcare Crisis, by John C. Goodman. The Quarterly Journal of Austrian Economics 17, No. 1 (Spring 2014): 117–124.